Reuters / Richard Brian
- Bill Ackman has insured his Pershing Square hedge fund against a surge in corporate defaults, after making $2.6 billion on a similar bet in the spring, according to the Financial Times.
- The Pershing Square chief placed the wager on Monday after news broke of a promising COVID-19 vaccine, he said at the Financial Times’ Dealmakers Conference on Tuesday.
- «What’s fascinating is the same bet we put on eight months ago is available on the same terms as if there had never been a fire and on the probability that the world is going to be fine,» Ackman said.
- Ackman described the vaccine news as «bearish» because it could spur people to take the virus less seriously, and predicted a difficult few months before the economic recovery takes off.
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Billionaire investor Bill Ackman turned $27 million into $2.6 billion by insuring his hedge fund against a wave of corporate defaults earlier this year. The Pershing Square chief placed a similar bet — almost 30% of the original’s size — on Monday after news broke of a highly effective COVID-19 vaccine, he revealed at the Financial Times’ Dealmakers Conference on Tuesday.
«I hope we lose money on this next hedge,» Ackman said, according to the Financial Times. «What’s fascinating is the same bet we put on eight months ago is available on the same terms as if there had never been a fire and on the probability that the world is going to be fine.»
Ackman described the vaccine news as «bearish» during his keynote speech, the Financial Times said. He cautioned people could become nonchalant about wearing masks and might worry less about catching or spreading the virus with mass inoculation on the horizon.
Investors are underestimating the continued threat of the coronavirus, Ackman continued, warning of a tough few months before an economic recovery takes hold. The hedge-fund boss sounded the alarm on the pandemic back in March during an emotional CNBC interview.
Hitting the jackpot
Ackman’s winning idea in February was to buy credit-default swaps — which insure the buyer against an issuer defaulting — on investment-grade and high-yield bonds.
Pershing Square spent just $27 million on premiums for the hedges, which ballooned in value to $2.6 billion after the pandemic increased the odds of corporate defaults. The profits from the trade offset the blow to Pershing Square’s equity portfolio when markets tanked.
Ackman and his team cashed out and decided to capitalize on depressed stock prices, plowing more than $2 billion of the windfall into Pershing Square’s portfolio companies by March 18.
The fund boosted its stakes in Warren Buffett’s Berkshire Hathaway — a position it exited a few months later — as well as Hilton, Lowe’s, and Burger King-parent Restaurant Brands, and also reinvested in Starbucks.
Pershing Square’s timing meant it benefited significantly from the subsequent market rally. The fund is up 44% this year as of October 31, according to its latest portfolio update.