Management fee of Bill Ackman's Pershing Square

[Maverick2608]

From ChatGPT 4:
"Historically, Pershing Square has charged a 20% performance fee, which is a common rate among hedge funds. This performance fee is applied to any profits the fund generates above a certain threshold or high-water mark, ensuring that investors only pay for positive performance. In addition to the performance fee, Pershing Square, like many other hedge funds, charges a management fee, which is usually around 1-2% of assets under management (AUM) per year."

Is that correct?

Pershing Square has been and is concentrated in a handful long term positions, which are public through 13F filings with a maximum 45 day lag. Short positions are not public.

Since you can easily invest in the same long term portfolio with a small lag without the management fee, it seems strange that investors would choose to pay 1-2% + 20%?

 

[artak]

Investors, like any other humans, are irrational creatures.

 

[artak]

Firms that charge performance and annual fees care more about increasing their assets under management (AUM) than about outperforming the market.

Given the difficulty of beating the market, investment firms create 100+ different investment vehicles with various names and strategies. In any given year, some of these funds will outperform the market, and the firm can claim credit for beating the market.
However, over the long term, investors of any of those investment vehicles will likely underperform the market while investment firms will outperform it. This is because investment firms do not invest their own money, and any revenue generated from fees can be considered positive alpha for a firm itself.

Anyway, this simple fact will not refrain thousands of afraid investors to give their life savings to investment firms.

 

[Maverick2608]

Firms that charge performance and annual fees care more about increasing their assets under management (AUM) than about outperforming the market.

Given the difficulty of beating the market, investment firms create 100+ different investment vehicles with various names and strategies. In any given year, some of these funds will outperform the market, and the firm can claim credit for beating the market.
However, over the long term, investors of any of those investment vehicles will likely underperform the market while investment firms will outperform it. This is because investment firms do not invest their own money, and any revenue generated from fees can be considered positive alpha for a firm itself.

Anyway, this simple fact will not refrain thousands of afraid investors to give their life savings to investment firms.

I agree in general. However, I will credit Bill Ackman for not doing that.

 

[Tradess0610]

Firms that charge performance and annual fees care more about increasing their assets under management (AUM) than about outperforming the market.

Given the difficulty of beating the market, investment firms create 100+ different investment vehicles with various names and strategies. In any given year, some of these funds will outperform the market, and the firm can claim credit for beating the market.
However, over the long term, investors of any of those investment vehicles will likely underperform the market while investment firms will outperform it. This is because investment firms do not invest their own money, and any revenue generated from fees can be considered positive alpha for a firm itself.

Anyway, this simple fact will not refrain thousands of afraid investors to give their life savings to investment firms.

Just a few thoughts that came to my mind. I worked for years in private markets investment funds industry and wanted to correct a couple of things for the people who might not be so familiar with the industry.

Firstly, there is a tough fight to get investors and trust me, the performance is one of the crucial factors. So of course the firms care about their performance.

Secondly, the funds generally select a benchmark and try to outperform it. Considering the benchmark is often S&P 500, a fund who is also employing short positions should be able to outperform it also with a small edge on both sides. In the world of funds who claim S&P as their benchmark, of course there is average performance and this is why you need to compare your fund to your competitors. Generally, you evaluate past performance of numerous funds and select the one that fits your portfolio best.

The investment funds offer also other benefits: diversification, risk management, etc. with other words - you pay to someone to follow the markets and trade. Imagine the skills, work and time you would have to invest if you had to do it yourself?

The revenues from fees is not alpha. The funds need to report the NET performance in their materials, and the GROSS if they decide to. Net performance is performance after fees - performance to investors.

The investment funds generally invest quite a lot of their money - it is called GP commitment and the minimum you would expect in the market is 2 %. Calculate now how much it is on a billion fund and you would see that the fund managers have big incentive for good performance.

The 2/20 structure of fees is market standard - I have seen funds charge more or less, but the 2/20 is standard.

 

[Tradess0610]

From ChatGPT 4:
"Historically, Pershing Square has charged a 20% performance fee, which is a common rate among hedge funds. This performance fee is applied to any profits the fund generates above a certain threshold or high-water mark, ensuring that investors only pay for positive performance. In addition to the performance fee, Pershing Square, like many other hedge funds, charges a management fee, which is usually around 1-2% of assets under management (AUM) per year."

Is that correct?

Pershing Square has been and is concentrated in a handful long term positions, which are public through 13F filings with a maximum 45 day lag. Short positions are not public.

Since you can easily invest in the same long term portfolio with a small lag without the management fee, it seems strange that investors would choose to pay 1-2% + 20%?

Yes, the 2/20 structure is the most common. Once funds grow over a certain size they often reduce the management fee to 1.5 or 1%. Of funds of funds who have "less" work, charge 1%.

You can try to invest in the long only positions 45 days later, but you will probably not get same performance results But if you do deccide to try (even if paper trading), I would be interested in the results! I would imagine you would outperform the S&P but for how much - that would interest me!

 

[newwurldmn]

From ChatGPT 4:
"Historically, Pershing Square has charged a 20% performance fee, which is a common rate among hedge funds. This performance fee is applied to any profits the fund generates above a certain threshold or high-water mark, ensuring that investors only pay for positive performance. In addition to the performance fee, Pershing Square, like many other hedge funds, charges a management fee, which is usually around 1-2% of assets under management (AUM) per year."

Is that correct?

Pershing Square has been and is concentrated in a handful long term positions, which are public through 13F filings with a maximum 45 day lag. Short positions are not public.

Since you can easily invest in the same long term portfolio with a small lag without the management fee, it seems strange that investors would choose to pay 1-2% + 20%?

The 45 days can mean a lot.
He also does stuff not in the 13F. For example he bought CDS just before Covid which returned 100x.

You can invest in his publicly traded vehicle: Pershing square holdings.

If you have a stock picker allocation, he’s one of the few I would invest in. He takes big risks and is generally right. He’s so right that when he’s wrong, it makes the news.

 

[traider]

Yes, the 2/20 structure is the most common. Once funds grow over a certain size they often reduce the management fee to 1.5 or 1%. Of funds of funds who have "less" work, charge 1%.

You can try to invest in the long only positions 45 days later, but you will probably not get same performance results But if you do deccide to try (even if paper trading), I would be interested in the results! I would imagine you would outperform the S&P but for how much - that would interest me!

Can you tell us which funds actually beat the market consistently and how to seek them out?

 

[Tradess0610]

Can you tell us which funds actually beat the market consistently and how to seek them out?

What exactly are you asking me here?

Are you representing an institutional investor? If yes, then you have an investment team in house.
Are you a HNWI which qualifies to invest in such funds? If yes, then I am sure you can afford a proper financial advisor who would do a risk assessment and suggest investment ideas. (HNWI - High net worth individual)

If you are none of the above, then you do not qualify legally to invest in such investment vehicles in most of the jurisdictions. We are talking about private vehicles: hedge funds, private equity funds, etc.

If you are none of the above, then look into mutual funds. There is plenty of screeners online available. Not sure where you are from, generally there are plenty of products offered by the reegular banks. Look into those (do not invest into the first one) and then search for similar products online to compare performance.

 

[Maverick2608]

The 45 days can mean a lot.
He also does stuff not in the 13F. For example he bought CDS just before Covid which returned 100x.

You can invest in his publicly traded vehicle: Pershing square holdings.

If you have a stock picker allocation, he’s one of the few I would invest in. He takes big risks and is generally right. He’s so right that when he’s wrong, it makes the news.

I assume the management fee is the same in Pershing square holdings? I can see it is listed in London and Amsterdam, but not in the US?

Do you know if Carl Icahn charges the same management fee in his publicly traded vehicle IEP as in his hedge fund? I assume he does. It would not make much sense if he did not, although Buffet never charged for Berskhire.

However, I believe both Icahn and Buffett has not outperformed S&P 500 for the last copuple of decades. I will check the Bloomberg terminal later today.