“Bloomberg – About two-thirds of the capital that investors could withdraw from Pershing Square Capital Management’s private funds was redeemed at the end of last year, according to a person with knowledge of the matter. Blackstone Group LP has been pulling its money, while JPMorgan Chase & Co. has removed Bill Ackman’s Pershing Square from its list of recommended funds for clients, the person said.”
They say there are three days in a man’s life that define him: the day he’s born, the day he dies and the day his institutional LPs start pulling their capital (nobody actually says this, I made it up for the purpose of writing this blog). Today, Bill Ackman is here to add a second notch to his legacy-defining belt.
Listen, it’s not unheard of to have some smaller, high net worth LPs redeem some cash when things get a little shaky. They most likely don’t have a deep enough capital base to ride out a cold streak from their managers, so it’s understandable. When the likes of Blackstone and J.P. Morgan start raining redemption requests on your lowly investor relations analysts, though, times are dire. Ackman has had a tough few years, marked by chronic underperformance, a gut-wrenchingly expensive divorce and what amounts to the hedge fund equivalent of a public caning from Carl Icahn. But this is America, and as far as I’m concerned, we love a great comeback story – which led me to wonder if 2018 would be the year Ackman would begin his. I can now say emphatically that 2018 will not be his comeback year, as a Pershing Square liquidation / return of capital seems to be a much more likely scenario. As the fund moves to satisfy redemption requests and liquidate hundreds of millions of dollars worth of positions into an already down year, Ackman (and his LPs) will likely be selling into deeper losses as they look for bids wherever they can get them (not ideal!), further tarnishing his record and reputation. The only thing he has going for himself at this point is that the funds are gated, limiting LP redemptions to 12.5% of their capital each quarter, allowing Pershing Square to clip some last minute management fees (isn’t the hedge fund comp model grand?).
Billy has had some high-profile misses in the last few years, getting torched most notably by Valeant and Herbalife (he also blew up his first fund, Gotham Partners, which is rarely mentioned in the media these days). While it’s fun to point out all of his mistakes, we’d be remiss not to revisit some of his biggest wins – because despite all of the negative news recently, he actually has made his investors money over the long haul, even beating out the broader market. He’s had great success in his Canadian Pacific, General Growth Properties and Wendy’s plays. His greatest, and savviest, play IMO, has to be his short of MBIA all the way back in 2002. Billy had a hunch that the mortgage credit markets were about to turn ugly and he wanted some action. He turned his sights on MBIA, who was buying mortgage credit risk by selling credit default swaps on securitized mortgage debt. Ackman went out to markets and started building a credit default swap position against MBIA’s own debt and shorting their stock, betting that the company was destined to payout on all the protection they sold, eventually bankrupting themselves. It took a few years, but the bet paid out handsomely during the 2008 financial crisis, proving Ackman was ahead of the hedge fund curve and launching him back into the limelight.
That was a long time ago, though, and investment management is a “what have you done for me lately” business. We should be thanking Ackman, though. Never has anyone provided so much content, both good and bad, for the financial media and its consumers. He has a complex tale that has been wrapped in a “truth is stranger than fiction” aura since he burst onto the scene. Whatever you think of the guy (and many hate him), we’ll be discussing his legacy for a long time – and we all know, he wouldn’t have it any other way (except the terrible returns, he’d probably take those back).