Bill Ackman: get ready for the bargains of a lifetime

Bill Ackman, founder, Pershing Square

Hedge-fund manager Bill Ackman has had “a few rough years”, says Matt Levine on Bloomberg. His woes included a $4bn loss on Valeant Pharmaceuticals (the firm’s shares fell 90% amid drug-pricing scandals and accounting fraud) and a $1bn loss on supplement firm Herbalife (Ackman argued it was a pyramid scheme and shorted it, the stock kept going up). But the coronavirus crisis has been good to him. “You don’t make a 10,000% return in 20 days very often,” yet that’s what Ackman has managed with one well-timed trade.

In February, his Pershing Square hedge fund purchased credit default swaps (a derivative that pays out if a bond defaults) on several bond indices. Under these, Pershing Square would pay $27m per month for five years, but would receive a large payment if companies in the index defaulted. As the crash worsened, fears about defaults rose and the value of these positions soared. After one month, he closed the trade, pocketing $2.6bn.

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Rather than sitting on the cash and waiting for the crisis to pass, he’s already turning bullish. Much of the proceeds have already been invested in stocks such as hotel group Hilton, retailer Lowe’s and cafe chain Starbucks, says Ackman in a letter to investors. He’s kept about 17% of his portfolio in cash, in case volatile markets create new opportunities, but he argues a 30-day shutdown of the economy will bring the virus under control. “That’s why we are buying stocks,” he added on Twitter. “These are the bargains of a lifetime if we manage this crisis correctly.”