Bill Ackman’s landmark $5 billion dual IPO, which saw GFH Financial Group participate as an anchor investor, stumbled in its market debut as shares of the newly-listed closed-end fund traded sharply below their offering price. Pershing Square USA (PSUS), which was priced at $50, closed its first day of trading down at $40.90, an 18.2 percent discount to its net asset value (NAV).
"We had a whole bunch of people dump that stock yesterday for technical reasons," Ackman said, suggesting that retail investors who over-subscribed to the offering were forced to sell when they couldn't fund their allocations. "In retrospect, I made a mistake. I favored retail allocations over institutional allocations, which is almost never done."
However, the allocation figures from the offering present a more complex picture. Institutional investors reportedly accounted for more than 80 percent of the capital raised, with some reports putting the figure as high as 85 percent. Ackman and his employees had also committed approximately $500 million, and another $2.7 billion was secured from institutions before the broader marketing, leaving a relatively small portion of the $5 billion deal for individual investors.
The rocky start highlights a structural challenge for the fund, which is organized as a U.S.-domiciled closed-end fund (CEF). CEFs issue a fixed number of shares that trade on an exchange, and their market price can diverge significantly from the underlying value of their assets. The majority of CEFs, nearly 90 percent according to Matisse Capital, trade at a discount to their NAV, with the 20-year average discount sitting at 4.9 percent, according to Morningstar data.
The new fund is intended to make Ackman’s investment strategy—typically a concentrated portfolio of 12 to 15 large-cap North American stocks—accessible to a wider public. The portfolio is expected to be deployed within 60 days and will likely mirror his European fund, Pershing Square Holdings (LSE: PSH), which holds stakes in companies like Alphabet, Amazon, and Meta Platforms.
However, this access comes at a cost. In addition to the potential for the shares to trade at a persistent discount to their underlying value, the fund charges a 2 percent management fee. For comparison, the European-listed PSH has historically traded at a discount of nearly 30 percent to its NAV, causing its share performance to lag the growth in the fund's asset value over time.
While Ackman pointed to technical selling from retail investors, the fact that the IPO priced at the low end of its initial $5 billion to $10 billion target range may suggest lukewarm demand from the outset. With institutional investors forming the vast majority of the shareholder base, it raises questions about how a small contingent of retail sellers could drive the price down so significantly, suggesting some larger investors may have also been quick to exit their positions.
For PSUS to close the gap and trade at or above its $50 NAV, as Ackman predicts, it will need to generate substantial and sustained investor demand in the secondary market. Given that most CEFs fail to achieve this, investors will be watching closely to see if Ackman's reputation and track record are enough to make Pershing Square USA an exception.
This article is for informational purposes only and does not constitute investment advice.
