Bill Ackman’s hedge fund, Pershing Square USA (PSUSA), has withdrawn its initial public offering (IPO) one day after filing with the Securities and Exchange Commission (SEC). The IPO, originally set at a $25 billion target, was scaled down to a $2 billion listing before being canceled. Ackman had been on a roadshow, seeking commitments from institutional investors for seven weeks. The decision to cancel the IPO was announced in a social media post by Ackman, suggesting PSUSA might still launch without listing shares on a stock exchange.
The cancellation of the IPO follows a period where closed-end funds (CEFs) have not regained their mid-2021 peak in net assets. Ackman’s previous attempts to launch investment vehicles through IPOs have had mixed success, including a European closed-end fund and a short-lived SPAC in 2020. This cancellation continues the trend of challenges in launching large-scale CEFs in the current market environment.
Investor Commitments and Concerns
Ahead of the SEC filing, Ackman informed investors that the IPO would not meet initial expectations. The target valuation was revised to between $2.5 billion and $4 billion, with an upper limit of $10 billion. Ackman emphasized that long-term value creation for Pershing Square Inc. depended more on market performance than the IPO size. The IPO had potential to invigorate the CEF market, which has struggled to recover its previous valuation highs.
Ackman revealed commitments from several institutional investors, including $150 million from Baupost Group and other significant investments. However, Baupost Group later withdrew its investment commitment, contributing to the decision to cancel the IPO. The market’s bearish sentiment toward CEFs, reflected in their average trading discount, was a significant factor in investor hesitancy.
Market Sentiment and Future Plans
Closed-end funds typically trade at a discount, meaning the market values them less than their asset worth. Ackman acknowledged this challenge, noting that the novelty and historical performance of CEFs required a leap of faith from investors. The size of the transaction was also a concern; at $25 billion, the PSUSA would have been the largest CEF ever, while the current largest is PIMCO’s Dynamic Income Fund at $5.97 billion.
Despite the challenges, Ackman remains optimistic about the potential for PSUSA. He has indicated that the fund might still launch without a public listing, exploring alternative strategies to meet investor needs. This approach reflects Pershing Square’s adaptive strategy in facing market realities and investor sentiment.
CEFs face performance issues in high-rate environments, where safer returns from treasuries attract investors. Additionally, lack of confidence in active managers and high management fees can deter investments. Ackman’s decision to cancel the IPO highlights the volatility and cautious nature of today’s investment landscape, particularly in the CEF market.
