Thomson Reuters
- The hedge-fund billionaire Bill Ackman turned a $27 million position into a $2.6 billion windfall as the coronavirus outbreak 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, The Wall Street Journal reported.
- The fund has since used its profits to bolster bets on Berkshire Hathaway, Hilton, Lowe’s, Restaurant Brands International, and Agilent.
- Visit the Business Insider homepage for more stories.
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, a Wednesday letter to investors said. 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, The Wall Street Journal reported. 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 outbreak cut into economic activity, corporate bond ratings tanked, and investors feared the worst.
The fund was able to purchase the investment vehicles about a month ago “at near-all-time tight levels of credit spreads,” so the risk of loss was “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 sentiment toward corporate credit health. Ackman fully exited the position on Monday, 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 International, and Agilent. The fund also reestablished a stake in Starbucks after selling its position in January.
The fund founder used Twitter and an appearance on CNBC last week to predict that the coronavirus outbreak would cause economic turmoil if the US didn’t institute a 30-day shutdown.
Ackman urged CEOs of his portfolio companies to take precautions as “hell is coming” and said a national stay-at-home order was “the only answer” for saving the economy. Markets slid further through the March 18 session during Ackman’s emotional CNBC interview.
After commentators accused him of fearmongering and intentionally driving markets lower, the investor said that he was “confident the president will do the right thing.”
Ackman said in his Wednesday letter that he still believes a monthlong shutdown is necessary and that the US “can be reopened carefully as China has so far successfully done” once the lockdown is over.
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