Bill Ackman’s Pershing Square USA, the latest publicly traded vehicle from the billionaire investor, suffered a brutal 18% drop in its stock-market debut on Tuesday, a stark reversal from the hype that surrounded its initial public offering just weeks ago.
Trading under the ticker “PSUS” on the New York Stock Exchange, the closed-end fund opened at $50 per share, the IPO price set last week. But by the closing bell, shares had cratered to $41, leaving early investors nursing significant losses. The sell-off erased roughly $1.5 billion in market value from the fund’s opening day capitalization, raising fresh questions about the appetite for Ackman’s brand of concentrated, activist investing in a public vehicle.
A dramatic fall from grace
The debut was supposed to be a triumph. Ackman, founder of Pershing Square Capital Management, had spent months marketing the fund to institutional and retail investors, positioning it as a liquid way to access his firm’s highly-concentrated portfolio of roughly a dozen “high-quality growth” companies. The IPO originally aimed to raise up to $25 billion, which would have made it the largest-ever for a closed-end fund. That target was slashed to roughly $4 billion after lackluster demand from some institutional backers, and ultimately, the fund launched with just over $2 billion in assets.
Even that reduced figure seemed ambitious given the turbulent market conditions. Sources close to the deal told reporters that Ackman and his team had struggled to convince some large investors that the fund’s 2% management fee — higher than many peers — was justified by his track record of generating outsized returns. The recent volatility in Ackman’s largest public holding, Universal Music Group, which fell 12% in the month before the IPO, may have also dampened enthusiasm.
What went wrong on day one?
Stock-market debuts for closed-end funds are notoriously unpredictable, but an 18% first-day plunge is extreme. A closed-end fund raises a fixed amount of capital in an IPO, then trades on an exchange like a stock. Its price can diverge significantly from the net asset value (NAV) of its underlying holdings. In the hours after trading began, Pershing Square USA shares traded at a discount of roughly 15% to its NAV, meaning investors could buy the fund’s holdings for less than their actual market value.
Several factors likely fueled the sell-off. First, early investors who bought shares at the IPO price may have rushed to lock in profits — or cut losses — as the stock dipped. Second, the broader market was in a sour mood, with the S&P 500 falling 1.2% on Tuesday amid concerns over rising interest rates and a slowdown in corporate earnings. Third, and perhaps most critically, the fund’s structure makes it vulnerable to a persistent discount. Unlike open-ended funds that can create or redeem shares to keep prices aligned with NAV, closed-end funds rely on market demand. If that demand evaporates, the discount can deepen.
Ackman’s response and the road ahead
In a letter to shareholders released after the market close, Ackman struck a defiant tone, calling the debut “disappointing” but emphasizing that the fund’s value will ultimately be determined by its long-term performance. “We are building a portfolio of durable, high-quality businesses that will compound shareholder value over decades,” he wrote. “Day one price action is noise.”
Still, the damage to Pershing Square’s reputation may take time to repair. The fund’s management fee of 2% of assets, plus a 20% performance fee on gains above a certain threshold, is among the highest in the industry. Critics argue that such fees are hard to justify when the fund’s shares trade at a discount, effectively penalizing investors before any investment returns are generated.
For now, the fund holds positions in a range of companies, including Alphabet, Chipotle Mexican Grill, Hilton Worldwide, and Restaurant Brands International. Ackman has said he plans to add a few more names over the coming months, focusing on large-cap companies with strong competitive moats and predictable cash flows.
What this means for retail investors
The debut is a cautionary tale for individual investors lured by the celebrity of a famous fund manager. Closed-end funds often trade at discounts or premiums for reasons that have little to do with the underlying portfolio. In Pershing Square USA’s case, the initial hype may have inflated expectations, leaving latecomers holding the bag as the discount widened.
That said, some opportunistic investors might see the current discount as a buying opportunity. If Ackman’s portfolio performs well over the next few quarters, and if market sentiment improves, the discount could narrow or even flip to a premium. But that is a big “if.” The fund’s fee structure means that even if the underlying holdings gain 10% in a year, the net return to shareholders could be significantly lower after fees.
As of Tuesday’s close, Pershing Square USA had a market capitalization of roughly $1.7 billion. The path to recovery will depend on Ackman’s ability to deliver alpha — and on convincing the market that this time, the discount is temporary.
For now, the biggest story is the fall. Whether Ackman can engineer a comeback remains to be seen.
Ahmed Abed – News journalist