Bill Ackman Explains Himself as Pershing Square's Portfolio Soars

Institutional Investor (04/02/20) Celarier, Michelle

Bill Ackman's Pershing Square Holdings is up 3.3% for the year after rising 11.1% in March. Ackman was quick to respond to the coronavirus crisis, hedging his portfolio and sending his employees home for the duration on Feb. 27. As a result, Ackman has made $2.6 billion off one $27 million investment that protected his portfolio of hotels and restaurants as the markets tumbled. He was in the process of closing out hedges when, on March 18, he tweeted to President Donald Trump to shut down the country for a month to stop the virus from spreading. Despite his dire warnings, Ackman said he was buying stocks that day and continued to buy until March 25, by which point Pershing Square had redeployed all of the net proceeds from its hedges by adding to investments in a number of companies. In a recent letter to investors, Ackman explained that his hedges were credit default swaps on various investment grade and high yield credit default swap indices. "At the time of purchase, the IG or investment grade indices were trading near all-time tight levels of about 50 basis points per annum. The high yield index, the CDX HY, was also trading near its lowest spread ever," he explained. The firm eventually sold the hedges because "the risk-reward ratio of holding the contracts at 140 basis points was not nearly as compelling as when spreads were at 50 basis points." Ackman denies the allegations that he intentionally scared people about Covid-19 to increase his profits, saying that his firm merely bought what are essentially insurance policies to mitigate the risk to investors' capital.

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