BOSTON (Reuters) - Hedge fund superstar William Ackman is considering creating a different investment vehicle that would allow him to raise fresh permanent capital for his activist bets while still giving investors access to their money, three people familiar with his plans said on Thursday.
Ackman’s Pershing Square Capital Management has made no secret of its desire to increase the amount of its permanent capital. It told investors that the firm is inching closer to finding a solution to reach its goal.
The structure, while still in the planning phase, might involve creating a closed-end fund that would be listed on an exchange but would still provide daily liquidity to investors, sources briefed on Ackman’s plans said.
In a letter to investors, Ackman outlined his reasons for trying to increase the size of assets from its current $10 billion. Only about 8 percent of that capital is permanent, committed by employees and long-time affiliates.
“If we could increase the amount of our capital that is permanent, it would enable us to be more opportunistic during times of market and investor distress, and would also enable us to take larger stakes in a greater number of holdings,” Ackman said in the letter, which was obtained by Reuters.
“Over the long term, we believe that we can increase the probability of our success by increasing the proportion of our capital that is permanent,” Ackman wrote to investors while stressing that no final decision had been reached.
AR Magazine first reported that Ackman might be mulling an IPO for a fund.
A Pershing Square spokeswoman declined to comment.
Since launching his firm in 2004, Ackman has become a favorite with some of the world’s biggest hedge fund investors like the Blackstone Group and state pension funds including New Jersey by treating investors to an average annualized return of about 19.46 percent. Assets under management now stand around $10 billion up from roughly $3.5 billion four years ago.
This week one of his latest investments, a bet on J C Penney (JCP.N), earned him a $476 million paper profit when the retailer appointed Ron Johnson as its new CEO and the stock price surged. As a Penney board member, Ackman was instrumental in paving Johnson’s path from Silicon Valley to Plano, Texas by initially reaching out to the former Apple executive to possibly join the Penney board.
Traditionally, Pershing Square invests in only a handful of names at one time and Ackman has recently said that there are times he would like to make bigger and more bets while still having enough on hand to return investors cash if they want to get out.
“This is best understood by example: if a typical investment today is $1 billion and we must limit our stake to less than 10 percent of shares outstanding, we must focus our efforts on companies with a $10 billion or greater market cap. If we can purchase 20 percent of a company, not only do we achieve greater influence, but companies as small as a $5 billion market cap can achieve our capital commitment objectives,” Ackman said in the letter.
Editing by Bernard Orr