Hedge fund manager Bill Ackman, whose past investment disclosures move the market almost instantly, left a cliffhanger in his latest letter to his firm’s investors.
In the past, we have “made asymmetric investments which are not for hedging purposes, but which also offer large payoffs on relatively modest commitments of capital where we similarly believe that the market has mispriced the probability of a positive outcome,” wrote Ackman, in his Aug. 17 letter to Pershing Square Capital Management investors obtained by CNBC. “We recently identified an investment that broadly falls into this category. We expect that we will be able to share this investment in greater detail in the upcoming months.”
Ackman, who compared it to his hugely profitable bet on real estate firm General Growth Properties, added, “It is both an attractive standalone investment and one that offers significant hedging benefits for our portfolio. For a modest amount of capital commitment, this investment offers the potential for extraordinary profits.”
The investor, who most famously shorted mortgage insurer MBIA leading up to the housing crash, bought the property-owner General Growth for pennies. Ackman reportedly netted more than $1 billion following the company’s emergence from bankruptcy and subsequent split into two companies.
Pershing is still reaping the benefits of its holding in General Growth stock and debt, which was the largest contributor to the fund's profits in the second quarter. However, Ackman’s lips are sealed as far as his latest home run attempt.
“It is more likely than not a stock with a market value of $1 billion or less where he can get a concentrated position and get a ton of leverage,” said Dan Nathan of RiskReversal.com.
It’s the leverage that is key for an activist. Ackman had a three-year, ultimately losing saga with retailing giant Target where he could not convince enough shareholders to back his plans to sell the company’s properties and credit-card portfolio.
“In some cases, as with (GGP), we were able to buy common stock for less than a dollar per share because the probability of a recovery for shareholders was correctly perceived to be de minimis, but where our active intervention could meaningfully tilt the probability of a successful outcome in our favor,” wrote Ackman in the letter.
Pershing investors were flat on the year net of fees as of June 30, according to the letter, underperforming the market. And that’s before the tumultuous August that’s seen the S&P 500 lose 6 percent. But Ackman doesn’t sound too worried.
“Since the beginning of the month, the market, and to an even greater extent, most of our holdings went on sale,” wrote the investor. “We took advantage of this favorable pricing to invest more than $600 million in existing investments including Fortune Brands, Kraft , Family Dollar, Citigroup, and two new commitments. In each case, the businesses continue to make progress that meets or exceeds our expectations making our additional investments that much more compelling.”
Since their inception in 2004 and 2005, investors in all three of Ackman’s funds would have more than tripled their money net of fees.
For the best market insight, catch 'Fast Money' each night at 5pm ET, and the ‘Halftime Report’ each afternoon at 12:30 ET on CNBC.
Got something to say? Send us an e-mail at firstname.lastname@example.org and your comment might be posted on the Rapid Recap! If you'd prefer to make a comment, but not have it published on our Web site, send your message to email@example.com.