BOSTON Pershing Square Capital Management, the
hedge fund firm run by billionaire William Ackman, wants to be
exempted from possibly having to return millions of dollars in
fees after a former employee donated $500 to a family friend's
In an application made public on Tuesday, Pershing Square
detailed the 2013 contribution by a former analyst and asked the
U.S. Securities Exchange Commission (SEC) not to force it to
return fees it earned from managing money for the Massachusetts
state pension fund, should it be determined that the fund
violated campaign finance rules.
The matter represents another possible problem for one of
the world's most closely watched hedge funds, at a time when it
is suffering double-digit losses for the second straight year
and investors may be looking for reasons to exit.
At issue is a contribution Paul Hilal made when he was a
Pershing Square analyst to the campaign of Juliette Kayyem, a
Harvard lecturer and security expert, who was trying to mount a
run for governor in Massachusetts. Hilal was asked by Kayyem's
sister to contribute $500. That is in excess of the $150 people
are allowed to give to candidates they cannot vote for. Hilal
declined to comment.
Kayyem did not gain enough votes to make it onto the ballot
in 2014. The state's governor is able to appoint members of the
state pension fund's board who could vote on which firms should
manage the fund's money.
Regulators have recently paid more attention to deals that
investment firms have made with pension funds in order to try
and steer business their way.
Pershing Square sent its application to the SEC in
September, months after the regulator in May asked for
information about campaign donations. It is unclear precisely
how much in fees is at stake, but based on how much the New
York-based firm manages for the state, it could be in the
millions. If the firm were forced to pay back any fees, they
would go to the SEC, not the pension fund.
"Causing (Pershing Square Capital Management) to forfeit
compensation for the two-year period subsequent to the
contribution could result in a financial loss that is thousands
of times the amount of the contribution," the firm wrote to the
SEC in asking for the exemption.
In a statement on Tuesday, Pershing Square called the
improper donation "an unintended violation," and said it takes
compliance very seriously.
The SEC declined to comment.
"A former employee made a $500 campaign contribution to his
friend's sister's unsuccessful primary campaign in an unintended
violation of our compliance policies," Pershing said in its
statement. "The donation was $350 in excess of the allowable
contribution. The donation has since been returned."
The firm said that it does not appear that Hilal ever
communicated with the state pension fund or its representatives.
It also wrote that the former analyst was not a "'covered
associate' within the meaning of the Rule, as his activities did
not rise to the level of soliciting investments." The fund also
said he never met or spoke with the potential candidate.
The firm is now prohibiting all donations to local and state
races and requiring employees to certify contributions four
times a year instead of once a year.
Pershing Square is one of 28 hedge funds that manage money
for Massachusetts' $63.2 billion state pension fund and started
investing on the state's behalf in 2011.
Neither the fund nor the state would say exactly how much
Pershing Square invests for Massachusetts, having been approved
for an initial investment of $25 million five years ago.
Hedge funds typically charge their clients a 2 percent
management fee and then take 20 percent of the profits they earn
for the client. While Pershing Square's flagship fund is nursing
a 12 percent loss this year, it remains one of the industry's
most profitable hedge funds, having scored a 37 percent gain in