Bill Ackman has a big reputation as a risk taker.
He shorts and wages war on stocks he thinks are fraudulent. He invests in some companies that crash and burn. He campaigned against college presidents who, he believed, were tolerating campus wokeism
He had dreams of raising $25 billion to start Pershing Square USA Ltd., a giant closed-end fund. The offering went nowhere and he withdrew it last week.
And he’s worth $9 billion-plus.
Now, Ackman’s main hedge fund, Pershing Square Holdings, has seen its gains for the year basically evaporate.
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According to the company’s website, the hedge fund lost 4.7% in July, bringing its return for the year down to 0.7%. It had been up as much as 8.7% in mid-July. The S&P 500 index was up 15.8% for the year on July 31.
The fund’s shares also trade in Amsterdam and London, and by Friday the shares were negative on the year.
No, it wasn’t because the fund had invested in Nvidia (NVDA) .
Rather, one of its holdings, Dutch-based Universal Music, had a disastrous second quarter, leading to a 23.5% decline in its share price on July 25 to 21.7 euros ($23.79) from 28.38 euros ($31.12). And the shares didn’t recover, ending the week at 21.44 euros, down 24.5% over the eight-day period.
The problem is that music distributors are seeing growth in new streaming subscriptions fade. And Universal finally admitted. Investors were shocked that the growth issues were said out loud and bailed on the stock.
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Universal Music is in fact the world’s biggest music company. Its artists include Taylor Swift, Adele, Billie Eilish, Kendrick Lamar, Sting, U2 and Bob Dylan.
So, Ackman’s hedge fund got caught. Not exactly his fault, but his hedge fund is set up to invest in a limited number of stocks of “high-quality businesses,” 10 or fewer, and hold them for six years or more.
On the other hand, Ackman is a very visible money manager who is aggressive and not shy to criticize. So, a stumble is noticed.
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The fund’s investments include Universal Music, Chipotle Mexican Grill (CMG) , both classes of Google-parent Alphabet (GOOGL) and (GOOGL) , Burger King parent Restaurant Brands International (QSR) , and railroad company Canadian Pacific Kansas City Ltd.
The idea is for the portfolio to produce outsized gains. Some years, the performance is great, like 2023’s 26.7% return, net of fees, or 2020’s 70%. Some years, the returns are not great. In 2015, the return was negative 20.5%.
Taylor Swift is one of the prominent artists in Universal Music’s catalog.
Image source: TheStreet
The hedge fund, incorporated on the island of Guernsey off the French coast, invests primarily in North American stocks.
The goal is to focus “on high-quality businesses, which it believes have limited downside and that generate predictable, recurring cash flow,” the company’s website says. In certain instances, it “seeks to catalyze managerial, operating and governance changes as levers to create substantial, enduring and long-term shareholder value.”
But investors need to be moneyed and sophisticated. As a result, investors can invest in funds like those run by Ackman only if they’re accredited. To be considered an accredited investor, most need a net worth of more than $1 million and income above $200,000.
It prefers that investors put in their money for at least five years; there are penalties for pulling out early.
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