(Updates with additional background and details, including more
information from Pershing's letter.)
Pershing Square Capital Management LP funds' outperformed the
major market indexes in the first quarter, according to founder and
chief executive William Ackman's letter to investors.
The hedge fund has received heightened press attention,
especially after its proxy contest with Target Corp (TGT). Pershing
said it would continue to seek passive and active investment
opportunities but that it preferred to generate profits with less
activity.
For the first quarter, Pershing reported the funds saw gross
returns between 2.5% and 4.1%, while growth net of all fees was
2.1% to 3.8%.
Major indexes posted losses of 2.8% to 12.4%, including dividend
reinvestment, for the first three months of the year. The smallest
loss was in the Nasdaq Composite Index, while the largest loss was
seen at Dow Jones Industrial Average.
In the group's letter to investors dated Monday, Pershing said
that while it lost its proxy battle with Target last month, it
"achieved many of the objectives" identified before the battle,
including catalyzing Target to exit the credit and funding risk
associated with its credit-card operations and improving the
company's governance. Pershing believes new Securities and Exchange
Commission-mandated rules will reduce the cost of a proxy contest
and said if the changes were approved, it would put Pershing and
others in a position to more easily "replace directors at Target or
other companies."
Still, Pershing expects to "fade into the sunset as far as the
media is concerned," until an investment opportunity requires the
fund to work more publicly in the future. Recently, Pershing
initiated two new long-term investments in unnamed
large-capitalization U.S.-based businesses, with the expectation
that it will remain a passive investor.
Since the beginning of the year, Pershing exited its investments
with Wendy's/Arby's Group Inc. (WEN), Visa Inc. (V) and Dr. Pepper
Snapple Group Inc. (DPS), driven primarily by valuations and the
lure of more attractive investments.
The hedge fund said it substantially reduced the size of its
credit-default-swap portfolio. Pershing reduced the hedge as some
of the global financial crisis risk abated, while the firm
liquidated its equity exposure and identified more efficient ways
to hedge its exposures.
Still, Pershing holds substantial single-name CDS positions in
holding-company debts of financial institutions, which the fund
believes will likely need large amounts of additional equity
capital. It sees those positions as having low carrying costs with
potential for large profits.
Ackman also touted the changes and investments made to
management at Borders Group Inc. (BGP) and bankrupt General Growth
Properties. Inc. (GGWPQ). Ackman was appointed to General Growth's
board on Friday, the first board he has joined since the formation
of Pershing.
Ackman, who is on a business trip abroad, wasn't immediately
available to make additional comments on the letter.
-By John Kell, Dow Jones Newswires; 201-938-5285;
john.kell@dowjones.com