(The author is a Reuters Breakingviews columnist. The opinions
expressed are his own.)
By Jeffrey Goldfarb
NEW YORK, July 9 (Reuters Breakingviews) - Bill Ackman's new
fund is off-Target – in a good way. Four years after the hedge
fund boss ate humble pie for a bad concentrated bet on the U.S.
retail chain, he is seeking $1 billion for another secret
single-stock pick. Paying for the privilege to invest blind in a
publicly listed company warrants skepticism. But Ackman may have
learned from his mistakes.
Pershing Square Capital, Ackman's firm, has rattled cages as
an activist investor at some two dozen companies, most recently
Procter & Gamble (PG.N) and J.C. Penney (JCP.N). A 2007 tilt at
Target (TGT.N) was one of a handful of blowups to dent Pershing
Square's lifetime annualized return of around 20 percent after
Backers, if they stayed for the whole ride, lost about
three-quarters of their money. Their losses were amplified by
the structure of the holding, which added risk by using call
options to acquire the Target stake, and the investment was
badly timed to coincide with the recession that struck soon
after Ackman turned up.
This time, there will be no leverage. Ackman's tactics also
have evolved. Rather than wait too long to present publicly his
ideas for change, he will try to rally support from shareholders
soon after making the investment if private negotiations with
the company don't work.
Pershing Square's other single-minded funds, including a
2005 investment in Wendy's and a publicly listed shell company
that became a vehicle for Burger King, have done well. And
investors who partake in Ackman's latest "best idea" will get a
break, too. They'll pay only a 0.25 percentage point management
fee and he'll take anywhere from 5 percent to 15 percent of the
profit. That's less than Ackman and other hedge fund managers
Speculation that Pershing Square's target might be FedEx
(FDX.N) pushed that company's shares up as much as 8 percent on
Tuesday. Even reduced fees may chew up most of that kind of pop
in the stock of whatever company Ackman is after. For those who
believe in him, that may just be the price for getting in
alongside him. But the less devoted might do as well – and get
the added bonus of being able to sell when they please – by
following Ackman into a simple stock investment once he reveals
the target's identity.
SIGN UP FOR BREAKINGVIEWS EMAIL ALERTS:
- Pershing Square Capital Management, the hedge fund firm
run by William Ackman, is raising $1 billion to invest in a
single unnamed company. The new fund, with U.S. and offshore
entities, will join the firm's main funds, which plan to invest
an additional $2 billion.
- "The business is simple, predictable, and
free-cash-flow-generative, and enjoys high barriers to entry,
high customer switching costs and substantial pricing power,"
Ackman wrote in a letter to prospective investors.
- New investors will pay a 0.25 percentage point management
fee and 5 percent of the profit for an investment of at least
$200 million, 10 percent for $100 million and 15 for anything
less. The funds will be locked up until Sept. 30, 2016.
- Reuters: Pershing Square looks to raise $1 bln for bet on
unnamed company [ID:nL1N0FE1PT]
Call him Ahab [ID:nL2N0CW1WF]
- For previous columns by the author, Reuters customers
can click on [GOLDFARB/]
(Editing by Richard Beales and Martin Langfield)
Keywords: BREAKINGVIEWS ACKMAN/
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