Despite a massive runup in the shares of mortgage giants Fannie Mae and Freddie Mac, which Bill Ackman has owned for more than a decade, his Pershing Square Holdings hedge fund ended the first quarter down a net 1.2 percent.
The fund fell 6.8 percent in March on a net basis, according to a presentation to investors. The showing was Ackman’s worst monthly performance since May of 2022 and the worst quarterly loss since the second quarter of that same year.
Pershing Square still outdid the broader market, as the S&P 500 fell 4.6 percent, its worst quarterly performance since 2022, with uncertainty about the effects of President Trump’s pledged tariff war roiling the markets.
Several of Ackman’s biggest holdings fell quite sharply. The hardest hit were Alphabet, the parent of Google, which followed other technology names and dropped 18 percent; Chipotle Mexican Grill, which slid 10 percent; Brookfield Corporation, which was down 9 percent; Hilton Holdings, which lost 8 percent, and Nike, which was down 16 percent during the quarter. As he has done with other struggling names in the past, Ackman recently said he converted his Nike common equity position to deep in-the-money call options.
Given the other losses, Ackman’s stakes in Fannie and Freddie, which were put under government conservatorship in 2008 following the housing crisis, were a long-awaited panacea. The stocks almost doubled during the quarter on expectations that they would finally be released from the government and put in private hands during the Trump administration
Although the government owns 80 percent of the common shares of the two GSEs, or government sponsored entities, Ackman at one point owned about 10 percent of the remaining 20 percent — or .02 percent of the total. But Ackman stopped reporting these holdings on his 13F filings with the Securities and Exchange Commission several years ago, and the size of his stake is currently unknown.
Last year, after the stocks began to rally following the presidential election, Fannie and Freddie contributed 3.5 net percentage points to Pershing Square’s 10.3 percent net gain, Ackman recently disclosed. He has been widely touting the trade on X as well as to his hedge fund’s investors.
However prior expectations that Fannie and Freddie would be privatized and create a windfall for the numerous hedge funds that have owned them over the years has never materialized, leading the bet to be called a “widowmaker” trade.
This time it could finally happen, as the Trump administration has expressed an interest in releasing the mortgage giants from conservatorship, and the government is already firing their employees. Yet with housing sales down and prices out of reach for many Americans, economists have expressed concern that putting these mortgage giants in private hands could imperil the market by pushing interest rates even higher. That’s because the government guarantee they carry would disappear, making investing in mortgage-backed securities riskier.
Recently, Treasury Secretary Scott Bessent expressed some caution, saying releasing Fannie and Freddie will depend on mortgage rates. Already rates are higher than during Trump’s first term and about the same as in 2008, when the two were put into conservatorship.
Mike Green, chief strategist at Simplify, is skeptical about the mortgage giants’ privatization, citing a rise in consumer loan defaults and home loan delinquencies. “The credit quality of the [Federal Housing Administration] won’t allow it. No matter what Mr. Ackman believes,” he said in a recent Substack post.
