(Bloomberg) -- Shares in Bill Ackman’s new $5 billion listed investment fund and his asset management company rebounded in the second day after their IPO, as the hedge fund billionaire revealed he had put more of his own money behind the deal.
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Ackman bought 500,000 shares of Pershing Square USA Ltd., the closed-end fund, and 800,000 shares of Pershing Square Inc., the management firm, he wrote in an X post early Thursday.
Shares of Pershing Square Inc. climbed nearly 16% to $28 each on Thursday, while Pershing Square USA shares edged up 1.8% to $42.71. An investor who bought five closed-end fund shares in the IPO would still be down roughly 3%, when accounting for the stock distributed in the management company, according to Bloomberg calculations.
Ackman’s purchase, disclosed before regular trading hours started, came with an argument in favor of the shares being higher. The closed-end fund had traded at a large discount to its $49 of cash per share, and shares of the management company had on Wednesday traded below the $26.25 mark at which he sold a 10% stake to strategic investors in 2024, he said in the X post.
The stake sale took place when Pershing Square Inc. had roughly half the fee-paying assets under management it has now, he said.
The move came after the listing raised less than the $10 billion maximum amount Ackman had sought, with the $5 billion haul marking the bare minimum to keep the early investors who signed up to a $2.8 billion private placement locked into the deal. It also fell well short of the lofty $25 billion sum that Pershing Square sought to bring in about two years ago.
The combined offering lacked the scarcity that usually drives excess investor demand for IPOs, said Craig Stephens, founder of listing-focused website Access IPOs.
“If there’s no scarcity, investors are not interested because that is what leads to a price pop,” Stephens said.
In the end, Ackman and his affiliates contributed $200 million to the placement, up from $100 million in a previous filing. The contribution helped lift the final placement size to nearly $3 billion, according to a filing Thursday with the US Securities and Exchange Commission.
The banks that worked on the offering shared a combined fee, or sales load, of $45.3 million, the filing showed.
Permanent Capital Focus
Ackman, who made his name as an activist investor with successful bets on companies such as Canadian Pacific and General Growth, switched his focus to permanent capital after dealing with redemptions in the wake of a challenging investing period. From 2015 to 2017, his funds lost heavily on prominent trades in Valeant Pharmaceuticals and Herbalife Ltd.
Closed-end funds are attractive to asset managers because they create a quasi-permanent asset base to collect fees from, virtually eliminating outflow concerns, said Jack Shannon, principal of equity strategies at Morningstar Inc.
Yet their persistent trading discount to their underlying investments have weighed on their popularity, and these discounts also make it difficult for their promoters to raise more equity.
“You sacrifice ease in raising additional capital,” Shannon said.
In an effort to overcome investors’ lukewarm enthusiasm for such vehicles, Pershing Square USA has no performance fees, and the IPO offered investors a free share in the management company, Pershing Square Inc., for every five they bought in the fund. With Thursday’s gains, IPO investors were nearly back to flat on their investment across the two securities.
While warning investors prominently in its filing that its shares could trade below the value of assets, Pershing Square USA specifically said that its structure avoids the marketing limitations, ownership restrictions and unfavorable tax treatment for US taxpayers that have contributed to the steep discount for London-listed Pershing Square Holdings Ltd.
The assets under management in Ackman’s European closed-end fund, which went public in 2014 and charges performance fees, have grown from $6.2 billion in 2014 to $15 billion as of Dec. 31, the filings show. However, it currently trades at a discount to net assets of more than 30%, according to data compiled by Bloomberg.
The task of narrowing Pershing Square USA’s discount to net asset value is made more difficult because of the lack of a high dividend yield to attract the traditional closed-end investor base, according to Shannon.
“Instead, you’re left with mostly sentiment driving the price, which is harder to forecast,” he said.
Ackman and Chief Investment Officer Ryan Israel plan to take investor questions on X on Friday, Ackman said in the X post.
--With assistance from Bailey Lipschultz.
(Updates with trading in first three paragraphs.)
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