Bill Ackman’s Pershing Square Portfolio – Q4 2021 Update (OTCMKTS: PSHZF)

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This article is part of a series that provides an ongoing analysis of the changes made to Pershing Square’s 13F portfolio on a quarterly basis. It is based on Ackman’s regulatory 13F Form filed on 2/14/2022. Please visit our Tracking Bill Ackman’s Pershing Square Holdings article for an idea on how his holdings have progressed over the years and our previous update for the fund’s moves during Q3 2021.

Ackman’s 13F portfolio value increased ~ 12% from ~ $ 9.46B to ~ $ 10.58B this quarter. The number of positions remained steady at 6. The portfolio remains heavily concentrated with a few huge bets. The top three positions account for ~ 62% of the total portfolio value: Lowe’s Companies, Hilton Worldwide, and Chipotle Mexican Grill.

In addition to partner stakes, the fund also invests the capital from Pershing Square Holdings (OTCPK: PSHZF), a public entity that debuted in Euronext Amsterdam in October 2014. This was set up primarily to increase the amount of capital invested that is permanent. Pershing Square Holdings had underperformed the S&P 500 since its EOY 2012 inception. This changed in 2019 as they have compounded at ~ 50% since. Their original flagship fund’s (2004 inception) track record is excellent with annualized returns of ~ 17.4% compared to ~ 10.6% for the S&P 500 index.

Note 1: Pershing Square Holdings has always traded at a discount to NAV. It currently trades at $ 36.10 per share compared to NAV of ~ $ 50.

Note 2: In July 2020, Pershing Square sponsored the largest SPAC IPO to date, Pershing Square Tontine Holdings (PSTH). The offering had several retail-investor friendly attributes that made it stand out from the rest of the SPACs. The stock traded at a vast premium to trust value until the UMG transaction fell through. They have since unveiled a plan to return the capital raised back to shareholders while issuing what are termed SPARC warrants. PSTH currently trades below trust at $ 19.81.

Note 3: Their investor-call on February 12th disclosed a new holding: 3.1M shares of Netflix (NFLX) at $ 395 cost-basis. Netflix currently trades at around the same price. Also, they said the following regarding their hedging strategy, principles, and performance: “Principles: asymmetric payoff structures along with monetization that provides liquidity during periods of market dislocation. Strategy: Interest rate hedges from late 2020 to early 2022 as they believed Fed would raise rates earlier than anticipated. Performance: 18.5x return on $ 64M to $ 1.2B in 2005-2009 subprime crisis through CDS on MBIA, 96.3x return on $ 27M to $ 2.6B in 2020 COVID-19 through Index CDS on Investment Grade & High Yield Bonds, and 7.4x return on $ 188M to $ 1.4B in 2020-2022 through Out-of-the-money 2 year & 10 year swaptions.

Note 4: Pershing Square has a ~ 10% stake in UMG Music Group (OTCPK: UMGNF) at a cost-base of ~ € 18 per share. It currently trades at ~ € 20.

To learn more about Bill Ackman, check out the book “Confidence Game: How Hedge Fund Manager Bill Ackman Called Wall Street’s Bluff.”

Stake Decreases:

Hilton Worldwide Holdings (HLT): The large ~ 19% portfolio stake was established in October 2018. It was purchased at prices between $ 64 and $ 78. Q1 2020 saw a ~ 30% stake increase at a cost-base of ~ $ 70. There have only been minor adjustments since. The stock currently trades at ~ $ 149.

Note 1: Their overall cost base is ~ $ 72 per share.

Note 2: In Q4 2018, Hilton Worldwide Holdings came back in to the portfolio after a gap of eighteen months. The previous position was purchased in Q3 2016 and disposed of a year later. Pershing Square has said that the new position was acquired at a better valuation compared to their previous purchase. Also, the business structure has transformed into a capital-light model following the spinoff in early 2017 of Park Hotels & Resorts (PK) and Hilton Grand Vacations (HGV).

Kept Steady:

Lowe’s Companies (LOW): LOW is currently the largest position at ~ 25% of the portfolio. It was established in Q2 2018 at prices between $ 81 and $ 101 and increased by ~ 9% next quarter at prices between $ 95 and $ 117. There was also a ~ 40% stake increase in Q1 2020 at ~ $ 84 per share. The four quarters through Q2 2021 had seen a ~ 20% selling at prices between ~ $ 136 and ~ $ 211. The stock currently trades at ~ $ 221.

Note: Pershing Square’s cost base on LOW is ~ $ 85 per share.

Chipotle Mexican Grill (CMG): CMG is a large ~ 21% of the portfolio position. The stake was established in Q3 2016 at a cost base of ~ $ 405 per share. The position was sold down by ~ 30% in Q3 2018 in the high-400s price-range and that was followed with a ~ 17% trimming over the next four quarters. Q1 2020 also saw a one-third selling at ~ $ 860 per share. There was a ~ 7% trimming in Q1 2021 at ~ $ 1340 per share. Last quarter saw a ~ 3% increase at ~ $ 1910 per share. The stock currently trades at ~ $ 1523.

Restaurant Brands International (QSR): The QSR stake is a large 13.73% of the portfolio stake. Pershing Square’s original cost base was ~ $ 16. Q3 2017 saw a ~ 32% selling at prices between $ 59 and $ 66. That was followed with a ~ 22% reduction in H1 2018 at prices between $ 53 and $ 64. The four quarters through Q3 2019 had also seen a ~ 28% selling at prices between $ 52 and $ 79. In June 2020, they increased their position by roughly two-thirds through forward contracts: $ 397.50M aggregate purchase price for a $ 44.20 per share cost-basis. The stock currently trades at ~ $ 56.

Howard Hughes Corp. (HHC): HHC is now a 13.10% of the 13F portfolio position. The stake was first established in 2010 as a result of its spin-off from GGP Inc. The vast majority of the current stake is from the addition of ~ 10M shares in Q1 2020 at ~ $ 50 per share through a private placement. Q1 2021 saw a ~ 25% stake increase at prices between ~ $ 78 and ~ $ 102. The stock is currently at ~ $ 96. Last quarter also saw a minor ~ 1% increase at $ 92 per share.

Domino’s Pizza (DPZ): DPZ is a 11.16% of the portfolio stake established in Q1 2021 at prices between ~ $ 330 and ~ $ 375 and the stock currently trades well above that range at ~ $ 432. They have a ~ 5.3% ownership stake in the business.

Fannie Mae (OTCQB: FNMA) and Freddie Mac (OTCQB: FMCC) are other long positions in the partnership – the holdings were disclosed in 13D filings on November 15, 2013 – as they are not 13F securities, they are not listed in the 13F report. Ackman holds just under 10% of the outstanding shares of both these businesses – 115.57M shares of FNMA at a cost-base of $ 2.29 and 63.5M shares of FMCC at a cost-base of $ 2.14. The combined investment outlay was ~ $ 400M. FNMA & FMCC currently trade at ~ $ 0.85 per share. In March 2018, Pershing Square said their Fannie / Freddie pfds now amounts to 21% of the total investment in the two GSEs. Their Q4 2021 Annual Investor Presentation had the following regarding Fannie / Freddie: “Remains confident of long-term value – believes re-privatization is an eventuality regardless of court outcomes“.

The spreadsheet below highlights changes to Pershing Square’s 13F stock holdings in Q4 2021:

Bill Ackman - Pershing Square

Bill Ackman – Pershing Square’s Q4 2021 13F Report Q / Q Comparison (John Vincent (author))

Editor’s Note: This article covers one or more microcap stocks. Please be aware of the risks associated with these stocks.

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