Bill Ackman has positive outlook for his Pershing Square Capital hedge fund

December 10th, 2009
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Pershing Square Capital Management sent out its latest investor letter at the beginning of this month. Outlining the firm’s large gains and overall improvements in the funds’ performances, William Ackman, Pershing’s founder, wrote to investors that “during the quarter, nearly all of our portfolio companies generated improved operating performance as the economy began to stabilize and corporate sot containment measures took effect.” Mr. Ackman additionally highlighted two of the quarter’s “most significant contributors to fund performance,” bankrupt mall operator General Growth Properties Inc. (NYSE: GGP) and Target Corporation (NYSE: TGT). GGP was the “largest contributor to fund performance during the quarter,” Pershing’s founder said, and the firm believes that “the balance of the company’s secured creditors will fall in line on similar terms rfather than risk litigation in bankruptcy court.” Mr. Ackman assured investors that GGP will soon be in a position to either grow into an independent company or be sold to a third-party purchaser.

Mr. Ackman also praised the firm’s investment in retail giant Target Corporation, summarizing the events of Pershing’s failed proxy contest before assuring investors that he believes that the resulting increase in the corporation’s accountability will benefit stakeholders in the future. He concludes by asserting that in light of “Target’s significant real estate ownership, its long-term opportunity to gain market share, its iconic brand, and increasingly dominant market position” the company has been undervalued and will continue to perform well.

The quarterly update also included information about several of Pershing’s new investments, including food and beverage giant Nestle and the Corrections Corporation of America (NYSE: CXW). Nestle has “strong global franchises, predictable free cash flow and unlevered capital structure” as well as “attractive growth potential,” Mr. Ackman said. He also hinted that Nestle may sell its majority stake in eye care company Alcon. The Corrections Corporation of American, of which Pershing is now the largest shareholder with 9.5% of outstanding shares, is also expected to “enjoy meaningful growth” and “accelerating free cash flow per share growth,” according to the letter.

Mr. Ackman concludes his quarterly update with a few reassurances for investors and a summary of Pershing’s investment strategy. He writes that while other hedge fund investors “mitigate their (often large) gross exposures through offsetting short positions that equal or approach the size of their long portfolio and result in a low net exposure,” Pershing does not follow such a strategy. Instead, he says, “the substantial majority of our assets are typically invested in high quality, well-capitalized businesses at substantial discounts” and are balanced by short positions “in high-risk, highly leveraged enterprises often with aggressive and/or fraudulent accounting and bad business models.”
For Detailed Investor Profiles on these Investors, click below:
Pershing Square Capital Management
Related People: Nicholas Botta; Roy J. Katzovicz; Scott Ferguson*; William 'Bill' Ackman
Related Entities: Leucadia Corporation (NYSE: LUK); Pershing Square Capital; Pershing Square IV; Pershing Square LP
Related Article Tags: Shareholder Activists, Corporate Raiders and Proxy Battles; Hedge Fund Spotlight Reports

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