Bill Ackman Blamed You for His Stock Dropping. Pershing Square is not the next Berkshire.

Bill Ackman finally got his dream. After 22 years running one of the most famous hedge funds on the planet, he took it public in April.

Two tickers hit the NYSE the same morning: PSUS, a $5 billion fund anyone could buy at $50 a share, and PS, the management company itself.

The pitch was democratization. Hedge funds are for rich people, he said, and now someone with $50 could invest right alongside him.

We've heard this song before. Every time Wall Street announces it's democratizing something, check who actually gets paid.

Spoiler: it's the insiders and Bill Ackman himself getting rich. The democratic part is us supplying the money.

The stock opened at $41 - Down 18% on day one.

Ackman had an explanation ready: retail investors over-ordered shares, got their full allocation, and panic-sold. A technical glitch, nothing more. He told Barron's it would resolve quickly and the fund would trade at NAV or better.

That was ten weeks ago. PSUS closed Friday at $37.86, near its all-time low, down 24% from the $50 IPO price. Technical overhangs clear in days. This one didn't clear because it was never technical.

I read the S-1 (so you don't have to)

I read the S-1 back in April, before this thing went public. One thing jumped off the page: the fees are insanely stupid. Not stupid for Ackman or the firm itself... Stupid for us.

Start with the fund. PSUS charges a 2% flat fee flat management fee, about 2.3% all-in once expenses are counted.

And here's the part most people miss: it's a closed-end fund, so you can't redeem. You can only sell your shares to someone else, at whatever discount the market demands. The fund itself keeps the full $5 billion no matter what the stock does. He markets "no performance fee" like a gift. It's a US regulation on closed-end funds, and 2% forever on capital that can never leave might be the best deal he's ever cut for himself.

The "gift with purchase"

Then the sweetener. IPO buyers got one share of Pershing Square Inc., the management company, for every five fund shares. By his own letter, the bonus existed to juice the raise, because a bigger fund means more fees flowing to PSI. Your gift was equity in the company that charges you.

And that equity? Read the fine print. PSI shareholders collect the 16% performance fee only on the first 5% of returns. Everything above 5% goes to employees. The public bought the capped slice. Insiders kept the upside. Oh, and insiders control 74.73% of the votes through a special share class, so PSI is exempt from NYSE independence rules. You own the economics they let you have. They own the company.

A "modern-day Berkshire" that pays its manager

Ackman and Pershing own controlling interest in Howard Hughes Corp. He calls Howard Hughes his modern-day Berkshire. Berkshire pays Buffett $100,000 a year and zero fees. Howard Hughes pays Pershing $15 million a year plus 1.5% of any market cap gains. A fee on the stock price, not the business. Buffett spent 60 years teaching us those are different things. The fee structure is the tell: Berkshire has no manager skimming the top. That's the whole point of Berkshire.

Bill Ackman is in no way, shape of form building the next Berkshire Hathaway - and I hope the ghost of Charlie haunts him in his sleep.

Final Thoughts

To be fair, a 24% discount on NAV buys real assets cheap, and Jefferies rates it a Buy for exactly that reason. But his London fund has traded 25% to 40% below NAV for a decade. "The discount will close" has a ten-year track record of not happening.

When a manager IPOs, read the structure, not the pitch. The S-1 tells you who the vehicle was built for. This one wasn't built for you.

Sentiment: Hatefully bearish