Retail investors who want to have their money invested by billionaire hedge fund manager Bill Ackman are in luck. All they have to do is buy shares in the closed-end fund he’s launching on the London Stock Exchange soon.
Easy enough, right?
Sure … except that many (if not most) investors don’t know what a closed-end fund is. So here’s a primer:
Bill Ackman is following the lead of some other billionaire hedge fund managers debuting closed-end funds, or CEFs, in London. The idea is to have a big pool of capital that investors can’t yank away when things get rough.
After all, rich people and pension funds panic just like everyone else. And although it’s much harder to get your money out of a hedge fund than a mutual fund — there are gates and lock-up periods and other things tying down investors’ stakes — it is possible.
And the last thing any manager like Bill Ackman needs is a run on the fund when it’s down. That can accelerate its own demise, since the manager has to sell holdings — maybe at a loss — to raise the money needed to cash out quitters.
Bill Ackman Hates Cash
That’s why Bill Ackman and some other hedgies are turning to closed-end funds, because they offer a permanent base of capital. If you want in, you have to buy shares in the CEF. If you want out, you have to sell those shares to someone else. Investors come and go; the capital stays put.
Knowing that the capital can’t flee means a macher like Bill Ackman can swing for the fences in a way he can’t with a hedge fund. Since there’s no telling when he’ll be hit with redemptions, he keeps 14% of his hedge fund’s holdings in cash, where it earns nothing. That clearly chafes the psyche of a competitor like Bill Ackman.
As Ackman said in a letter to investors obtained by CNBC:
“Because we are an active, control and influence-oriented investor, we have avoided being fully invested because of the risk of investor redemptions. We will hopefully begin to address this issue with the initial public offering of Pershing Square Holdings Ltd, targeted for later this year, which will increase the amount of capital that is permanent.”
Investors can buy shares in closed-end fund the same way they buy stock or shares in exchange-traded funds. There’s really no difference. Indeed, CEFs are very similar to ETFs. They have tickers and trade on exchanges like NYSE and Nasdaq. Just fire up your online brokerage account and get going.
Click here to see CEFs listed on the NYSE. Nasdaq-listed CEFs can be found at this link.
Just be forewarned that Ackman’s fund will be listed in London, meaning U.S. investors will be subject to currency risk, which can greatly complicate the success of any investment.
Otherwise, this is the only real opportunity for retail investors to have their money managed by Bill Ackman.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.
