https://www.finalternatives.com/node/20225
Thoughts on becoming a close end hedge fund? Obviously there are a lot of benefits, what about the negatives?
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Ackman has been listing vehicles before....
To be clear they're going to launch a closed-end public investment vehicle; the management company itself is NOT IPOing.
Plenty of alternative managers have operations like this in one way or another. Harbinger and Icahn have publicly traded holdco vehicles; others including 3rd Point and Paulson have UCITS or listed feeder funds. Another tactic is owning a reinsurer and investing the excess float in your fund ala Greenlight Re.
This is very different from an IPO of the fund manager itself like BX, KKR, Fortress, OZM, Oaktree, Apollo, etc.
I see, thanks a lot for the info, Kenny, changed the term IPO.
Still not quite the right connotation, IMO, and I'm not trying to be difficult; this is something I think a lot of people don't understand. The way it works is hard to explain without an org/flow chart but the idea is that the existing Pershing Square hedge fund partnerships themselves are not changing or going public. This is a new vehicle which will raise capital from the public and invest it in existing partnerships. For a good comp look at the 3rd Point Offshore Ltd. feeders which trade in London.
There are other structures that work slightly differently:
The Icahn and Harbinger vehicles invest directly-their assets are securities themselves rather than stakes in the manager's funds. These entities are legally holding companies, not mutual funds/investment companies; this gives them some flexibility to make PE-style investments amongst other advantages and disadvantages.
Closed-end funds that are regulated as mutual funds (40 act funds in the US, UCITS in Europe, etc) are another structure that invest directly in the portfolio assets. Depending on manager and the jurisdiction these vehicles may have different strategies than the manager's hedge fund partnerships due to regulatory issues etc.
Finally, you have publicly-traded feeder vehicles (which is what it sounds like is being proposed here) which as I described don't directly own investment assets but rather own interests in private funds managed by a hedge fund sponsor (Pershing in this case).
There are other structures besides this that I won't get into at this time (business development companies which are like corporate REITS for one, sleeve/sub-advisory or managed account platforms for another) that all have their pros and cons.
Basically the pros of having public permanent capital are just that-it's permanent capital that can't be redeemed.
The downside isn't so much structural as it is that there's usually a fairly limited appetite for these vehicles (Third Point's has
see
http://www.valuewalk.com/2012/02/bill-ackman-bought-30-of-justice-holdi…
Justice will be the third investment vehicle set up by Berggruen, dubbed the homeless billionaire for living in hotels.
His first, Freedom Acquisitions, bought a stake in hedge fund group GLG Partners GLG.N, while his second, Liberty Acquisitions, bought insurer Pearl -- now known as Phoenix (PHNX.L) -- and last year paid $900 million for a majority stake in Spanish media group Prisa, owner of daily newspaper El Pais.
SPACs are another interesting format that I forgot to mention (though like closed-end funds and holding companies they're different from the proposed Pershing Sqr permanent capital vehicle). SPACs work more like one-shot publically capitalized private equity partnerships.
I was about to say, Ackman hardly struck me as the kind of guy who would pull a Fortress/BX on himself.
Seems like LP capital, similar to what KKR had done in 2006 (raising $5 billion of permanent LP capital on Euronext / Amsterdam).
I wonder if they'll be able to raise that much money and if there will be enough appetite for similar offerings from other fund managers. It will also be interesting to see how they will manage that pool compared to their existing fund.
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