Bill Ackman is one of today's best-known investors, and many
everyday investors study his investments in an effort to mimic
his success. Until recently, Ackman's hedge fund was limited to
people who could invest a significant amount of money. But now,
Pershing Square Holdings
is a publicly traded investment, allowing everyone to
invest with Ackman.
Should you invest with Ackman?
Ackman's Pershing Square is an activist investor. Unlike other
funds, which simply invest with the hope that shares will
increase in value, Ackman actively pushes for change at
companies Pershing is invested in.
His aggressive approach to investing has yielded a history
of both successes (such as the
General Growth Properties
turnaround) and failures (such as his activist push at
). Today, Ackman continues to swing for the fences with such
high-profile investments as
Pershing Square is
a conservative fund. Although it holds a variety of
investments, investors should note that Pershing Square is only
for investors with higher risk tolerances due to Ackman's
"swing for the fences" approach, which causes additional risk
Now Pershing Square is a publicly traded investment that
lets ordinary investors track Ackman -- for a cost, of course.
The investment has a 1.5% annual management fee. This is higher
than that of most ETFs, which generally carry an expense ratio
of less than 1% and no performance fee, though it's more
reasonable when compared to the fees of managed hedge funds.
In addition to the management fee, there is a performance
fee that could be as high as 16%, varying by sources of
investment in Pershing Square.
By comparison, the longtime standard for hedge funds has
been two and 20 -- that's a 2% management fee and a 20%
performance fee. More recently,
The Wall Street Journal
has noted that the average has fallen to a 1.6% management fee
and a 18% performance fee -- both still higher than Pershing
What investors get
Normally, I'm not a fan of managed funds, given that they've
collectively trailed the market every year since 2008 and
come with extra fees. But despite some similarities to managed
funds, I think Pershing Square is worth a look.
Unlike many fund managers, whose performance is based on
good stock picking, Ackman takes an active role in his
investments and tries to squeeze more returns out of them. So
rather than taking a passive stock-picking approach, Ackman is
also conducting a business that is generating returns.
But as Bloomberg notes, the fees can add up over time.
Pershing Square posted a gross return of nearly 1,200% since
1991, but returns for investors were reduced to 627% after
fees. In exchange for the fees, investors get to benefit from
Ackman's investments before they're made public.
Many of Ackman's investments -- including
, Fannie Mae, Freddie Mac, and Allergan -- experience a pop in
their share price once Pershing Square discloses
ownership, so investors who try to copy the investments
from announcements and filings will find themselves missing out
on the pop. However, these investors also miss out on the
In deciding whether to buy Pershing Square Holdings itself
or to just follow Ackman's investment reports, there is one
more wild card: the possibility that Ackman could take on a
non-publicly traded investment through a full acquisition or
special investment class such as preferred stock or warrants.
If this happens, trackers of Pershing Square wouldn't be able
to copy the investment, and only Pershing Square investors
themselves would see the benefit.
Around the time of the Pershing Square Holdings IPO, Ackman
discussed taking a "decent-sized stake" in an American company,
according to Bloomberg. Now that Pershing Square has raised
some permanent capital through its IPO, it has more flexibility
to pursue longer-term investments and even full acquisitions.
Investors should note that full acquisitions would have been
more difficult before the IPO, as Pershing Square's investors
could withdraw funds at any time and force the fund to
Pershing Square continues to hold a significant amount of
Allergan shares, though Ackman has pushed for a sale of the
company, which has now agreed to let
acquire it. But because the deal has not officially
closed yet, Allergan remains Pershing Square's biggest holding
at 35% of the fund's portfolio -- nearly twice the weight of
the next-biggest holding.
Other major investments include
Canadian Pacific Railway
and animal health company Zoetis, both companies in which
Pershing Square has become a member on the board after pushing
hard for influence. In both cases, Pershing Square is sitting
on a handsome profit after gaining board positions.
But perhaps Ackman's most interesting investments are in
government-sponsored enterprises Fannie Mae and Freddie Mac.
Ackman recently called these the "best trade ... in capital
markets" and owns nearly 10% of each company. Ackman is one of
many investors pushing through the courts to overturn an
amendment in the preferred-stock purchase agreement that
currently funnels all of Fannie and Freddie's profits to the
Investing with Ackman
Bill Ackman has plenty of followers, but the IPO of Pershing
Square Holdings finally gives investors the opportunity to
directly take part in his success (or failure). But fees need
to be taken into consideration, and investors simply looking to
duplicate Ackman's current portfolio may be better off
investigating the investments listed in his 13F filing.
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Should You Invest With Bill Ackman?
originally appeared on Fool.com.
owns common shares of Fannie Mae and Freddie Mac. He also owns
preferred shares of Fannie Mae. The Motley Fool has no position
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