Pershing Square Double Gates, Expected IPO

Chidem Kurdas

Activist investing requires long-term committed capital, something William Ackman apparently seeks to achieve through various means. One is a two-level gating structure, with a regular gate under any conditions and a separate gate for unusually large overall redemptions.

Investors agree not to redeem more than 12.5% of their capital each quarter, which means they will need two years to fully withdraw from Mr. Ackman’s Pershing Square. That’s the routine gate. In addition, he  can raise another gate if the fund has heavy redemptions—as happened to many funds in the 2008 crisis. If more than 20% of total assets are redeemed, he has investors’ OK to freeze withdrawals.

These gates are highly restrictive compared to other funds. Many managers do not have regular gates. Even those that do allow more redemption than Pershing Square. Some limit each investor to 25% of capital per quarter, so that an investor can be out in a year rather than two years as with Pershing Square.

So why do the clients accept Mr. Ackman’s stringent conditions on withdrawal? An investor says it makes sense given his strategy and you would not want other limited partners to withdraw capital in a way that destroys potential profits from long-term investments.

The other way Mr. Ackman plans to get long-term capital is by going public, floating Pershing Square Holdings Ltd. on the London Stock Exchange. He told investors he will launch a private version of the vehicle later this year. No date yet for the IPO.

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