Exclusive: Ackman's Pershing Square shakes up fees amid losses

Fri Oct 28, 2016 2:18pm EDT
 
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By Lawrence Delevingne

NEW YORK (Reuters) - Billionaire investor Bill Ackman's Pershing Square Capital Management is offering its hedge fund clients new fee arrangements following a second straight year of losses, according to a letter to investors on Thursday seen by Reuters.

Known for making big, concentrated bets on stocks and agitating for them publicly, Pershing Square will offer starting Jan. 1 a new share class to existing and future clients in which it will not charge any performance fee on gains less than 5 percent; after that, the performance fee will be 30 percent.

Current investors are being offered a one-time chance to opt into the new cost scheme. The new share class is in response to requests from existing clients, including a large pension fund, according to a person familiar with the situation.

"The fee arrangement was designed to accommodate certain investors that expressed interest in retaining a greater share of returns in low to moderate return scenarios in return for rewarding us with a greater share of returns in higher return scenarios," Pershing Square wrote in the letter.

A spokesman for Pershing Square declined to comment.

Investors have the option to stay with the old system, where the fund charges 20 percent on all positive returns, long the industry standard. The firm will continue to charge a 1.5 percent management fee for all share classes, and clients are not charged performance fees for investment gains below previous losses on their capital, a so-called high-water mark.

The math works out so that investors in the new share class will get a fee break should Pershing Square gain less than 15 percent but face increased costs above that. Pershing Square has averaged gains of about 15 percent net of fees since inception in 2004.

The issue is moot for now: The firm's flagship Pershing Square International Ltd fund is down 17.4 percent this year through Oct. 11, according to private performance information seen by Reuters. The same fund fell 16.6 percent in 2015 due to losing bets on pharmaceutical firm Valeant (VRX.TO: Quote) and dietary supplements maker Herbalife HLF.N.   Continued...

 
William Ackman, founder and CEO of hedge fund Pershing Square Capital Management, attends the Sohn Investment Conference in New York City, U.S. May 4, 2016.  REUTERS/Brendan McDermid