Billionaire Bill Ackman’s famous hedge fund Pershing Square Holdings is seeking to list on the London Stock Exchange’s Main Market as it tries to distance itself from a terrible performance on Amsterdam’s Euronext exchange.

As a hedge fund, Pershing is known for making concentrated bets on US companies. This high-risk strategy backfired in 2015 when Ackman urged investors to back him on Valeant Pharmaceuticals, just before its share price dropped by 80%.

He was not the only hedge fund don caught out by Valeant. John Paulson who runs hedge fund Paulson & Co also had a large stake in the company whose products range from contact lenses to dental care.

Hedge funds use what is called ‘long/short’ strategies. They invest heavily in companies they like and bet against companies they don’t (shorting). An unsuccessful bet can have disastrous consequences, as Pershing has now discovered.

Mixed fortunes

Everyone makes mistakes and Pershing has enjoyed periods of good performance in the past.

The Euronext-listed fund generated a 40.9% return in 2014, according to Pershing’s website.

Problems emerged in 2015 when the shares fell 20.5% in value. By the end of 2016 it was trading at 20% below net asset value and the shares had fallen a further 13.5% that year.

The performance was even worse earlier in 2016 with more than 20% share price decline in the year to November. Pershing was somewhat ‘saved’ by Donald Trump’s election as rumours he was to privatise the mortgage sector saw US mortgage financier Fannie Mae’s share price treble. That business is another major holding of Pershing.

Back to reality 

One of the aims of the London listing, which it hopes to complete by May, is to narrow the discount to net asset value. The Euronext-listed shares currently trade 15% below NAV.

There are other ways to get exposure to hedge fund strategies if you don’t want to risk your money on Pershing when it joins the London market.

Asset managers such as Schroders have a range of alternative UCITS funds that replicate hedge fund strategies but have protective measures in place which limit exposure to individual stocks.

Schroder GAIA Paulson Merger Arbitrage Fund (LU1062022659), for example, looks to play M&A situations. (DS)

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