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Pershing Square Holdings, Ltd.’s Semi-annual Investment Manager’s Report

Pershing Square Holdings, Ltd. is a closed-end fund launched by Bill Ackman’s Pershing Square Capital Management, L.P. in 2012. The current Chairman is Anne Farlow and the Fund Manager is Ackman. The firm is a huge British investment trust that focuses on investing in North American companies.

Farlow is the current Chairman of Pershing Square GP LLC and Pershing Square Capital Management, L.P. Prior to joining Pershing Square, she worked as a banker at Morgan Stanley and as a management consultant at Bain & Co Inc. She holds master’s degrees from the University of Cambridge and Harvard Business School.

Ackman founded Pershing Square GP LLC and Pershing Square Capital Management, L.P. in 2003. He co-founded Gotham Partners Mgmt Co LLC in 1992 and is a Harvard Business School Board Member. He holds a bachelor’s degree from Harvard College and a master’s degree from Harvard Business School.

In the fund’s Semi-annual Investment Manager’s Report, a copy of which can be downloaded below, Ackman reported a 45.3% return for the first six months of 2019. PSH outperformed S&P 500, which only returned 18.5% for the first half of 2019. Its year-to-date return is 48.9%, which compares to S&P’s 18.2%. Ackman explained that the fund’s good performance was driven by the strong stock market and business performance of its portfolio companies as well as the organizational changes implemented by the company.

Ackman highlighted the following stocks in his report: Chipotle Mexican Grill (CMG), Restaurant Brands International (QSR), Starbucks (SBUX), Hilton Worldwide Holdings (HLT), Lowe’s Companies (LOW), The Howard Hughes Corporation (HHC), Federal National Mortgage Association (FNMA), and Federal Home Loan Mortgage Corporation (FMCC). PSH exited positions in Automatic Data Processing (ADP) and United Technologies Corporation (UTX) during the quarter.

“To the Shareholders of Pershing Square Holdings, Ltd.:

For the first six months of 2019 and year-to-date, the Company’s total return was 45.3% and 48.9%, respectively, compared with the S&P 500’s performance of 18.5% and 18.2% respectively.(5) PSH’s returns have been driven by gains across our portfolio due to fundamental business performance at our portfolio companies being better than the market expected as well as strong stock market performance. We believe our improved absolute and relative performance for the last two years is a direct result of the organizational changes we have implemented at Pershing Square, and our renewed focus on the core strategy that has driven our performance over the last 15 years.

This year’s high returns are not unusual in the context of the historical performance of Pershing Square. During the last 15 years of Pershing Square, our fund with the longest track record, Pershing Square, L.P. has had five years – on average, every third year – with net returns of 36% or more.(7) Three of these high return years were achieved before the formation of PSH and therefore did not benefit from PSH’s access to low-cost leverage and more stable capital base, which has allowed PSH to be more fully invested than the Pershing Square private funds.

We believe that our investment strategy continues to offer the potential for high, long-term rates of return because of our ability to: (1) identify and purchase large stakes in underperforming great businesses at prices which do not reflect anticipated changes to the status quo, (2) obtain a position of influence as a major shareholder including potential board representation, and (3) catalyze changes to the governance, management, and strategy of a target company. In sum, our ability to effectuate successful corporate change is a huge competitive advantage over more passive investors.

As a reminder, our approach to corporate change varies depending on the situation. In the more active and visible examples, like Chipotle, we seek and obtain board representation, assist the board in recruiting new leadership, and provide ongoing oversight. We may also take a less public approach, working behind the scenes with existing management to increase a business’ probability of success. We believe our reputation as a corporate change agent can help enhance the performance of any company we own even if we do not take a particularly proactive approach, as boards and management teams generally prefer to take credit for accelerating value creation on their own rather than being perceived as having been pushed to do so by a proactive shareholder.”

You can download a copy of Pershing Square Holdings, Ltd.’s Semi-annual Investment Manager’s Report here:

Pershing Square Holdings, Ltd.’s Semi-annual Investment Manager’s Report

You can also see the list of our 2019 Q2 investor letters and download them on this page.

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