Pershing Square annual investor update can be found below – first some excerpts..
New Undisclosed Position #1 (late 2016): ~4% of Capital
- High quality business that generates predictable, recurring cash flow
- Global business with best-in-class management team
- Buying opportunity presented due to cyclical and macroeconomic concerns despite strong long-term growth potential
- ~22% return on average cost through January 24, 2017
- We believe investment is still attractive at current price
New Undisclosed Position #2 (early 2017): ~9% of Capital
Also see: 2016 Hedge Fund Letters and Bill Ackman Books: Recommended Reading List
Herbalife
Decelerating International Growth
- Growth in China – Herbalife’s 2nd largest market – has decelerated in recent quarters
SEC probing HLF’s anti-corruption compliance in China; DOJ involved
Management Turnover
- Michael Johnson is slated to become Executive Chairman in June 2017 (The FTC injunction takes effect in May 2017); Rich Goudis, HLF’s COO, to succeed Johnson as CEO
Evolving Consumer Sentiment Towards MLMs and Herbalife in Particular
- On November 6th, John Oliver’s Last Week Tonight aired a scathing 32-minute segment on MLMs with a specific focus on Herbalife
- Independent Herbalife documentary “Betting on Zero” slated for multi-city theatrical release in March 2017 with online video-on-demand dissemination thereafter
Ongoing FX Headwinds
- ~80% of Herbalife sales are in ~93 international markets
Also see: Warren Buffett, Charlie Munger Emails With Bill Ackman
Fannie Mae
- Fannie and Freddie are essential for widespread access to a prepayable 30-yr fixed rate mortgage at a reasonable cost
- The 30-yr fixed rate mortgage is a unique feature of the US mortgage market that significantly improves affordability and is key to maintaining current home prices
- We believe Fannie and Freddie can be reformed to reduce risk to the taxpayer
- We do not believe there is a viable alternative to Fannie and Freddie
- If Fannie and Freddie can be reformed, we believe the taxpayer will be a huge winner – US Treasury owns warrants for ~80% of the common stock
……..
We continue to believe that a reformed Fannie and Freddie is the only viable solution for mortgage finance reform
Our key principles for reform as presented at Ira Sohn in 2014:
Key elements to reform the GSEs:
- Significantly increase the GSEs’ capital requirements
- Eliminate the GSEs’ fixed-income arbitrage business
- Subject the GSEs to substantially increased regulatory oversight
- Develop appropriate compensation and governance policiesIf the GSEs increase their capital levels and become pure mortgage guarantors, they can be a simple, low-risk, and effective solution for housing finance reform
……….
FNMA and FMCC share prices have increased 66% and 73%, respectively, from our average cost at announcement date to January 20, 2017
Personnel Updates in 2016 and 2017
2016: Employee count reduced from 72 to 60
2017: Departure of one employee
- Joe Sutton, CTO in January 2017
Investment Team Analyst Additions in 2017
Bharath Alamanda
- Joining Pershing Square in September 2017
- KKR & Co.
- Goldman, Sachs & Co.
- B.S.E., Princeton University
Feroz Qayyum
- Joining Pershing Square in September 2017
- Hellman & Friedman
- Evercore
- B.A., Richard Ivey School of Business, University of Western Ontario
Long-Term Incentive Plan (“LTIP”)
A new form of compensation and long-term incentives for long-standing employees
Pershing Square previously had two forms of compensation
- Base salary and bonus compensation
- Profits interest in management and incentive fees – behaves like equity but terminates when employee departs firm
Profits interest partners are eligible to be a member of the LTIP
- Vests over 10 years of partnership tenure
- Retiring employees continue to receive a reduced percentage of their profit interest on a permanent basis
- Contains a non-compete clause
New compensation structure aligns with the firm’s and investors’ interests
- Reinforces our focus on long-term performance and value creation
- Encourages long-term retention, with minimal, but healthy, levels of turnover after long tenures
Organizational Updates in March 2017
Tim Barefield, COO to retire
- Over 10 years at the firm Tim has been responsible for building out a best-in-class operation
- Tim plans on returning to academia
Nicholas Botta, CFO, will assume the title of President and will be responsible for non-investment team related operations including overseeing technology
- Nick has worked with Bill since 2000 and has been integral to managing firm operations since inception
Michael Gonnella, Senior Controller, will assume the title of CFO
- Mike has been with the firm for 11 years responsible for day-to-day management of the finance team
Amy Szeto and Adam Rapp will assume Senior Controller roles
- Amy and Adam have been members of the finance team for over 10 years
See the full PDF Here: 2016-PSH-Annual-Update-Presentation-FOR-DISTRIBUTION-1
