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Billionaire Bill Ackman is raising capital for a new publicly traded investment fund. Listening to his pitch, you would think he was starting a movement.
Ackman initially told people he aimed for the fund, Pershing Square USA, to raise around $25 billion at its expected launch next week, people familiar with the matter said. That figure would make it by far the largest initial public offering of its type. He envisions thousands flocking to its annual meeting in the style of the one Warren Buffett hosts for Berkshire Hathaway shareholders. He expects Pershing Square USA to one day join an index like the S&P 500.
“This will be a company that will be of note in the public markets,” Ackman said in a video pitching investors on the fund’s IPO.
Grandiosity is a given with Ackman, a hedge-fund-manager-turned-internet-gadfly. When it comes to other ventures, Ackman has at times set lofty goals that haven’t fully panned out. Delivering on his vision for Pershing Square USA will require that he persuade the legions of people who know him for his social-media takes to pay for his investing acumen.
There are already signs the expectations are being pared back: Prospective investors were told in the past few days that the deal would now be capped at $10 billion, and some people familiar with the matter say raising even that might be difficult. (Other people close to the IPO said the strategy was always to set big expectations and then go smaller to create the feeling of scarcity.)
Ackman also needs to generate enthusiasm for his fund’s closed-end structure, which has fallen out of favor with investors. Similar funds—including one Ackman listed a decade ago in Europe—trade at a discount to the net value of their holdings.
Ackman is also marketing the fund to mutual-fund managers, who regularly invest in IPOs of operating companies but tend to be skeptical of stock-picking funds or restricted from owning them.
Shares are expected to begin trading as soon as Tuesday.
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After rising to fame as an activist investor, Ackman has remade himself into a social crusader who broadcasts his thoughts on the presidential election, campus protests and more to his nearly 1.4 million followers on X, Elon Musk’s social-media platform. He has posted over 500 times in the past month alone, including to question whether President Biden was severely ill after Biden withdrew from the race via social media.
“He’s got a cult following,” said Erik Herzfeld, who is president of boutique investment firm Thomas J. Herzfeld Advisors and was pitched on the new fund but isn’t buying into the IPO. “If he comes up with a $5 billion or $10 billion launch, I think that’s still very successful.”
Big ideas
Ackman has a history of pushing the envelope with novel investment ideas and endeavors, not all of which go according to plan.
In 2020, he raised $4 billion in what was the largest-ever IPO for a special-purpose acquisition company. He first missed his own timetable for announcing a deal, then failed to consummate a transaction with his chosen target, Universal Music Group, because of concerns with the deal’s structure and complexity.
Last fall, Ackman got regulators’ blessing for a new investment vehicle, a special-purpose acquisition rights company, a spin on a SPAC where Ackman presents investors with a deal to bring a company to the public markets and gives them the chance to buy in.
Potential targets included mature companies owned by private-equity firms looking to cash out, a category that has grown with IPO markets being largely shut. He also said he would consider a deal for X, previously known as Twitter. About 10 months later, Ackman has yet to announce a SPARC deal.
Ackman has outlined initiatives on X to tackle social problems he identified, including efforts to research vaccine efficacy and use artificial intelligence to search for plagiarism in the work of faculty and leadership at elite universities. It isn’t clear where those plans stand and Ackman hasn’t provided public updates.
But Ackman has pulled off the implausible before, and bold moves have helped him amass his fortune, which Forbes estimates to be worth more than $9 billion. After losing billions when big bets on drugmaker Valeant Pharmaceuticals and supplement-maker Herbalife went against him, Ackman course-corrected and revived his firm.
The five-year annualized return at his main fund as of the end of 2023 was 31.2%, thanks in part to more than $5 billion in gains from hedging trades during the Covid-19 pandemic. That is about double the comparable return of the S&P 500, including dividends, over that time frame.
As soon as next year, Ackman wants to take public his own firm, Pershing Square, a rarity for hedge funds. Ackman recently sold a stake in the firm that valued it at about $10.5 billion. Proceeds from the sale gave him $500 million to invest in Pershing Square USA and about $500 million more to invest in additional funds he plans to launch.
‘Star power’
Pershing Square USA’s closed-end structure means it will sell a fixed number of shares in a public offering. Investors can exit only by selling shares to other investors at their price on the open market, regardless of the value of the fund’s investments.
The new fund will largely mirror his main stock-picking fund, which invests in companies like Chipotle Mexican Grill and Hilton Worldwide Holdings and occasionally adds macroeconomic hedges with potentially big payoffs. Pershing Square USA will charge investors no management fee its first year and 2% thereafter.
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Closed-end funds have been on the decline for years. Those focused on stocks raised just $5 billion collectively from IPOs in the three years ended June 30, according to Morningstar. The discount at which many closed-end funds trade has prompted activist investors to push for liquidations or changes.
A closed-end fund Ackman listed in Europe in 2014, Pershing Square Holdings, trades at a roughly 20% discount to its net asset value. When the fund launched, Ackman expected it eventually to trade at premium. He urged investors to compare it to publicly listed investment or operating companies that are more richly valued.
Ackman is making a similar pitch today with Pershing Square USA. Investors “should not think about us like a closed-end fund,” he said in the video.
A key reason Ackman is raising Pershing Square USA is that he is restricted from marketing the European fund to U.S. investors or on social media. That will change with Pershing Square USA.
“He’s going to rely on the star power driving that premium,” said Jason Kephart, director of multiasset ratings at Morningstar.
Write to Peter Rudegeair at peter.rudegeair@wsj.com and Corrie Driebusch at corrie.driebusch@wsj.com
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