Pershing Square Has Two New Undisclosed Positions Equal To 13% Of Capital

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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

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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

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