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Bill Ackman is in talks to launch a strategy that would make big bets on complacency in financial markets, in a bid to mimic the success of doomsday trades the billionaire investor made during the pandemic.
Ackman’s Pershing Square would use the fund to make “asymmetric” trades aimed at profiting by wagering against the prevailing narrative in markets, according to people familiar with the matter.
The strategy would resemble bets during the coronavirus crisis, when Ackman paid $27mn for derivatives that appreciated when corporate debt sold off. The trade handed Pershing a $2.6bn windfall after economic ructions caused by the pandemic sent bond markets reeling.
Rather than making new doomsday trades using Pershing Square’s main fund, an Amsterdam-listed public vehicle with about $20bn in assets, Ackman was in discussions to craft an entirely new strategy, said three people briefed on the matter.
Ackman’s plans for a possible new fund come as this year’s market volatility has wrongfooted Pershing. The firm’s flagship fund had lost more than 16 per cent of its value as of the end of March, according to filings.
Pershing’s new fund would keep much of its assets in short-term US debt before deploying the capital on large credit and macro bets mirroring those historically made by the main fund, said one of the people.
In recent decades, Ackman and other hedge fund managers, including John Paulson and Michael Burry, have used derivatives, such as credit default swaps, to seed large, highly leveraged bets against corporate or mortgage bonds. Derivatives can also be used to make potent bets against sharp changes in currencies, interest rates and commodity prices.
One of Ackman’s best-known trades came during the financial crisis. He made a $60mn bet on bankrupt mall operator General Growth Properties in 2009, a stake that eventually became worth about $3.6bn.
Ackman’s new fund comes as he prepares to take his hedge fund company public and must show potential investors new avenues for growth. In private discussions with potential investors in Pershing Square, Ackman has highlighted the “asymmetric” fund as a potential way to turbocharge the firm’s fee earnings, according to people briefed on the meetings.
He also alluded to the possibility of a new fund focused on these sorts of macro bets in a regulatory filing made last month for the public listing. His main fund has roughly a dozen holdings, with long-term bets on companies such as Uber, Google and Amazon. Those concentrated bets leave his portfolio exposed to swings in equity markets.
In the prospectus for the public listing last month, the hedge fund said it “may choose to complement our organic growth by selectively launching new permanent capital funds and other vehicles that leverage our brand and core competencies” to boost the firm’s capital base.
Ackman has also been exploring ways to fulfil his vision for a broader conglomerate ahead of the public listing.
He has built a large stake in property developer Howard Hughes Holdings, which is being used as a vehicle to create a sprawling enterprise that he has pitched as a modern-day Berkshire Hathaway. It recently acquired a property and casualty insurer.
Earlier this week, the billionaire also offered to buy Universal Music Group in a mostly stock deal that values the record label at about €55bn. The transaction would involve shifting the music group to a blank-cheque company owned by Ackman.
Ackman is hoping to raise $5bn to $10bn for a combined initial public offering of the management company of Pershing Square and a new closed-end fund in the US called Pershing Square USA.