What really happened with Pershing Square and their NAV reporting – as we were one of the first to notice.
Easier w/ Pershing bc basically long only and have so few positions https://t.co/NreQQqq7Un
— Jacob Wolinsky (@JacobWolinsky) October 2, 2015
Seth Klarman: Investing Is Art First, Craft Second And Science Third
The recent actions of hedge fund billionaire Bill Ackman in regard to the NAV of his flagship Pershing Square call into question some issue. The man is a multi-billionaire, the weekly fluctuations of the value of his hedge fund really should not be something he pays to much attention to, and certainly not something that he tries to “manipulate” on a short-term-basis to make the fund performance appear better…but that’s exactly what Ackman/Pershing Square allegedly did, according to a well-researched post by TheSkeptic21.
Details on Pershing Square NAV manipulation
As TheSkeptic21 points out, Pershing has specific guidelines regarding how and when NAV will be calculated: “Weekly net asset value (“NAV”) is calculated as of the close of business on each Tuesday and posted on the following Thursday. In the event that Tuesday is not a business day, the Company will calculate the close-of-business NAV as of the business day immediately preceding that Tuesday. In the event that Wednesday or Thursday is not a business day, any such weekly NAV will be posted the next business day following that Thursday. End-of-month NAV is calculated as of the close of business on the last day of the month and will be posted within two business days thereafter.”
That said, TheSkeptic alleges that Pershing Square decided to ignore their own public guidelines last week by releasing weekly NAV numbers that aren’t based on Tuesday, September 29th’s close of business, but instead on Wednesday, September 30th’s close of business. Given the markets were sinking and Pershing’s NAV had slipped to barely $15B on Tuesday, and markets bounced back again on Wednesday, you can see why Ackman would want to wait an extra day to calculate his fund’s NAV.
The Skeptic explains: “You can look back at the history of Pershing Square‘s reporting and see for yourself that their choice of recognizing an 8 day week is anomalous (to say the least). Let’s not mince words here: the difference between accurately reporting weekly NAV based on Tuesday’s close versus Wednesday’s close was ~$1B in value which equates to ~6% of the total fund value.”
It appears that Pershing Square may not be complying with two reporting principles they have claimed as guidelines since October of 2014:
- Weekly NAV/performance is calculated based on Tuesday’s close, and released on Thursday
- Monthly NAV/performance is calculated based on EOM close and released within 2 days.
What makes the current situation worse is not just Pershing’s skullduggery by conflating Tuesday NAV with Wednesday NAV, but by moving the monthly NAV release date to Thursday and simultaneously conflating weekly NAVs, it seems like there is a coordinated attempt to misinform the public about the value of PSH and the underlytng fund.
As The Skeptic points out, it’s not fun telling investors that they lost 16% instead of 12%, but “accurate disclosure” per regulatory requirements is supposed to be about accurately disclosing risks and values, not manipulating reporting periods to reflect values in the best possible light. Pershing did not explain any changes to NAV until shortly after TheSkeptic’s post went up. Since, TheSkeptic is a big time critic of Pershing Square, it is possible (although one cannot be certain) that Pershing saw the post and then quickly put up a press release. ValueWalk saw the post by TheSkeptic before Pershing’s press release, and the screenshots below prove it. It is possible Pershing Square would not have released the disclosure had no one noticed the changes.
Portia Crowe and Mohammed Hadi of Business Insider counter:
Hempton suggests that Pershing Square made the change to mask the month-end changes to its performance, saying that such a move “opens Bill Ackman up for allegations of deception — allegations that Bill should neutralize immediately by reporting the interim data point as originally planned.”
Another way to look at this is that the worst thing that Pershing Square did was fumble the way it explained the changes. It wasn’t until after it had already reported September’s numbers that the fund explained what it was doing.
This is an error for sure — the fund is publicly traded and that means changes ought to be outlined before they are rolled out. But it’s only a problem if Pershing Square repeats this kind of thing over and over.
There are other reasons not to read too much into the change: Pershing Square’s portfolio consists of publicly traded companies, so its day-to-day performance can mostly be tracked. This is how we can guess that it recovered a chunk of losses on the last day of the month.
And nobody’s claiming that the numbers Pershing Square reported September 30 are inaccurate.
Pershing Square did not return a request from ValueWalk to comment.