It’s hard to resist a great deal on Wall Street, especially with valuations still skewed towards the higher end. With Bill Ackman recently submitting the paperwork to launch the much-anticipated Pershing Square USA Ltd. (PSUS) alongside his management company, Pershing Square Inc. (PSI), fans of the hedge fund legend will finally have a chance to get a piece of both as they look to debut together in a “combined IPO.”
Undoubtedly, this isn’t the first time that Ackman has tried to take Pershing Square public in the U.S. markets. Indeed, previous attempts were met with setbacks, but things could be a whole lot different this time around, thanks in part to the addition of a bit of sweetener.
Will the Buy 100, get 20 combo deal pay off?
While time will tell if the Pershing Square combo will gather large crowds in the retail investor world, I do think that including 20 “free” shares of Pershing Square Inc. (the management company that collects the fees), thrown in for every 100 shares of Pershing Square USA purchased, could make for a deal that’s too good to pass up for Ackman fans.
Of course, the bonus is 30 shares of Pershing Square Inc. for every 100 Pershing Square USA shares picked up for the big money with the big checks to sign (so-called “anchor” investors). And while everyday retail investors probably don’t have the capital requirements close enough to get that “100 + 30” deal, I do think that we might see a lot of investors swoop up, if not for the 20 share bonus, perhaps for the “Berkshire-like” trajectory that Ackman and company will be walking down.
Of course, there are shortcomings with betting on shares of closed-ended funds (CEFs), which is what Pershing Square USA will be. Most notably, the discount to net asset value (NAV) could have the potential to be wide, perhaps in excess of 20%. Whether the 20 “free” shares of the management company are good enough to narrow the gap, though, remains the big question. If the discount to NAV ends up quite wide earlier on, it’s tough to tell whether the free shares will be good enough of a deal.
I’m going to wait in line to get 20 “free” shares of PSI with a 100-share purchase of PSUS
Personally, I’m in no rush to pounce on such a deal. Maybe if it were 30 shares instead of 20, I’d be tempted to get in at the ground floor. As a value-oriented investor, I’d much rather wait to see how things play out. Perhaps the discount to NAV will be wide enough such that the better deal is to buy in the months and quarters that follow the debut. IPOs tend to boom and then go bust shortly after.
Either way, it’s going to be very interesting as Ackman looks to have the structure in place to transform his firm into a modern-day version of Berkshire Hathaway (NYSE:BRK.B | BRK.B Price Prediction). It’s an exciting time for Ackman and his firm. Even if the IPO duo doesn’t prove as potent, even with the sweetener, the new structure would fix the redemption problem and allow Ackman greater freedom, even when the market environment is a bit chaotic.
Such certainty in uncertain times might also allow Pershing Square to make big splashes (think full-sized acquisitions) in market meltdowns. Given Ackman’s brilliant hedge bets over the past six years (remember that genius COVID bet?), I’d argue that not having to worry about redemptions would allow the man to get even more out of the next big downturn.
Can Pershing Square pull off the Berkshire pivot?
While I’m still not convinced that it’s a good deal to get in on the Pershing combo on day one, I do think that those who do believe in the man might have a lot to gain over the long-term as Pershing evolves into what very well may be the Berkshire of the future.
While the CEF no longer has a performance fee, the 2% annual fee is quite hefty, even if that figure is waived for the first year. I guess it comes down to whether you believe in Ackman’s ability to beat the market over the long haul, and if Pershing can successfully follow in the footsteps of an earlier form of Berkshire.
And, of course, it helps if you also like the concentrated names currently in the portfolio. Ackman’s latest bet in Meta Platforms (NASDAQ:META), I think, is a bold one that might just give his fund the edge over the S&P.
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