2020 was Pershing Square’s best year

2020 was Pershing Square’s best year – During the year ended December 31, 2020, Pershing Square delivered a total NAV return (including dividends) of 70.2%, with the NAV ending the year at $45.46 per share. The total shareholder return was 84.8%, helped by the narrowing of the discount. Over the same period, the S&P 500 increased by 18.4%. Outperformance was driven by its purchase of index credit default swaps in February 2020, and the subsequent unwinding of those hedges.

The considerable proceeds from the hedges were primarily invested in existing portfolio companies that the manager knew well, including Agilent (“A”), Hilton (“HLT”), Lowe’s (“LOW”), and Restaurant Brands (“QSR”). Pershing Square also re-established a core investment in Starbucks (“SBUX”).

In the summer of 2020, the manager initiated a new investment by launching a SPAC, Pershing Square Tontine Holdings (PSTH). On July 22, 2020, PSTH raised $4bn in its IPO on the New York Stock Exchange. The company, Pershing Square, L.P. and Pershing Square International, Ltd entered into a forward purchase agreement where they committed to contributing an additional $1bn, with the option to increase their investment up to $3bn. Therefore, in total, PSTH has $5bn to $7bn of equity capital to use in its initial business combination.

In addition, the Pershing Square funds bought a ‘sponsor warrant’ exercisable at $24 per share to purchase 5.95% of the fully diluted business combination. In typical SPAC transactions, the sponsor is owned by the investment manager. However, the SPAC sponsor for PSTH is 100% owned by the Pershing Square funds, ensuring that the manager’s incentives are fully aligned with the performance of the funds, and that there is no conflict of interest between the manager and Pershing Square Holdings. [What happens next to PSTH is the subject of significant speculation. the SPAC is trading at around $24, off its highs but at a premium to the $20 IPO price.]

In 2020, the manager also increased the company’s ownership of HHC and exited its investment in Berkshire Hathaway. During the period of heightened volatility last spring, a number of non-core investments were also initiated and sold. Later in the year, smaller notional amounts of credit default swaps were purchased as spreads narrowed.

In 2020, the fund completed two new bond issuances, raising a total of $700m: $500m of 3.25% 10-year unsecured bonds due November 2030 and $200m of 3.0% 12-year unsecured bonds due July 2032. The company currently has $2.1bn of debt in four tranches. The 2030 bonds and 2032 bonds rank equally in right of payment with PSH’s existing $1bn of 5.500% bonds due July 2022 and PSH’s $400m of 4.950% bonds due July 2039. The total debt to capital ratio was 18.8% as of December 31, 2020, and 18.0% as of March 23, 2021.

The fund will continue to pay quarterly dividends of 10 cents per share.

The fund continues to trade on a discount [This is entirely unjustified in our view.] (the discount was 24.7% at 23 March – apologies but for some reason Morningstar is not displaying discount data for the fund this morning – we will seek to get this rectified).

The report has detailed information and views on individual holdings and rather than replicate this here, if you are interested in the fund, it would be best to read this. It should be available via the documents tab on Pershing Square Holding’s company page before long.

PSH : 2020 was Pershing Square’s best year

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