Pershing Square Capital CEO Bill Ackman is having a rough summer. In a midyear report to investors in his publicly traded hedge fund late last week, Ackman disclosed the fund was down a net 2.3 percent for the year through Aug. 13, compared with a 14.9 percent gain for the S&P 500.
While Pershing Square Holdings, which trades in Europe, had been badly trailing the market this year, it went negative in July, the same month that Ackman pulled the plug on a planned IPO for a closed-end fund to be marketed to U.S. investors and trade on the New York Stock Exchange. Ackman reportedly believed his celebrity status on X, where he now has 1.4 million followers, would bring in new retail investors. But institutions balked at the closed-end structure, and one big one he had lined up as the IPO’s anchor — Baupost Group — backed out of the deal, dooming its chances. Bloomberg reported that Baupost CEO Seth Klarman was “likely unhappy” about being associated with Ackman after he endorsed Donald Trump for president. Ackman formally endorsed the former president on July 13.
After that drama unfolded, two of Ackman’s hottest stocks — Google parent Alphabet and Chipotle Mexican Grill — were also hit with some bad news. The Department of Justice won its antitrust case against Alphabet in August, the same month Starbucks announced it had poached the highly regarded CEO of Chipotle. Both events led the respective stocks to fall.
Meanwhile Ackman’s two new investments — in Brookfield and Nike — that were made public last week in Pershing Square’s quarterly disclosures with the Securities and Exchange Commission couldn’t turn the portfolio around. While Brookfield was a winner, contributing 0.9 percentage points to the portfolio on a gross basis, Nike was not. It was one of the hedge fund’s worst performers, contributing 1.7 percentage points to the loss.
Pershing Square’s largest position — Universal Music Group — was the biggest loser. It accounted for 3.8 percentage points of the gross loss of 1.4 percent. (Fees dragged the net performance down further.)
As Ackman explained in the report, Universal Music’s shares had a “sharp drop” when it announced second quarter and full year earnings in July. While the company’s revenues and operating income grew, subscription growth slowed from 13 percent to 7 percent after the company increased prices. Ackman attributed the decline, in part, to a weakening economic environment.
The hedge fund manager had originally planned to have his $2 billion special purpose acquisition company invest in the IPO of Universal Music when a portion of the company was spun off by Vivendi in 2021. But the SEC nixed the idea, and Ackman took the stake via his hedge fund and an SPV that invested only in Universal Music. The stock is now trading below its IPO price.
Ackman is also holding on to interest rate swaptions in a bet that interest rates will decline, but so far that’s been the second biggest loser this year, accounting for 1.9 percentage points of the loss.
The top gainer was Alphabet, which contributed 2.7 percentage points to the overall gross return, followed by a 2.6 percentage point contribution by Chipotle.
Alphabet shares fell when it lost the antitrust case, and the company is appealing the decision. Even if it loses the appeal, Ackman said “the company is well-positioned to navigate a range of likely potential remedy outcomes. “
Ackman slashed Pershing Square’s stake in Alphabet during the quarter and also sold shares in Chipotle, which has long been one of his top performers. He first invested in Chipotle in 2015, when it was suffering from a tainted food scandal. Ackman brought on a new CEO, Brian Niccol, who turned the company around. Last week, Niccol was named the new CEO of Starbucks.
Ackman did not return a request for comment.
