Pershing Square (PSH) is a closed-end investment fund based in Guernsey with a market capitalisation of 6.9 billion. Listed on the London Stock Exchange under the ticker PSH, it has an average trading volume of 150,000 shares per day, providing ample liquidity for investors. Although traded on the London exchange, all of the fund’s investments are in U.S. equities and hence I have recommended it as a US investment.
There are several compelling reasons to consider investing in PSH:
Impressive Track Record: Since its inception in 2004, PSH has achieved an average annual return of 16.5%, significantly outperforming the S&P 500’s 10% return over the same period.
2. Trading at a Discount: PSH is currently trading at a 30% discount to its net asset value (NAV). Given William Ackman’s track record, the fund should ideally be trading at or above its NAV, providing an attractive entry point for investors.
3. Insider Ownership and Share Repurchase: With 27% insider ownership, management’s interests are closely aligned with those of investors. Additionally, the fund has repurchased 26% of its shares since listing, further enhancing value for existing shareholders.
PSH focuses on high-quality businesses with sustainable competitive advantages and predictable cash flows. The fund adheres closely to the value investing principles of Benjamin Graham, but what sets PSH apart is its:
1. Long-term perspective: As a closed-end fund, PSH benefits from having locked-in capital, meaning it doesn’t face the pressure of redemptions from investors during periods of poor performance. This provides a significant advantage, giving the manager access to permanent capital that can be invested with a long-term focus. Unlike most funds, which allow quarterly redemptions, the closed-end structure enables the manager to pursue investments with a multi-year outlook, even if they may underperform in the short term. The average holding period for investments spans several years.
2. Activist approach: With its concentrated portfolio, PSH often acquires significant stakes in companies, allowing it to secure board seats and influence strategic decisions. This involvement helps drive meaningful improvements in company operations, ultimately boosting returns. Unlike many other funds, PSH is genuinely hands-on, working to transform companies and enhance their performance.
3. Flexible investment mandate and prudent use of leverage: PSH operates with a highly flexible mandate, which can be a double-edged swordpotentially risky with less skilled managers, but a strong advantage under the leadership of one of the world’s top fund managers.
Read More: A Compelling Investment Opportunity for Long Term Value Investors
