Pershing Square Inc. reported higher fee-related earnings and a sharp increase in assets under management during its second quarter, its first reporting period as a publicly traded company following its April initial public offering.
The alternative asset manager, led by Bill Ackman, reported second-quarter fee-related earnings of $56.1 million, up 24% from $45.1 million a year earlier. Fee-related earnings revenue rose 25% to $68 million, while the firm maintained an 82.4% fee-related earnings margin.
Distributable earnings, which Pershing Square describes as the portion of earnings available for distribution to shareholders, increased 10% to $54.3 million, or 14 cents a share, from $49.5 million, or 12 cents a share, a year earlier.
The company reported a GAAP net loss attributable to Pershing Square Inc. of $42.7 million, or 11 cents a share, compared with net income of $23.7 million, or 6 cents a share, a year earlier. The GAAP result included large noncash and mark-to-market items, including a $50.4 million unrealized loss on Pershing Square USA shares and a $74.1 million unrealized gain on Howard Hughes Holdings shares.
Pershing Square ended June with approximately $32.5 billion in total assets under management and $22.3 billion in fee-paying assets under management. Fee-paying AUM increased 31% during the quarter, driven primarily by the $5 billion launch of Pershing Square USA, or PSUS.
Nearly 98% of Pershing Square’s fee-paying assets are now permanent capital, a structure Ackman said gives the company the ability to invest for the long term without worrying about investor redemptions.
During the company’s first quarterly earnings call, Ackman said Pershing Square’s growth does not depend on constantly launching new funds.
“If we never raise another investment vehicle and just sit with the three permanent capital vehicles we have today, this business will grow at a very high rate, in our expectation,” Ackman said.
Management said the central driver of future growth will be the investment performance of its existing portfolios, which would increase assets under management and, in turn, management and performance fees.
Pershing Square has deployed more than 95% of PSUS’s capital across 14 investments. The firm added six new positions during and after the quarter: Visa, Mastercard, Netflix, S&P Global, Intercontinental Exchange and Alcon.
The firm estimates its portfolio companies can produce average annual earnings-per-share growth of about 20% over the next three to five years, compared with an estimated 12% for the S&P 500. Pershing Square said its holdings trade at an average multiple of roughly 19 times earnings, compared with about 20 times for the broader index.
Ackman and Chief Investment Officer Ryan Israel said the volatile market environment during the second quarter created an unusually attractive opportunity to deploy the proceeds from the PSUS offering.
“We were really served up with precisely that opportunity,” Ackman said. “It’s much easier to buy stocks when they’re going down than when they’re going up.”
Pershing Square is also preparing to launch Pershing Square Ventures, a permanent-capital vehicle intended to give public-market investors access to private growth companies ranging from earlier-stage businesses to companies approaching an initial public offering.
Ackman said the firm is targeting a launch around the end of the year and expects the vehicle to begin relatively small before expanding over time.
Management also addressed PSUS, which has traded at a substantial discount to its approximately $50-a-share net asset value. Ackman called the discount “absurd” and said Pershing Square plans a significantly more aggressive marketing effort aimed in part at financial advisers.
The company also intends to add modest leverage to PSUS, targeting debt equal to roughly 15% to 20% of total assets using long-term investment-grade financing.
Pershing Square said it currently has no broad market hedge in place. Israel said the firm’s asymmetric hedging strategy is designed primarily for rare events with potentially severe market consequences rather than ordinary market declines.
The company also provided more detail on its strategy for Howard Hughes Holdings, where Pershing Square is working to transform the real-estate company into a diversified holding company with insurance operations at its center.
Howard Hughes recently acquired specialty insurer Vantage Group Holdings. Pershing Square plans to direct a substantial portion of the $2.5 billion to $3 billion in excess cash flow it expects Howard Hughes’ real-estate operations to generate over the next three to five years toward the insurance business.
Pershing Square said it intends to return substantially all available free cash flow to shareholders, with dividends currently viewed as the most likely method of capital return. The company paid a dividend of 12.2 cents a share in July.
Ackman told investors that despite the quarter-to-quarter volatility inherent in Pershing Square’s concentrated investment strategy, management views the company as a long-term beneficiary of the earnings growth of the businesses in its portfolios.
“If we just sit back and allow the compounding of a dozen or more of some of the highest-quality businesses we know to occur,” Ackman said, higher portfolio values should ultimately translate into higher assets under management, fees and earnings for Pershing Square.
By: Montana Newsroom News Wire
