- Hedge fund billionaire Bill Ackman turned a $27 million position into a $2.6 billion windfall as the coronavirus dragged stocks to multiyear lows and threatened deep economic recession.
- Pershing Square Capital Management turned to credit protection on investment-grade and high-yield bond indexes to bet on an increased risk of corporate default.
- The multibillion-dollar profit offset losses elsewhere in Ackman’s portfolio and drove a 7.9% gain in March through Tuesday’s close for Pershing Square’s public fund, according to The Wall Street Journal.
- The fund has since used its profits to bolster bets on Berkshire Hathaway, Hilton, Lowe’s, Restaurant Brands, and Agilent.
Pershing Square Capital Management CEO Bill Ackman minted a multibillion-dollar profit as coronavirus fears tanked US stocks.
The hedge fund billionaire turned a $27 million position into $2.6 billion through defensive hedge bets, according to a letter to investors. The profit offset losses elsewhere in the firm’s portfolio and helped Ackman’s public fund land a 7.9% gain in March through Tuesday’s close, according to The Wall Street Journal. The S&P 500 slid 17% over the same period.
Pershing Square used credit protection on investment-grade and high-yield bond indexes to land the massive profits. The assets rise in value as the odds of corporate defaults increase. As measures to combat the virus cut into economic activity, corporate bond ratings tanked and investors feared for the worst.
The fund was able to purchase the investment vehicles about a month ago “at near-all-time tight levels of credit spreads,” leading the risk of loss to be “minimal at the time of purchase,” Ackman wrote.
The hedge fund began liquidating its protective bets last week after unprecedented action from the Federal Reserve and the Treasury Department shifted sentiments toward corporate credit health. Ackman fully exited the position on March 23, the same day the US central bank announced it would begin buying corporate bonds to prop up the battered market.
Ackman has since used the profits to bolster Pershing Square's investments in Berkshire Hathaway, Hilton, Lowe's, Restaurant Brands, and Agilent. The fund also reestablished a stake in Starbucks after selling its position in January.
The fund founder's win announcement comes after he used Twitter and an appearance on CNBC last week to warn the coronavirus will cause economic turmoil if the US doesn't institute a 30-day shutdown. Ackman urged CEOs of his portfolio companies take precaution as "hell is coming," and deemed a national stay-at-home order "the only answer" for saving the economy. Markets slid further through the March 18 session as Ackman's emotional CNBC interview pushed forward.
The investor later clarified he is "confident the president will do the right thing" after commentators accused him of fearmongering and intentionally driving markets lower.
Ackman said in his Wednesday letter that he still believes a month-long shutdown is necessary, and that the US "can be reopened carefully as China has so far successfully done" once the quarantine is over.