PSH.L - Pershing Square Holdings

[muscleman]

What concerns me is the position conversions to options. IMHO, while the positions may or may not be attractive, with options he can continue to blow up just because of timing. In other words, I am not sure if he or much anyone else can show great results by doing options. (Sorry you option guys here ;) ).

 

I think Picasso has coined a good and accurate term for this... "Deep YOLO".

 

I think it's accurate frankly.

 

YOLO? What is that?

[Picasso]

That's where you dive off the deep end and ignore risk management.  How much can I make, who cares how much I can lose?

[adesigar]

What concerns me is the position conversions to options. IMHO, while the positions may or may not be attractive, with options he can continue to blow up just because of timing. In other words, I am not sure if he or much anyone else can show great results by doing options. (Sorry you option guys here ;) ).

 

I think Picasso has coined a good and accurate term for this... "Deep YOLO".

 

I think it's accurate frankly.

 

YOLO? What is that?

 

You Only Live Once = Y O L O

[randomep]

hi all, I am totally new to Pershing Square, but I invest in Senvest, please tell me if my understanding is correct:

 

PSH/Senvent

 

- equity: $2.5B / $0.6B

- 2015 result: -20% / - 15%

- 2016 YTD; - 25% / - 10%

- stock price to NAV: 90% / 55%

- management fee: 1.5%/20%  vs. none

- both are close-ended funds

 

[muscleman]

hi all, I am totally new to Pershing Square, but I invest in Senvest, please tell me if my understanding is correct:

 

PSH/Senvent

 

- equity: $2.5B / $0.6B

- 2015 result: -20% / - 15%

- 2016 YTD; - 25% / - 10%

- stock price to NAV: 90% / 55%

- management fee: 1.5%/20%  vs. none

- both are close-ended funds

 

That's roughly correct. Except that when you buy Senvest, you are buying a slice of the GP as well. But when you buy PSH, you are buying only a slice of the LP.

[randomep]

hi all, I am totally new to Pershing Square, but I invest in Senvest, please tell me if my understanding is correct:

 

PSH/Senvent

 

- equity: $2.5B / $0.6B

- 2015 result: -20% / - 15%

- 2016 YTD; - 25% / - 10%

- stock price to NAV: 90% / 55%

- management fee: 1.5%/20%  vs. none

- both are close-ended funds

 

That's roughly correct. Except that when you buy Senvest, you are buying a slice of the GP as well. But when you buy PSH, you are buying only a slice of the LP.

 

oh and I forgot the most important stat of all: NAV CAGR after fees

 

2004-today:    12% / 21%

 

just my very rough guesstimate

 

so why is there such a large difference in stock price vs NAV?????

 

 

(a rhetorical question)

 

[JBTC]

By now Ackman is the biggest laughingstock in the investment world. Much of what have been written here recently reflects that sentiment. Wrong thesis, horrible risk management, few of his picks are any good.

 

My question is, if we generously assume he has skill, when would be the best time to invest with him?

 

In hindsight, the beginning of last year was not a good time. He just posted one of the biggest returns in the world. He's on magazine covers. He floated PSH.

 

If now is not a good time either, when?

 

What uncertainties do we want to see removed before we can say it'd be time to invest?

 

[kiwing100]

hi all, I am totally new to Pershing Square, but I invest in Senvest, please tell me if my understanding is correct:

 

PSH/Senvent

 

- equity: $2.5B / $0.6B

- 2015 result: -20% / - 15%

- 2016 YTD; - 25% / - 10%

- stock price to NAV: 90% / 55%

- management fee: 1.5%/20%  vs. none

- both are close-ended funds

 

That's roughly correct. Except that when you buy Senvest, you are buying a slice of the GP as well. But when you buy PSH, you are buying only a slice of the LP.

 

Some other differences worth noting are:

1. the amount of leverage that Senvest uses - from Sept 2015 report - total long listed equities position subject to mark to market valuations at C$2,000 mn vs shareholder equity (including minority interests) of C$820mn.  Also as outlined in note 4 of the September 2015 report that a theoretical 30% price change would result in a C$431mn impact or a 52% impact on shareholder equity (either up or down).

2. PSH reports weekly NAV of the portfolio, whilst Senvest discloses mark to market valuations of its portfolio on a quarterly basis

3. Senvest invests mainly in small and mid-caps, whilst PSH invests mainly in large caps.

 

[Jurgis]

By now Ackman is the biggest laughingstock in the investment world. Much of what have been written here recently reflects that sentiment. Wrong thesis, horrible risk management, few of his picks are any good.

 

My question is, if we generously assume he has skill, when would be the best time to invest with him?

 

In hindsight, the beginning of last year was not a good time. He just posted one of the biggest returns in the world. He's on magazine covers. He floated PSH.

 

If now is not a good time either, when?

 

What uncertainties do we want to see removed before we can say it'd be time to invest?

 

If you believe he has skill to long-term outperform, then the answer to the "when" question is pretty much anytime.

Of course, it's kind of tautology, since by the very definition of long-term outperformance you'd outperform regardless of the time you started. You'd just outperform a bit more if you buy now after the huge underperformance.

 

If you don't believe he has skill to long-term outperform, it's not worth buying at all, since with 1.5%/20% headwind, you'd never win. Well, you might if he short-term outperforms, but that's likely just a gamble.

 

If you're not sure if he has skill to long-term outperform, well, that's a toughie. You could try to see how things work out for next X months or years. But how will you know if that's skill or luck? Overall, this is the tough decision for me regarding any investment manager. Most successful investment managers are great salesmen and they always have stories of why they will outperform. Looking at their track records is backward looking and does not guarantee future gains. Looking at their current positions means evaluating them based on your biases towards these positions. I still don't know if it's better when the investment manager holds positions I like (well if I like them, I could just buy them myself instead of paying the manager; also perhaps the manager has the same bad biases that I have) or when they hold positions I don't like (if I don't like them, why should I like the manager; otoh, if I don't like them, perhaps the manager has unique view that I don't)...

 

Going back to Ackman and PSH. Here are the things about Ackman & PSH:

1. Valeant position. I don't like it less at $30 compared to the higher prices though. So neutral perhaps.

2. Switching to options to increase VRX position, switching to options in Mondelez to preserve position and get cash. IMO people don't outperform long term with option bets except perhaps where long term options are Black-Scholes mispriced. So negative.

3. HLF short. This seems to have become ideological and personal. I'd rather this wasn't a public stand and Ackman could get out of it without "losing face". Right now it's a crappy position which he probably won't exit. So negative.

4. Other positions. I own none of them personally apart from small position in Fannie/Freddie prefs. I have looked at most of what he owns, since he runs concentrated portfolio. I don't think his positions are very cheap and attractive, but I also don't think they are bad. Some of them may do well long term. Some of them might be even cheap - I might just be undervaluing them. So slightly positive (could be a big positive if you believe Ackman's selection here).

 

So overall, I'd say I'm slightly to mid negative. I might dump my PSH position at a loss. I am still trying to decide if I like Ackman long term. I liked him and his positions more than Einhorn (GLRE) and Loeb (TPRE), which I dumped last year. It appears that my choice was wrong so far. Gotta think about it some more.

 

BTW, I wouldn't look it the way you do "What uncertainties do we want to see removed". If you won't trust Ackman to handle current situation, why would you trust him after it passes (e.g. VRX "uncertainty" resolves)? He could get into similar "uncertainty" in the future again, no?

[kab60]

I really don't like his style. Didn't his old fund blow up? He seems so attached to his positions and wants to be proven right. I think his ego is too big to handle peoples money and with Berkshire recently at 1,25x BV I really don't get the attraction with the awful fees. Reading fooled by randomness I'm inclined to think he probably caught a lucky break until he didn't. But he does seem like a slick salesman.

[kiwing100]

Ackman recently swapped APD stock for mostly APD options as a way to raise cash.  He'll probably do this with other positions.

 

Because the Target fund wasn't a good lesson on putting on massive option trades...

 

On March 8, 2016, certain of the Reporting Persons acquired on behalf of PS, PS II, Pershing Square International, and PSH American-style over-the-counter call options referencing 12,947,936 shares of the Issuer with Expiration Dates as set forth in Exhibit 99.4. Simultaneously with this acquisition, certain of the Reporting Persons sold on behalf of PS, PS II, Pershing Square International, and PSH 12,947,936 shares of the Issuer.

 

The counterparty to such over-the-counter options is Nomura Global Financial Products Inc.

 

 

I assume the dedicated fund which you're referring to where they invested in Target via options is the one they refer to here. 

 

http://www.forbes.com/2008/10/28/ackman-pershing-target-biz-wall-cz_dg_1028ackman.html

 

This story illustrates the risk of positions being converted from common stocks to options ...  If the fund had owned only the common stock, it most likely would have been profitable (TGT is now US$82.00), but with the option positions, they ran out of time and were forced to realise the loss and be at the mercy of Mr Market ...

 

Here is his subsequent letter to investors of that fund ..

 

http://www.marketfolly.com/2009/02/bill-ackmans-pershing-square-letter-to.html

[Hielko]

hi all, I am totally new to Pershing Square, but I invest in Senvest, please tell me if my understanding is correct:

 

PSH/Senvent

 

- equity: $2.5B / $0.6B

- 2015 result: -20% / - 15%

- 2016 YTD; - 25% / - 10%

- stock price to NAV: 90% / 55%

- management fee: 1.5%/20%  vs. none

- both are close-ended funds

You know very well that describing the Senvest managment fee as zero is extremely misleading, as has been discussed in length in the Senvest thread... since operating expenses eat >5%+ of NAV/year @ Senvest...

[Haasje]

I did not go over his track record to check this but I believe Ackman does great with the model:

 

margins are x% at company Y 

 

margins are x+z% at most comparables (i.e. much better) 

 

we buy big into company Y and start pressing to slash costs

 

----

 

Not sure, but it also seems like the dealmaking kind of positions (wasn't that Allergan) which remind me a bit of Icahn work well

 

----

 

When Pershing takes the jockey stock type positions they don't do as well (but with the number of positions Pershing takes (very few) all these observations are incredibly unreliable

 

----

 

Other observations:

 

On the short side the research is impressive for sure and when I tune into the "now often ridiculed" hour long presentations I always learn something  new about the longs. Granted, there is no overlap with my own positions. 

 

----

 

Its hard to argue Ackman doesn't enjoy attention, so I won't but the ego isn't all bad. Again, it is kind of speculation from the outside. I'm  not his shrink but I expect him to be quite driven.

 

----

 

The concentration gets ridiculed nowadays because it really sucks when you use it with jockey stock positions but it works fabulous if the source of your outperformance is activism/dealmaking.

 

[kab60]

I think it's quiet dangerous how he commits so much capital and attention to highly leveraged companies where it's difficult for him to get out, if the thesis changes - not to say the risk of losing face when you've been telling the whole world why company x and y are under- and overvalued. While Bill's obviously smart, I think it also shows what a huge advantage smaller investors have.

 

I wanted Allan Mecham to take a stance on Outerwall and get them to smarten up and stop destroying value (taking advantage of his size), but taking a backseat has its advantages too since he can blow out of his position (well, he could - it's also getting harder for him with the big AUM) without anyone coming after him (since he already told everyone he was having doubts).

 

Obviously one needs to trust ones analysis when the markets tells you that you're wrong, but I don't think a big ego helps, since you might be missing when the market is right and the thesis changed - which is probably more often than we like to admit. Oh well. I might be too harsh on Bill Ackman, it's always easier looking in the rear window, but when you combine it all with high fees I really don't understand why retail investors would even consider it.

[JBTC]

 

If you're not sure if he has skill to long-term outperform, well, that's a toughie. You could try to see how things work out for next X months or years. But how will you know if that's skill or luck? Overall, this is the tough decision for me regarding any investment manager. Most successful investment managers are great salesmen and they always have stories of why they will outperform. Looking at their track records is backward looking and does not guarantee future gains. Looking at their current positions means evaluating them based on your biases towards these positions. I still don't know if it's better when the investment manager holds positions I like (well if I like them, I could just buy them myself instead of paying the manager; also perhaps the manager has the same bad biases that I have) or when they hold positions I don't like (if I don't like them, why should I like the manager; otoh, if I don't like them, perhaps the manager has unique view that I don't)...

 

 

How can we be sure of any manager, or ourselves, in this business?

 

To me it's always a judgment call, a step into the dark.

 

First you look at the track record; his record is seriously damaged, but still above average.

 

Second you look at the process. It's clear he made mistakes in handling VRX. And I agree with you on his use of the options.

 

But I don't have an issue with his broad stated approach - concentrate, focus on quality, focus on good managers (he thought so), focus on stable cash flow, avoid commodity and tech, avoid overly macro. It's likely true that he wasn't able to stick to these principles all the time.

 

One lesson for me was that I engaged in perhaps a bit too much hero worship and group thinking. I was never comfortable with VRX before, not because I had good judgment, but because I knew little about pharma and was generally cautious about roll-ups. But in this case, I looked at the list of major owners of VRX - Sequoia, ValueAct, Glenn Greenberg - thinking, how can they not know?

 

So while the collapse of VRX has indeed exposed other flaws in Ackman's portfolio, as we ask if Ackman is any good, the same question can be asked of other prominent VRX holders.

 

[randomep]

hi all, I am totally new to Pershing Square, but I invest in Senvest, please tell me if my understanding is correct:

 

PSH/Senvent

 

- equity: $2.5B / $0.6B

- 2015 result: -20% / - 15%

- 2016 YTD; - 25% / - 10%

- stock price to NAV: 90% / 55%

- management fee: 1.5%/20%  vs. none

- both are close-ended funds

 

That's roughly correct. Except that when you buy Senvest, you are buying a slice of the GP as well. But when you buy PSH, you are buying only a slice of the LP.

 

Some other differences worth noting are:

1. the amount of leverage that Senvest uses - from Sept 2015 report - total long listed equities position subject to mark to market valuations at C$2,000 mn vs shareholder equity (including minority interests) of C$820mn.  Also as outlined in note 4 of the September 2015 report that a theoretical 30% price change would result in a C$431mn impact or a 52% impact on shareholder equity (either up or down).

2. PSH reports weekly NAV of the portfolio, whilst Senvest discloses mark to market valuations of its portfolio on a quarterly basis

3. Senvest invests mainly in small and mid-caps, whilst PSH invests mainly in large caps.

 

kiwing, you are wrong on leverage:

 

The company's short position as of sept 15 is only C$516 M. That is only 1/4 of total assets. You included the C$617M of outside hedge fund ownership as "leverage" which it is not. If you combine the two you will have about $1440M equity vs. $516 of leverage. True, it is indeed bigger than PSH.

 

 

Also Senvest posts results monthly on their website......

 

 

[Jurgis]

But I don't have an issue with his broad stated approach - concentrate, focus on quality, focus on good managers (he thought so), focus on stable cash flow, avoid commodity and tech, avoid overly macro. It's likely true that he wasn't able to stick to these principles all the time.

 

Yes, agreed, that's what I liked about Ackman's positions. I can call them a bit overpriced but mostly they are quality businesses. (In as sense it's like muscleman asking about Mecham - yeah, some of his buys are not cheap, but they look like growth/quality businesses).

 

So while the collapse of VRX has indeed exposed other flaws in Ackman's portfolio, as we ask if Ackman is any good, the same question can be asked of other prominent VRX holders.

 

Yes, agreed with that too. Although others perhaps did not react by moving to options - so in a way Ackman's reaction might be worse than others'. But if I invested money with others who bought VRX, I'd be questioning myself about them too.

[AzCactus]

Not trying to derail the thread but I think a more relevant issue is conviction level and position sizing.  The managers mentioned above Sequoia, ValueAct, Glenn Greenberg obviously thought this was a great company and I believe that Valueact bought in most of their position a while ago and also reduced it near the top.  The point I'm making is that if these guys all made this a 3% position the thread would be a lot shorter.  The problem is that for most of these guys this is one of their top positions and they are all getting hammered right now. 

[Jurgis]

Not trying to derail the thread but I think a more relevant issue is conviction level and position sizing.  The managers mentioned above Sequoia, ValueAct, Glenn Greenberg obviously thought this was a great company and I believe that Valueact bought in most of their position a while ago and also reduced it near the top.  The point I'm making is that if these guys all made this a 3% position the thread would be a lot shorter.  The problem is that for most of these guys this is one of their top positions and they are all getting hammered right now.

 

That's a fair observation. However, it seems that if you want to outperform indexes, it's very hard to do so with diversified portfolios with 3% positions. There are other arguments for concentrated portfolios too including the famous "why would you buy your 25th best idea instead of the best idea". If I look to invest for outperformance, I'm mostly looking at managers who hold concentrated portfolios and not someone who's top positions are 2-4%.

 

But, yes, they probably should have rebalanced and sold some when VRX ran up. Sequoia especially should have lowered their VRX position perhaps to 10% or so and not >20% that it was at the top. OTOH, VRX was the one position giving them outperformance (and I was criticized when I pointed that out in the past), so that probably clouded their judgment with expectations of continued outperformance. ValueAct did the best by selling some last year.

 

Ackman might still be criticized most since he probably had highest cost of VRX among the bulls.

[AzCactus]

 

 

That's a fair observation. However, it seems that if you want to outperform indexes, it's very hard to do so with diversified portfolios with 3% positions. There are other arguments for concentrated portfolios too including the famous "why would you buy your 25th best idea instead of the best idea". If I look to invest for outperformance, I'm mostly looking at managers who hold concentrated portfolios and not someone who's top positions are 2-4%.

 

But, yes, they probably should have rebalanced and sold some when VRX ran up. Sequoia especially should have lowered their VRX position perhaps to 10% or so and not >20% that it was at the top. OTOH, VRX was the one position giving them outperformance (and I was criticized when I pointed that out in the past), so that probably clouded their judgment with expectations of continued outperformance. ValueAct did the best by selling some last year.

 

Ackman might still be criticized most since he probably had highest cost of VRX among the bulls.

 

Having the highest cost is one thing.  Having the biggest mouth on the other hand is something different.  In my opinion that's largely the reason he takes more heat than some others.  Additionally, I don't think he's perceived as having nearly as much humility as he ought to. 

 

 

[JBTC]

Ackman recently swapped APD stock for mostly APD options as a way to raise cash.  He'll probably do this with other positions.

 

Because the Target fund wasn't a good lesson on putting on massive option trades...

 

On March 8, 2016, certain of the Reporting Persons acquired on behalf of PS, PS II, Pershing Square International, and PSH American-style over-the-counter call options referencing 12,947,936 shares of the Issuer with Expiration Dates as set forth in Exhibit 99.4. Simultaneously with this acquisition, certain of the Reporting Persons sold on behalf of PS, PS II, Pershing Square International, and PSH 12,947,936 shares of the Issuer.

 

The counterparty to such over-the-counter options is Nomura Global Financial Products Inc.

 

 

I assume the dedicated fund which you're referring to where they invested in Target via options is the one they refer to here. 

 

http://www.forbes.com/2008/10/28/ackman-pershing-target-biz-wall-cz_dg_1028ackman.html

 

This story illustrates the risk of positions being converted from common stocks to options ...  If the fund had owned only the common stock, it most likely would have been profitable (TGT is now US$82.00), but with the option positions, they ran out of time and were forced to realise the loss and be at the mercy of Mr Market ...

 

Here is his subsequent letter to investors of that fund ..

 

http://www.marketfolly.com/2009/02/bill-ackmans-pershing-square-letter-to.html

 

kiwing100,

 

You have tracked PSH more thoroughly than most. Do you happen to have an opinion on the investment merits/shortcomings of the PSH stock at the current level?

 

[kiwing100]

 

Unable to get really comfortable with the fact that PSH converts from common stock holdings to option positions.  Haven't seen anywhere (perhaps overlooked) for risk management purposes if PSH limits their option positions as a percentage of their gross assets.  If PSH were to own 100% of their gross assets in option positions, that would be worrying as they would be at the mercy of Mr Market and might run out of time (due to option expiry) before the company situation gets fixed and Mr Market re-evaluates the stock price of the underlying investment (like the Target investment mentioned previously)

[JBTC]

 

If PSH were to own 100% of their gross assets in option positions, that would be worrying as they would be at the mercy of Mr Market and might run out of time (due to option expiry) before the company situation gets fixed and Mr Market re-evaluates the stock price of the underlying investment (like the Target investment mentioned previously)

 

The options are mostly part of its VRX and MDLZ positions, right?

 

I assumed they are far below 100% of the total assets, no?

 

[kiwing100]

 

If PSH were to own 100% of their gross assets in option positions, that would be worrying as they would be at the mercy of Mr Market and might run out of time (due to option expiry) before the company situation gets fixed and Mr Market re-evaluates the stock price of the underlying investment (like the Target investment mentioned previously)

 

The options are mostly part of its VRX and MDLZ positions, right?

 

I assumed they are far below 100% of the total assets, no?

 

 

PSH has option positions on the following stocks:

 

VRX - mixture of options expiring in Jan 2017

long calls with 95 strike

short calls with 165 strike

short puts with 60 strike

 

http://www.sec.gov/Archives/edgar/data/885590/000119312515385412/d68063dex995.htm

 

the short put option has a strike of US$60.00, so to get the stock price above this level would reduce the losses on this option.

Ideally the stock price at US$165 will maximise the market value of PSH's option positions.

 

MDLZ - long calls with strike of US$30, expiring in Set 2017. approx 1.3% of gross assets http://www.sec.gov/Archives/edgar/data/1103982/000119312516507074/d118679dex997.htm

 

APD - long calls with strike of US$67.11 expiring in March 2018 - approx about 9.5% of gross assets http://www.sec.gov/Archives/edgar/data/2969/000119312516498577/d144879dex994.htm

 

PSH raised a net cash balance of approx US$670.4mn from the conversions from stock to options from APD and MDLZ.  the question is what will the asset manager choose to invest the cash in - stocks or more options?

 

From what I can tell, the other positions in the PSH portfolio are in the form of common stocks, however there isn't anything precluding them from selling the common stocks and replacing them with options.  I'm not sure that I would want to see subsequent disclosures that the PSH portfolio has converted its CP, QSR stock positions to options.  It would mean a lot of cash in the portfolio and one would wonder where it might get deployed and in what form (i.e stock or options). 

 

 

 

[TwoCitiesCapital]

 

If PSH were to own 100% of their gross assets in option positions, that would be worrying as they would be at the mercy of Mr Market and might run out of time (due to option expiry) before the company situation gets fixed and Mr Market re-evaluates the stock price of the underlying investment (like the Target investment mentioned previously)

 

The options are mostly part of its VRX and MDLZ positions, right?

 

I assumed they are far below 100% of the total assets, no?

 

 

PSH has option positions on the following stocks:

 

VRX - mixture of options expiring in Jan 2017

long calls with 95 strike

short calls with 165 strike

short puts with 60 strike

 

http://www.sec.gov/Archives/edgar/data/885590/000119312515385412/d68063dex995.htm

 

the short put option has a strike of US$60.00, so to get the stock price above this level would reduce the losses on this option.

Ideally the stock price at US$165 will maximise the market value of PSH's option positions.

 

MDLZ - long calls with strike of US$30, expiring in Set 2017. approx 1.3% of gross assets http://www.sec.gov/Archives/edgar/data/1103982/000119312516507074/d118679dex997.htm

 

APD - long calls with strike of US$67.11 expiring in March 2018 - approx about 9.5% of gross assets http://www.sec.gov/Archives/edgar/data/2969/000119312516498577/d144879dex994.htm

 

PSH raised a net cash balance of approx US$670.4mn from the conversions from stock to options from APD and MDLZ.  the question is what will the asset manager choose to invest the cash in - stocks or more options?

 

From what I can tell, the other positions in the PSH portfolio are in the form of common stocks, however there isn't anything precluding them from selling the common stocks and replacing them with options.  I'm not sure that I would want to see subsequent disclosures that the PSH portfolio has converted its CP, QSR stock positions to options.  It would mean a lot of cash in the portfolio and one would wonder where it might get deployed and in what form (i.e stock or options).

 

A large portion of it is likely going to their banks who provided them the OTC options as variation margin for the puts that are deeply, deeply in the money. Ackman's strike price for those 12.5M shares/puts is slightly above $60 per share. He's currently $400+ million in the whole for those options and the broker isn't going to accept that kind of counterparty risk.