Pershing Square (LON:PSH) held its first earnings call as Pershing Square Inc., with Chief Executive Officer and Chairman Bill Ackman outlining a strategy centered on long-term compounding in its existing investment vehicles, potential new fund launches and efforts to improve trading in Pershing Square USA Ltd. shares.
Ackman said the firm’s principal focus remains investment performance rather than frequent fundraising. He said Pershing Square expects the earnings of its portfolio companies to compound over time and believes the holdings are currently undervalued. In turn, he said, increases in net asset value would expand management and performance fees earned by the company.
Venture fund planned for fall or year-end
Ackman said Pershing Square’s first planned new vehicle will be Pershing Square Ventures, which the firm is targeting for a fall or year-end launch. He said the strategy would invest across a broad range of private companies, from businesses valued in the several-hundred-million-dollar range to companies worth tens of billions of dollars.
The proposed vehicle would include both earlier-stage companies and businesses nearing public offerings, according to Ackman. Unlike traditional venture funds, he said, Pershing Square Ventures is intended to operate as a permanent-capital vehicle that could continue holding companies after they go public.
Ackman said the firm sees venture investing as strategically useful because it can help Pershing Square monitor potential technological disruption affecting its public-market holdings. He also said the firm wants to provide individual investors with access to private-company opportunities that are often unavailable outside established venture-capital funds.
He said Pershing Square plans to seed the vehicle with investments before raising capital from outside investors, though he noted the company was limited in what it could disclose before filing relevant documents with the Securities and Exchange Commission.
PSUS deployment and planned leverage
Ackman said Pershing Square USA Ltd., or PSUS, was about 95% invested after raising $5 billion during a volatile market period. He said market declines around the time of the initial public offering created opportunities to buy positions including Microsoft, Meta Platforms, Alcon, Netflix, Intercontinental Exchange, Visa and Mastercard at what the firm viewed as meaningful discounts.
Chief Investment Officer Ryan Israel said Pershing Square maintains a “library” of hundreds of companies that meet its business-quality standards and continuously evaluates their prices relative to its estimate of value. He said volatile markets can create opportunities to redeploy capital from securities with good expected returns into investments the firm considers even more attractive.
The company intends to add investment-grade debt to PSUS, with a target capital structure of roughly 15% to 20% debt to total assets. Ackman characterized that level as conservative compared with typical hedge-fund leverage. He said Pershing Square expected to begin discussions with rating agencies in early September and would pursue a debt offering after obtaining a rating.
“If we had the incremental capital today, we have places to put it,” Ackman said.
On broader equity valuations, Ackman said Pershing Square does not base its investment decisions primarily on measures such as the equity risk premium. Instead, the firm focuses on individual company fundamentals, valuation and longer-term return potential. Israel said the company’s portfolio has a higher earnings yield than the broader market, along with what he described as nearly double the level of earnings-per-share growth.
Focus on PSUS discount and shareholder returns
Ackman acknowledged that PSUS shares had traded at a substantial discount to net asset value, which he said was approximately $50 per share. He described the trading performance as “absurd” and said Pershing Square would take steps to improve awareness and demand for the vehicle.
He attributed part of the early trading weakness to the IPO allocation process, saying retail investors received full allocations while institutions were reduced. Ackman said the firm had not done enough to create demand after the offering and plans a more comprehensive marketing effort directed at financial advisers and other investors.
Unlike Pershing Square’s historical public vehicle, Ackman said PSUS can be marketed more broadly in the United States, including through media appearances, podcasts and other promotional channels.
On capital returns, Ackman said the company’s policy is to distribute substantially all quarterly free cash flow to shareholders. Israel said distributable earnings are viewed as a proxy for free cash flow, and dividends are the most likely form of capital return in the foreseeable future. Ackman said buybacks could be considered if they became the best use of capital and did not impair trading liquidity.
He also contrasted PSUS with Pershing Square Holdings, noting that PSH’s tax treatment makes it less suitable for U.S. investors because it is considered a passive foreign investment company. PSH has a lower management fee and low-cost leverage, he said, but also charges an incentive fee. PSUS has no incentive fee and is expected eventually to add leverage.
Howard Hughes transformation and AI investment views
Ackman also discussed Howard Hughes, where Pershing Square is pursuing a transformation toward an insurance-led model through Vantage, the company’s insurance subsidiary. He said Mark, whom he identified as Vantage’s executive chair, and Chief Executive Officer David Gansberg form a strong leadership team, alongside Lucy Fato, a former AIG vice chair and general counsel.
The company is exploring ways to accelerate the movement of capital from Howard Hughes’ real estate operations into Vantage, Ackman said. He described the goal as transforming Howard Hughes into a “modern-day Berkshire Hathaway.”
Israel said Pershing Square expects Howard Hughes to generate $2.5 billion to $3 billion in free cash flow over the next three to five years and sees Vantage as an increasingly important value driver. He said the firm plans to provide disclosures intended to help investors evaluate the insurance business similarly to a publicly traded insurer.
On artificial-intelligence-related capital spending by cloud providers, Israel said Pershing Square views investments by companies such as Amazon and Microsoft as potentially high-return opportunities with a delayed financial payoff. He said data centers can take two to three years to build before generating revenue, followed by additional time to install computing equipment.
Israel said Pershing Square expects revenue and margins to improve as customers begin using newly constructed capacity, potentially reducing capital-expenditure-to-sales ratios over time. He said the firm believes investors had previously viewed the higher spending too negatively because the associated revenue had not yet appeared in near-term earnings measures.
SPARC remains under review
Ackman said Pershing Square continues to evaluate potential transactions for its special purpose acquisition rights company, or SPARC. He described SPARC as an acquisition structure without founder stock, shareholder warrants or underwriting fees, designed to offer private companies a way to go public with committed capital from Pershing Square.
No transaction has yet been completed, though Ackman said the firm has recently seen more deal flow. If a deal is reached, he said, the economics would belong to the Pershing Square funds and could support assets under management, investment returns and the management company’s fee stream.
About Pershing Square (LON:PSH)
Pershing Square Holdings (LN:PSHD) is an investment holding company structured as a closed-ended fund that makes concentrated investments in publicly traded, principally North American-domiciled, companies. The investment objective is to maximize long-term compound annual rate of growth in intrinsic value per share.
