Trey Thoelcke
5 min read
Quick Read
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Pershing Square shareholders own the fee-collecting manager, not Bill Ackman’s stock portfolio, which belongs to the funds.
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About 98% of fee-paying assets are permanent capital, so investors who leave sell shares to others and the fee base stays put.
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Pershing Square Holdings’ fee-paying assets fell over the past year, so slipping launch of Pershing Square Ventures would weaken the case for owning the manager.
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Buyers of Pershing Square (NYSE:PS) own the manager that collects fees for running Bill Ackman’s stock portfolio. The concentrated stock positions belong to the funds. Pershing Square shareholders own the business that charges those funds, a company with a market value of about $17.8 billion.
How the Fee Machine Earns Its Money
Pershing Square makes money in three ways. The first is management fees. It charges 1.5% of net asset value (NAV) a year on Pershing Square Holdings, which trades in London, and on its private funds. It charges 2.0% on Pershing Square USA (NYSE:PSUS). The second is performance fees, earned when fund returns clear high-water marks. The third is the company’s own balance sheet, which holds stakes in Howard Hughes Holdings (NYSE:HHH), PSUS, and PS Ventures.
In the third quarter, PSH management fees came to $47.188 million, and PSUS fees came to $22.963 million. The company booked no performance fees, compared with $2.661 million a year earlier. Its fee-related earnings (FRE) margin expanded to 84.2%. Revenue of $56.604 million still missed the $75.474 million consensus.
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Why Permanent Capital Changes the Math
About 98% of fee-paying AUM is permanent capital. Investors who want out sell their shares to other investors. They cannot redeem cash from the vehicle, so the fee base stays in place even when holders leave. On the earnings call, Ackman put it simply: “Our capital base is permanent.”
