PSH.L - Pershing Square Holdings

[JBTC]

Agreed, but the biggest issue for me is that Ackman is ethically challenged. Just look at the old history of Gotham partners and Gotham Golf. He drove his first fund into the ditch and my guess is that he will do it again.

 

Hi, would you mind telling us what he did and how he drove his first fund into the ditch?

 

 

[johnny]

I think the basic story is his old fund had a huge position in a private golf course business that was not doing well, and Ackman cooked up a merger between GolfCo and some other portfolio company to try and save things. This was contested by a minority or pref shareholder in OtherCo, and then they got killed by redemptions.

 

AFAIK, there's no smoking gun that the attempted merger was actually ethically challenged, but it is the sort of thing that sort of looks bad, especially given that it seems to be a deal that his fund depended on (so there is a bit more plausibility to the idea that he was trying to force a deal that wasn't in everybody's interest).

[Spekulatius]

Gotham Golf was a huge holding of Gotham Partners, losing money and going bankrupt. Gotham partners than was gaining control of another real estate entity that was cash Rich and made an attempt to merge them against the will of the other owners. It indeed was a holder of preferred stock of CashRichCo that was suing and gaining enough support from the bankruptcy judge to block the merger. Gotham Golf failed and Gotham Partners reputation went with it no the fund went downhill.

 

The attempted merger was a clear attempt to disown minority and debt holders and I find that very ethically challenged. FWIW, I know this story from someone (message board acquaintance) who held the preferred stock at that time and was involved in the lawsuit - not that it matters.

 

Ackman seems like such a nice guy, but given enough money involved, he will roll over people, if it is to his advantage. That is why I take pleasure, when he gets screwed over by obviously smarter folks,  like with the HLF short investment. He makes bold bets and some of them work out spectacularly well and some of them go bust spectacularly. In some cases, it seems to me that his research is clearly lacking, given the size of his bets. VRX seems such a case, where he got in late, HLF  and JCP are others. After all, it's other people's money he is playing with and he will make out fine regardless.

 

 

 

[JBTC]

Ackman seems like such a nice guy, but given enough money involved, he will roll over people, if it is to his advantage. That is why I take pleasure, when he gets screwed over by obviously smarter folks,  like with the HLF short investment. He makes bold bets and some of them work out spectacularly well and some of them go bust spectacularly. In some cases, it seems to me that his research is clearly lacking, given the size of his bets. VRX seems such a case, where he got in late, HLF  and JCP are others. After all, it's other people's money he is playing with and he will make out fine regardless.

 

I can imagine someone like Ackman may have more enemies than friends. But surely everyone on this board knows that having a few failed investments doesn't necessarily imply fatal flaws with character or investing skill. I presume even with so many things going against him at the moment, his track record in the past 10 years still looks decent, meaning better than all but a few.

 

I definitely think there will be a ton to learn from the VRX story for those involved or the onlookers. Ackman isn't the only "fool"; the list includes Lou Simpson, Sequoia, and others. It does make me think about the possibility and extent that those brilliant managers may decide to ride each other's coattail's without having done independent due diligence.

 

 

[Mephistopheles]

His track record is misleading because it doesn't include Gotham nor does it include the one stock Target fund that blew up. If you were to include these failures, I'm not sure how great his performance would look.

 

Nevertheless, I do like his style of concentration and investing in simple, predictable businesses. I also admire the gargantuan amounts of research he does; for MBIA he allegedly read/went through 100,000 pages of documents. Whether or not that much research is needed is debatable but it is admirable.

[plato1976]

In my opinion we should take Gotham into consideration, but not at the same degree for the target fund.

The target fund was a very aggressive move with options etc and I guess that's why they use a separate fund - ppl should have assumed high risk high return for that one.

 

His track record is misleading because it doesn't include Gotham nor does it include the one stock Target fund that blew up. If you were to include these failures, I'm not sure how great his performance would look.

 

Nevertheless, I do like his style of concentration and investing in simple, predictable businesses. I also admire the gargantuan amounts of research he does; for MBIA he allegedly read/went through 100,000 pages of documents. Whether or not that much research is needed is debatable but it is admirable.

[Spekulatius]

The issue with track records is survivorship bias, but  and related to that the asset size. Survivorship bias that when a fund does well, it will grow in size - if not, it will be closed down and the track record will be buried. Also this means that funds that do well, probably start small and tend to be big when the blow up, so even if the cumulated return from the start would have been good, this is irrelevant because in aggregate, the investors can well have low money.

 

I don't mind as much that Ackman makes mistakes, but trying o have other people pay for his mistakes (like with the Gotham Golf case) is a totally different issue and in my opinion indicated ethical flaws. I think this would be enough reason to never invest with someone like Ackman because I am no inclined to think that personal traits like they are likely to change.

 

Icahn is tough too and everybody knows it, but I think he has treated the investors of his fund in a straightforward manner. I could imagine to invest alongside someone like Icahn, but someone like Ackman would be a no no. I am surprised that he is held in that high regard in this board.

[JBTC]

Icahn is tough too and everybody knows it, but I think he has treated the investors of his fund in a straightforward manner. I could imagine to invest alongside someone like Icahn, but someone like Ackman would be a no no. I am surprised that he is held in that high regard in this board.

 

It's good that you mentioned Icahn. Any thoughts on IEP?

 

[Liberty]

Q3 letter: http://www.valuewalk.com/wp-content/uploads/2015/12/Pershing-Square-Holdings-Ltd.-Q3-Investor-Letter1.pdf

[Phaceliacapital]

http://assets.pershingsquareholdings.com/2014/09/Pershing-Square-2015-Annual-Letter-PSH-January-26-2016.pdf

 

"Our biggest valuation error was assigning too much value to the so-called “platform value” in certain of our holdings."

 

 

[Patmo]

simple, predictable businesses.

 

About that...

[thepupil]

PSH's bonds trade 600 over, 7.4% YTM (compared to issue spread of 336, 5.5% YTM). Not an unreasonable blow-up risk to insure, in my opinion. You need almost every single stock to blow up spectacularly (not impossible) to lose money. Not super confident in Ackman's recent theses at all, but I'll take a little bet on him not having another 70% drawdown from here.

 

EDIT: min order size on IB is $250K, way too big for yours truly.

[cogitator99]

http://assets.pershingsquareholdings.com/2014/09/Pershing-Square-2015-Annual-Letter-PSH-January-26-2016.pdf

 

"Our biggest valuation error was assigning too much value to the so-called “platform value” in certain of our holdings."

 

Could've seen that coming. ;)

[cogitator99]

Bill Ackman: Stocks are pretty cheap; Disagree With Tepper

 

http://www.valuewalk.com/2015/09/bill-ackman-stocks-are-pretty-cheap-disagree-with-tepper/

 

Cheers,

 

Gio

 

In retrospect, master trader Tepper was right ;) He probably didn't lose 20% in 2015...

[LongHaul]

Gotham Golf was a huge holding of Gotham Partners, losing money and going bankrupt. Gotham partners than was gaining control of another real estate entity that was cash Rich and made an attempt to merge them against the will of the other owners. It indeed was a holder of preferred stock of CashRichCo that was suing and gaining enough support from the bankruptcy judge to block the merger. Gotham Golf failed and Gotham Partners reputation went with it no the fund went downhill.

 

The attempted merger was a clear attempt to disown minority and debt holders and I find that very ethically challenged. FWIW, I know this story from someone (message board acquaintance) who held the preferred stock at that time and was involved in the lawsuit - not that it matters.

 

 

I heard something similar about the Golf deal from someone who went to the meeting to sell it.  It smelled really bad to me. 

 

 

Ackman seems like such a nice guy, but given enough money involved, he will roll over people, if it is to his advantage. That is why I take pleasure, when he gets screwed over by obviously smarter folks,  like with the HLF short investment. He makes bold bets and some of them work out spectacularly well and some of them go bust spectacularly. In some cases, it seems to me that his research is clearly lacking, given the size of his bets. VRX seems such a case, where he got in late, HLF  and JCP are others. After all, it's other people's money he is playing with and he will make out fine regardless.

[obtuse_investor]

As VRX free falls today, here is a letter from Pershing:

http://assets.pershingsquareholdings.com/2016/03/Pershing_Square_Sends_Communication_to_Investors_-_Final_en-1.pdf

 

Dear Pershing Square Investor,

 

Today, Valeant reported preliminary unaudited earnings for Q4, updated

guidance for Q1, full year 2016 and the next twelve months.

 

In particular, management shocked the market with revenue and earnings

guidance for the next twelve months (Q2 2016 to Q1 2017) which does

not appear to foot with continued favorable prescription trends and

management’s commentary on the call about the strength of the

underlying businesses.  Furthermore, the company’s 10-K has been

delayed requiring the company seek a waiver under its credit

agreement.

 

While we believe that it is highly likely that the banks will provide

a waiver, uncertainty about the potential for a default creates

enormous investor fear.  The above factors have caused investors to

lose total confidence in the company as reflected by the current 44%

decline in Valeant’s stock price.  Last week, Steve Fraidin, our Vice

Chairman, joined the board.  We are going to take a much more

proactive role at the company to protect and maximize the value of our

investment.

 

We continue to believe that the value of the underlying business

franchises that comprise Valeant are worth multiples of the current

market price.  Getting to those values, however, will require

restoration of shareholder confidence in the management and governance

of the company.  We will do our best to keep you promptly informed

subject to any limitations that we have now that we have recently

become insiders at the company.

 

Please feel free to contact the investor relations team or me if you

have further questions.

 

Sincerely,

Bill

[doughishere]

So the covenant wasn't even a capital or interest coverage covenant it was a 10k release covenant? ROFL. Am I right in reading that?

[Picasso]

It's both but not filing a 10K is a separate covenant issue.

[doughishere]

It's both but not filing a 10K is a separate covenant issue.

 

 

As they say in Missouri....show me.

[kiwing100]

Back in Dec 2015, to average down their cost on VRX, they sold 2 put options with a strike of 60, sold 2 calls with a 165 strike, and bought 1 call with a strike of 95 [based on news reports].  All these options reportedly expire in Jan 2017.

 

Given the sharp downward price movement in VRX, the short put options in VRX with a strike of 60 will hurt the mark to market valuation of the options, and NAV of PSH. 

 

There might be a cash margin call on the short put option position, or they might have offered other collateral already ..

 

Not sure how much of this is in the PSH portfolio compared with the other funds that Pershing Square manage ...

 

 

[Picasso]

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.

 

[kiwing100]

 

Picasso, thank you for that information. For those of you interested here are the links to disclosures

 

APD shares sold, and OTC options purchased on APD by various Pershing Square investment vehicles:

http://www.sec.gov/Archives/edgar/data/2969/000119312516498577/d144879dex994.htm

 

The strike price is 67.11, and options expire on various dates in March 2018.

 

 

Agreement - SHARE CALL OPTION MASTER CONFIRMATION

http://www.sec.gov/Archives/edgar/data/2969/000119312516498577/d144879dex995.htm

 

 

Sched 13D disclosure on APD position

http://www.sec.gov/Archives/edgar/data/2969/000119312516498577/d144879dsc13da.htm

 

 

 

[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.

 

 

If the fund manager is deploying the cash proceeds into other investments (either common stock or OTC options) then this fund has embedded leverage and increased the overall  leverage of the portfolio for PSH - readers of the PSH annual report may not realise the portfolio has increased its leverage via call options. So PSH has long term debt of US$996mn that they issued in June 2015, then there is the leverage via its positions in options.

 

 

[kiwing100]

 

Looks like other Pershing Square investment vehicles closed out some of their VRX option positions in early February 2016.  No mention of PSH positions in this disclosure

 

http://www.sec.gov/Archives/edgar/data/885590/000119312516452440/d132982dex998.htm

 

 

http://www.sec.gov/Archives/edgar/data/885590/000119312516452440/d132982dsc13da.htm

[kiwing100]

PSH's bonds trade 600 over, 7.4% YTM (compared to issue spread of 336, 5.5% YTM). Not an unreasonable blow-up risk to insure, in my opinion. You need almost every single stock to blow up spectacularly (not impossible) to lose money. Not super confident in Ackman's recent theses at all, but I'll take a little bet on him not having another 70% drawdown from here.

 

EDIT: min order size on IB is $250K, way too big for yours truly.

 

The portfolio is selling common stocks and buying OTC options on the same underlying security - and this is the worrying point as a bondholder.

 

The issue is that the portfolio might end up being invested in a lot of OTC options, rather than common stocks.  Take an extreme position, where the whole portfolio is made up of OTC options as the investment manager swings for the fences in order to try and get NAV per share above their last high water mark so that they can earn their incentive management fee.  (NAV is below their high water mark of US$29.00 or thereabouts).

 

Options can obviously fall by 100% ... and if PSH defaults, then who knows what the value of that collateral is, for bond holders ...  If PSH were to default, the market prices of the underlying securities could fall (due to possible predatory selling by competitors of the underlying securities, and the unwinding of the delta hedge by the OTC option writer) and the value of the options falls are higher in percentage terms ...