Last week Pershing Square’s founder and CEO, Bill Ackman, made an impassioned plea on CNBC to shut down the country for 30 days to contain the fast-spreading coronavirus.
Q4 2019 hedge fund letters, conferences and more
For more up-to-date hedge fund content, and exclusive access to value-focused hedge fund managers, check out Hidden Value Stocks.
Investment strategies used by hedge funds have evolved over the years, although the biggest changes have come in the use of computers to develop portfolios. Rosetta Analytics is a woman-founded and woman-led CTA that's pioneering the use of artificial intelligence and deep reinforcement learning to build and manage alternative investment strategies for institutional and private Read More
Ackman's comments sent the stock market into a melt-down. The S&P 500 dropped 7% after his interview, triggering a 15-minute 'circuit breaker' trading halt.
Bill Ackman's Emotional Interview
In the emotional interview, Ackman revealed he went into lockdown almost a month ago to save his father's life who is immunocompromised. He also said that as early as January, "I was getting increasingly bearish, and I woke up with a nightmare."
"My nightmare was you have this virus that replicates and infects incredibly rapidly." He added his colleagues thought he was a "lunatic" when he took out cash from an ATM.
He went on to implore President Trump to shut down the economy for 30 days to contain the fast-spreading virus.
"What's scaring the American people and corporate America now is the gradual rollout," he stated. "We need to shut it down now. ... This is the only answer," the hedge fund manager went on to declare.
He also told the program that companies need to stop their buy-back programs because "hell is coming."
"The hotel industry and the restaurant industry will go bankrupt first, Boeing is on the brink, Boeing will not survive without a government bailout," Ackman said. "Capitalism does not work in an 18-month shutdown, capitalism can work in a 30-day shutdown."
Bill Ackman Wants A Complete Lockdown To Contain Coronavirus
After the interview, Ackman reiterated his stance with a series of Tweets doubling down on his belief that the only way to exit this situation quickly is for a complete lockdown of the country:
"Mr. President, the only answer is to shut down the country for the next 30 days and close the borders. Tell all Americans that you are putting us on an extended Spring Break at home with family. Keep only essential services open. The government pays wages until we reopen.
No one defaults, no one forecloses. A 30-day rent, interest, and tax holiday for all. The shutdown is inevitable as it is already happening, but not in a controlled fashion, which is extending the economic pain and amplifying the spread of the virus.
With exponential compounding, every day we postpone the shutdown costs thousands, and soon hundreds of thousands, and then millions of lives, and destroys the economy."
Ackman is particularly exposed to the market sell-off. He is a significant shareholder of hotel chain Hilton, which has been hit hard by the global economic shutdown.
At the end of 2019, the Hilton position accounted for nearly 18% of Pershing Square's portfolio, making it the second-largest position after Chipotle Mexican Grill Inc.
In his interview with CNBC, Ackman said hotel stocks, including Hilton, could "go to zero" soon if no action is taken.
Shares in Hilton were "down from 120 to 50, and it's going to zero along with every other hotel company", he warned.
A Record Year
Ackman's bad luck this year comes after a record year for Pershing Square.
In 2019, the hedge fund, which has struggled in recent years, returned 58.1% in 2019 that made it one of the world's best-performing hedge funds for the year, significantly outperforming the S&P 500 stock index, which returned 29%.
This is an impressive comeback for the hedge fund manager. He was humbled in 2015 and 2016 as his bet on Valiant Pharmaceuticals turned sour. Persing Square suffered double-digit losses in 2015 and 2016, followed by smaller declines in 2017 and 2018.
However, after 2019's performance, Ackman entered 2019 with a strong tailwind behind him.
If you’re looking for value stocks, and exclusive access to value-focused hedge fund managers, check out Hidden Value Stocks.
Bill Ackman Hedges Coronavirus
This performance was holding up until the first week of March. According to investor correspondence, is publicly traded hedge fund gained 3% for the year to March 9, with hedges more than compensating for market declines in portfolio companies.
"Despite recent market declines, we believe that equity and credit markets have not sufficiently discounted the economic risks of coronavirus," Ackman said in his letter to clients at the beginning of the month.
As of the close of business on March 17, the fund was down -6.5%. That's compared to a loss of nearly 26% for the S&P 500 over the same time frame.
Since his initial comments on CNBC, Ackman has since come out to clarify his position on Twitter.
"I am confident the president will do the right thing in temporarily shutting down the country and closing the borders. If that happens, we can win the war against the virus and the markets, and the economy will soar," the hedge fund manager posted.
He went on to add:
"That is why we are buying stocks. These are bargains of a lifetime if we manage this crisis correctly."
This article was first posted on ValueWalkPremium