Why Does Bill Ackman Want to List His Hedge Fund Pershing Square?

Bill Ackman’s Bold Move to List Pershing Square on the Stock Market

Billionaire Bill Ackman has recently announced his unconventional plan to list his company, Pershing Square, on the stock market next year, a rare move in the hedge fund industry.
Unlike traditional hedge funds, which usually prefer to operate privately away from the public market’s buzz, the decision to go public can be risky, with often disappointing outcomes.

One notable example is Sculptor, previously known as Och-Ziff Capital Management, which saw its value plummet from an initial $12 billion in 2007 to $720 million last year when it was acquired by Rithm Capital.
This downward trend in value for hedge funds going public stands in stark contrast to the successes of major private equity firms like Blackstone, Apollo, and KKR, whose market capitalizations have soared.

Although hedge funds have been active in public markets, their limited number of listings might raise eyebrows, especially considering the remarkable growth of private equity giants.
The top ten publicly traded private equity firms boast a combined market capitalization of around $550 billion.
However, only a few hedge fund groups have embraced the path to going public, mainly due to differing incentives.

Investors tend to value stable management fees over volatile performance fees, making pure hedge funds less suitable for public markets compared to private equity firms.
These private equity behemoths, like Blackstone, KKR, and Apollo, now manage assets totaling over $2.3 trillion, nearly twelve times the increase since the financial crisis.

Overall, private market assets under management have surged from $4 trillion to $14.5 trillion in the last decade, as reported by Bain & Co.
This is in stark contrast to the hedge fund industry, which has seen a more modest increase from $2.4 trillion to $4.3 trillion, according to data from HFR.

Major private market investors have successfully expanded into sectors like private credit, real estate, and infrastructure.
Only 30% of Blackstone’s assets under management now originate from private equity.
Apollo made early strides in the insurance sector through its Athene initiative, a move that fueled its recent growth.

While some large hedge funds have successfully diversified beyond their traditional focus, such as Citadel’s expansion into commodities, they often face challenges in asset gathering during expansion.
Private equity firms, with their long-term investment horizon, see the impact of performance play out over time in their fund-raising efforts.

In hedge funds, founders and key managers are heavily involved in daily investment decisions.
Figures like Ken Griffin of Citadel and Steve Cohen of Point72 are known to engage portfolio managers around the clock.
The long-term nature of private market funds tends to tie stellar managers to existing companies.

Ackman’s decision to list Pershing Square will be a significant test for the hedge fund world, showcasing whether listed companies can scale up.
Pershing already manages a $15 billion investment fund traded on the London Stock Exchange and Euronext Amsterdam.
In 2023, the fund generated approximately $155 million in management fees and $312 million in performance fees for the hedge fund.
Ackman recently sold a 10% stake in Pershing, valuing the hedge fund at just over $10 billion.

Now, Pershing will need to prove its prowess extends beyond Ackman himself and will have even less diversification compared to hedge funds like Citadel.
Much will still hinge on the persistence of investment performance.