Best start to a year for Pershing Square though discount lingers – Pershing Square Holdings (PSH) has reported results for the year to December 31, 2018. The activist fund, which invests in publicly-listed US stocks, is generating momentum following measures it undertook in early 2018 to address a period of poor performance that was not in keeping with its historical record of delivering returns in excess of the S&P 500.
Companies in the PSH portfolio include Restaurant Brands, Hilton, Starbucks, ADP, Chipotle, Howard Hughes, United Technologies, Lowe’s, Fannie Mae and Freddie Mac. PSH sees its portfolio as being more concentrated than most equity-focused hedge funds and its holding period generally being a lot longer.
Back to its roots
Discussing the restructuring, following three successive years of negative returns from 2015, Pershing Square Capital Management’s CEO Bill Ackman said: “We restructured and simplified Pershing Square Capital Management by returning to our roots as an investment-centric operation rather than an asset management business with the attendant requirements to continually raise capital.
We are no longer seeking to raise capital for the Pershing Square private funds. This has freed up substantial time and renewed focus which have enabled me and the other members of the investment team to invest nearly all of our business time and attention on the identification, monitoring, and oversight of our portfolio companies.”
Chipotle leading the portfolio
- During the year ended December 31, 2018, PSH’s NAV declined -0.7%, ending the year at $17.30 per share. Over the same period, the S&P 500 declined -4.4%. Through September 30, 2018, PSH’s NAV increased 15.8%, outpacing the S&P 500 return of 10.6%
- The fast casual burrito restaurant Chipotle has been the best performing asset over the past 15 or so months, contributing 6.2% to an overall NAV decline of 0.7%. Chipotle has also led returns so far in 2019 as its own organisational transformation gathers pace after a challenging period
- From the beginning of 2019 to March 19, PSH’s NAV has increased 31.9%, compared to the S&P 500’s 13.5%. This is the strongest start to a year by PSH since its inception in 2004
Commentating on the results, chairman of the board, Anne Farlow, said: “This excellent performance is due to strong earnings growth and positive developments across all of our portfolio companies. It would be impossible for every position in a large and diverse portfolio to outperform in a volatile market, but it can occur when an activist invests in a portfolio of 8-12 carefully selected companies.”
Judging by the discount to NAV, which is currently at 25.9%, PSH still has work to do to convince investors to value it close to pre-2015 levels. Earlier this year we wrote about PSH’s dividend initiation and how it was aimed at widening the investor base to include those requiring some yield, with the hope that this would help to narrow the discount (https://quoteddata.com/2019/02/pershing-square-pay-modest-dividend/).
PSH: Best start to a year for Pershing Square though discount lingers