Yet Another Value Podcast - James Elbaor is investing in Bill Ackman at a Discount $PSH

Episode Date: September 12, 2022

James Elbaor, founder and CIO of Marlton Capital, discusses his investment thesis for Pershing Square Holdings (PSH).PSH is Bill Ackman's closed end fund. It trades at a discount, at James thinks Ackman is on the verge of taking steps that will both increase net asset value and shrink the discount.James' Twitter: https://twitter.com/jameselbaorChapters0:00 Intro2:25 PSH Overview11:50 Why would a U.S. listing close the NAV gap?20:20 What could PSH buy to relist in the U.S.?22:55 How does PSH fund an acquisition?24:55 Responding to the Ackman Blow Up Risk27:30 PSH's management fees and the discount32:20 Why has PSH's leverage come down this year?38:30 Discussing PSH's "macro" trades42:30 The interest rate swaption46:30 PSH's current portfolio52:30 How PSH will evolve over time56:30 PSH's dividend1:01:30 A little more on a potential relisting

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rate subscribe review it wherever you're listening to it uh with me today i'm happy to have on for the second time james elbar james is the founder and cio of marlton james how's it going it's going well good to see you again andrew hey it's great to see you too uh let me start this podcast the way I do every podcast. First, disclaimers remind everyone, nothing on this podcast is investing advice. We're going to be talking about a stock that mainly trades international today. So just remember that comes with a little bit of added risk, a little bit of added maybe tax complexities there. We're not tax advisors, but everyone should just please consult a financial advisor, do your own work. And then second, a pitch for you, my guess, you know, people can go listen

to the first podcast from, I can't believe it was all the way summer 2020. it feels like it was much sooner than that. But great to have you back on. I think you're a super smart guy. I know you know this name really well, and you caught some really interesting tidbits in the disclosures, which shows how closely you're reading the filings. But all that out the way,

let's just turn to this company we're going to talk about. It's not a company. It's actually a closed end fund. It's Persian Holdings. The ticker is PSH. It trades over in London. And I'm just going to stop there and turn it over to you. James, what is PSH and why is it so interesting?

Oh, gosh. Well, it's great to be. back, similar to the last conversation that we had. We talked about third point offshore. Today we're going to talk about Pershing Square Holdings, which I should remind everybody, is not only on the London Stock Exchange. It's also on the Euro Next as a dollar that trades USD. And then there's also a pink sheet as well. But there's a couple different ways to get it. But I think probably the best is usually trading through the Euro Next. But like you were saying, Pershing Square Holdings is a closed-end Fund. It's a investment holding company run by Bill Ackman, and it's incorporated currently

in Guernsey, which is important because the main crutch of our conversation here is that I think it's going to re-domicile to the United States, which creates a really interesting event path and investment opportunity. But let's take a quick step back and describe what this is, because one of the things that you said was it's a closed-end fund. And it is a closed-end fund. But I think the way that Bill is positioning this, the way that it is run, is really more like an investment holding company. So I think people should really start to, and will start to see this as more like a

Berkshire Hathaway or an icon enterprises. Let's talk about what this is not. This is not a reinsurance company, like some had. funds have. And this is not a feeder fund like Third Point Offshore, which is a fund into, it's a company that's investing into a hedge fund. This is truly, you know, you are making an investment into the holding company of Persian Square Holdings. They make direct on-balance sheet investments into underlying securities, principally North American. Right now, they have nine companies. They're long only. And yes, I'm sure it's going to come up. They have a very

interesting swoption on interest rates. We don't know exactly where on the curve they are, but we can talk about that a little bit. So I think maybe what might be helpful when I was thinking about this and thinking about some of the listeners here is why Guernsey. So Persian Square Holdings is basically domiciled in Guernsey right now to avoid compensation or specifically the carried interest restrictions. There's other regulatory restrictions as well, but mainly the carried interest restriction that is imposed by the Investment Company Act of 1940. So that is why they're incorporated, generally incorporating Guernsey right now. So that brings the question, okay, how are you not deemed an investment company under the

40 Actum? And one way to look at that, I would encourage everybody to kind of figure out, find their own opinion as to how this happens. And one of the ways that we did it was pull up Brookshire Halfways, so 10K. You can read very, you can just control fine the 40 Act, and they will very succinctly describe to you why the 40 Act does not apply to them. And I'm going to read part of that right here. It says the company does not invest or intend to invest in securities as the primary business and no more than 40% of total assets will be invested in investment securities as such term is defined in the investment company act and what we think is bill is telegraphing and has been telegraphing that they are

going to make the move from guernsey which is where they are currently trading as some essentially acting like a hedge fund, right, just incorporating Guernsey, trading regular securities, and will be more like a U.S. domiciled investment holding company like a Berkshire Hathaway. But in order to do that, as we said, trading securities need to be less than 40% of your assets. And Berkshire Hathaway gets around that by owning GEICO in the sense their insurance company, ICON enterprises, has energy companies that are affiliated. with them that they have full control over.

And then you've also got Canai, which is Bill Foley's holding company, which has consolidated other businesses as well. I'm laughing because I didn't think we'd bring Bill Foley in here. But I'm familiar with all of them. Yes. So maybe, you know, one of the things that's actually pretty interesting right now about Persian Square holdings is the discount to NAV. So it's trading currently at around a 35.

percent discount to its net asset value. And there's various different, I think might be helpful maybe talk a little bit if you think about why the discounts in NAV exists. Yep. Right. So we think of it as three reasons primarily. So reason one is the concentration of the Persian Square portfolio is nine long only equity positions.

Two, he employs leverage. So if you look at how the portfolio was running in January, it was running about 128% net long. Today, the portfolio is 106% net long as he is taking that down. I think what's really important worth mentioning because I know that Bill would mention it is that the debt is true debt. These are bonds. So this is not margin debt. So if Persian Square were to find themselves in a market downturn, there is.

is no risk that they're going to get a margin call on their securities because they just don't use margin debt. And then three, what we think is really actually coming on here is that traders or investors just can't arbitrage the underlying nav because Pershing Square trades ULSC Euronext market hours, so European market hours, but has underlying investments that trade New York Stock Exchange market hours. So it makes sense that in a portfolio that's concentrated and levered, that you would have a, you'd apply some type of a discount and probably a significantly larger discount than you would normally apply, given the fact that if all of a sudden the market starts to tank,

as we have volatility right now, there's no way that you're going to be able to move out of your person square hold its position, especially if you have that margin. Margined. So, All these reasons and all the different things that Bill has done to close this discount, and there are many, and we can spend almost an entire podcast talking about what a great capital allocator he's been for shareholders thus far, including buying back shares, uplisting to the London Stock Exchange, premier selection, starting the dividend that is now actually he increased the dividend recently. There's plenty of shareholder-friendly things that he's done. We think the most shareholder-friendly thing that he will do is red domicile and move into the United States. And once he does that,

you're no longer looking at a valuation on net asset value. You're no longer saying, well, James, you know, is this now, is Persian Square you saying is going to be a 35% discount to a 10% discount? No, Berkshire Hathaway trades at a 1.36 times book value. You know, IEP trades at 1.6. It's a little bit misleading because of the energy holdings that he has, you know, historically it's traded closer around like 1 to 0.8 times book. But, you know, Kenai historically is traded at 1.2. So that's a 20% premium to book value. And, and just to take this back, just because I think that this is a headline that I even forgot to mention, Ackman has compounded over the last 18 years at 17.5%. 17.5%. 17. and a half percent over the last 18 years. That's including Valiant and Herbalife. So we think that there's just plenty of upside. I'm going to pause there if you have questions because then I can kind of go into the math as to how this really starts to look attractive over the next two years. But open it up. No, this has been great. Look, you've done all my work

for me. You hit most of my questions that I had over here. So I'm going to try and add some stuff to, you know, earn my keep as a podcast host. But let me just bounce around through a couple things. Now, the last thing you said, so I think a piece of your thesis is there's a lot of pieces, right? Like, it trades for a 30 to 35% discount to NAV. Akman's got a great track record, right? So if you think he does 15 to 20% from here, that 30% NAV with buybacks, 15% to 20% annualized like that just the growth is incredible, right? So there's that piece of it. You think that that NAV discount can collapse because you might do a U.S. buy some U.S. operating company, give a U.S. listing. I know they talked about U.S. listings in general. They're some annual.

We'll get to that. All that type of stuff. But let me just start the last thing you mentioned, right? You said, hey, if he comes to the U.S., if you look at Berkshire Hathaway, trades at 1.3 times books. Can I trades at 1.2 times book. IEP trades at 1.6 times book. And I think my first pushback there would be, okay, I get you. He's going to come over here and this is going to trade for, and you think this could close the gap if he comes over here and gets an operating company. But my first push, I would be, well, yeah, but, like, Berkshire Hathaway trades at 1.3 times book. But Geico's held on the books at, like, what they acquired it for in 1992 or something. Knai, I know for fact, because I've done a lot of work there. Like, they've got a lot of these startup investments.

And every now and then, they'll IPO one and it'll turn out, oh, lo and behold, it was worth five times book. And, like, people have got pretty good insight into that. So I would kind of push back and say, look, if he comes over here, I don't know what the fee structure will be. And we'll probably talk fees in a second. But if he comes over here and he buys, name your company to get a listing over here. I still feel like it would probably trade a discount because people would just look at it and be like, okay, cool. He paid an acquisition premium to get it over here.

We've still got the fees and we've got some really liquid publicly traded stocks. Maybe it gets a little bit better because there's a little bit more ARB opportunity, but maybe it gets a little bit worse because people look and say, okay, cool. He owns 10 large cap, really nice companies and then this unhedgeable U.S. operating business. So it's really just a bet on Bill Ackman's capital allocation going forward, which is probably a very good bet. But I could see how it goes the other way from what you're talking about. Yes. I don't totally disagree with you.

I think that there's realistically, we think that this is going to play out between 18 and 24 months. I think that this is a pretty big focus for them right now. And also what we never even mentioned, which is what's worth mentioning, while Marlton, My firm has been talking about this since 2018, that we think that this is what Bill's going to do. The last annual report, which I encourage everybody to read, makes it abundantly clear that Persian Square at the board level and the investment management company level bill is thinking about it. In fact, there's a literal line in there that says, the way for us to close this discount is to re-domicile. and we are continually and we'll potentially explore options on that. Can I just quick clarification?

Was it the last semi-annual report or the annual report? Semi-annual report. I thought it was the semi. I just wanted to clarify in case anybody's going to go check us on that. But everything else you said, I 100% agree with it. Yeah. So starting there. So taking a step back, the reason why I bring that up is we think that realistically,

this will just take, this is going to take some time. There's a few things that are going to happen. One, there's going to be an announcement of potentially, of some type of a target. There's going to have to be some type of financing involved. We think that whatever target it's going to be is likely going to be real estate in nature. I know that he has more of a consumer background. But remember, one of the things that we're trying to fix here is how do we get trading securities to be under 40 percent? So you need an asset heavy business, more of an asset heavy business that you can add a lot of leverage to is real estate.

outside the fact that Bill has had such fantastic experience with general growth and the experience there. So we think that it's going to be real estate in nature. That is to say, I agree with you that initially I don't see this trading at a massive necessarily a huge premium where you're looking at Brookshare and saying, well, it's one point four times book and they acquired GEICO forever. ago. And that is true. They did do that. And that is how accounting works. What I do see is happening, though, is that these liquid securities should realistically in our closed and fun experience trade anywhere between a 10% discount to par. And I think that it's highly realistic that what you're really playing for here is a par like value as people then start to a

assign what is the value then if we give par to the actual trading securities, then what's the value of operating company going to be? And then how do we kind of value the sum? And all together, I think you'll get to something of probably current NAF in between as it works out. Yeah, there can be downside for sure. And look at Howard Hughes. Howard Hughes trades at a pretty significant discount, right? And when you think about the value there. So it's highly likely that a discount remains. We just think that it's not 35%. We just think that it's something more closer to like to current nav of negative 10 to par. And it's funny because I posted this on Twitter, obviously, and there were two or three questions that there were most common. But the most

common by far was when does the discount close, which I get it, like invest in a security, trades at a 30% discount to NAV. Everybody wants that to close the next day, right? But it's funny we're saying this because tell me if I'm wrong, I think the core thesis for you is Acman's compounded 17% annualized over the past 20 years or something along those lines, right? It's like, hey, if he's going to do 12% annualized for the next 20 years, you're really not going to care if that discount closes now. By the way, it might be better because you can keep buying back those shares, which will be very accretive and increase that confounding. But it is funny how focused, and I'm focused, your focus, it's where all of our minds goes. But if you can get

over to the U.S., get the cash flow from an operating business, and then start repurchasey shares, like you kind of get that snowball rolling. So it's- Can I just also say, I think it gets, while Bill gets, is obviously very public-facing, he gets a lot of criticism, I want to say two things for at least Persian Square shareholders that have, like myself, that have experienced, this, we have an absolutely incredible capital allocator at the helm. And this isn't just because he's a smart person. Let me give a really good example right now. We were right in the midst of this year. Her share buybacks at Persian Square had stopped. Why? Because they were deploying capital. No sooner than May of this year, Persian Square has bought back $113 million

dollars notional worth of shares at a 35% discounted. That's 2% of the flow. That was an immediate move by the Persian Square board and investment manager in order to make that capital allocation decision. They made that incredibly nimbly. That is not a typical, what you typically see at the corporate level where these types of buyback programs are longer, they are more thought out, and not always accreted because they're kind of just done well where we have a buyback program and we're just running through through the numbers. This is done in a very nimble way. And I also want to say, I give Bill a lot of credit that while, you know, there's a lot of time and focus spent on tantal, he could have done a really bad deal and he

chose not to. And at the same time, he's moving forward with Spark. Spark is still moving forward. There's still, you know, there's still that shelf filing. And we think that that's really possible to happen in the next three years, that that's going to happen. It won't be listed, as we know, but it will certainly be OTC, and that's going to create its own event path. We're dealing with an incredibly nimble capital allocator that I think really surprises people continually. I don't know why it surprises people. It doesn't surprise me when I see these things, but it's somebody who is very much on the side of shareholders and the structure in general

is on the side of shareholders. Ackman himself, now through various different trusts, as has been publicly disclosed, is the largest shareholder in Pershing Square holdings. Let me, so you said, and I hadn't thought this fully through, but you said in order to avoid the investment 40F, you probably, Persian, if they want to come to the U.S.

and buy buying an operating business, they probably need to do something with a lot of assets, That's a lot of book value assets so that they can come. They're not going to do a U.S. franchisor or something because there's no assets there, so they would just still be an investment holding company, even if the franchiser was hugely hugely valuable. You mentioned real estate. So I just want to ask, I know several people have mentioned to be like, hey, would they just buy all of HHC and use that as their operating company? And I don't know, obviously, Bills got all, HHC is one of the nine companies that they're invested in.

Bill's got a lot of knowledge of HHC. It's been a kind of controversial stock. It's kind of gone nowhere since the spin, despite lots of upside. I love south side. But do you think HHC is the target, or do you think he's going to kind of do something of his own? If it's not HACC, like what type of real estate do you think it would be? My inkling is that HHC plays a role in this story in some way. So you're looking at right now Persian Square owns roughly around 20%, a little over possibly of the shares outstanding.

It is a real estate play. It could be levered. It wouldn't surprise me if there was a play for H.H.H. Howard Hughes and as well as Howard Hughes buying something else. or Pershing Square and Howard Hughes doing a much larger deal. What's really fun about this is that, again, not to kind of re-say what I just said, you have a capital allocator who's not afraid of doing anything that's very complicated. Just look at history. Everything that we've just seen in the last 36 months with Bill Ackman has been something that has been completely out of the box, very shareholder-friendly, especially to shareholders that are aligned with him.

And I'd hate to say the word complicated, but complicated in a way that's accretive to everybody involved. He's not shy of doing a deal that might take some explaining, but once it's explained, everybody gets on board and realizes, oh, this makes a lot of sense and this is a great deal. So to answer your question, do I think it's Howard Hughes? I think Howard Hughes plays a big role in this. It wouldn't surprise me if it's a play for Howard Hughes and Howard Hughes. is buying another partner as well. And then just another quick. Forget Howard Hughes, forget the target.

Where did they find the money to buy something? Because this is a company that's 100% invested right now. The shares are trading at a 30% discount to NAV. Obviously, you can get a decent bit of leverage on if you go buy office towers or something. I don't think fully leased up office towers of the target. I just throw that out there. But where do they get the money to go buy an operating business that's going to be big

enough that they're not going to be registered under the investment 40 at. It's a liquid portfolio. We saw them move out of Netflix incredibly quickly through what was an over billion dollar notional position. I just, I don't think that coming up with equity is going to be a problem. And depending on what the target is, I don't think that coming up with either co-investors through equity co-invest, and or a line of credit. any type of credit that they're going to try and put on this from a debt perspective is going to be hampering them from a deal. Guggenheim has advised them in the past and has done a really nice job structuring deals

that can sometimes be hard to get done. So you wouldn't be surprised if they sold down a position to help fund this in part? Yeah. No, I wouldn't be surprised by that. You know the company better than me. I think I would be a little bit surprised by it just because there's nine companies like he's talked so highly about all of them. but it certainly doesn't make sense.

Let me ask, okay, so turning back to the discount here, right? A lot of the, a lot of people say, hey, the discount is because A, four enlisted all this, but the two other real pushbacks are fees and Ackman's reputation. We can talk, let's do Ackman's reputation first, because I'm with you. I've got a lot of respect for him. But, you know, the second most popular question we got, aside from when is the discount going to close, is? Well, it trades at a discount because Ackman's going to blow up again, right?

Which I think is like, I've got feelings. I think that's very disingenuous, but people point to the Valiant experience and the Herbalife experience. And they say, look, it's uninvestable. It's trading a discount because he's going to blow up. I say, look at the portfolio, look at his history. But that's just my thoughts. I'll pause there. Like, what do you think to, what would you respond to people who say, just look at the blowup history?

And actually, people will even go back to his first hedge fund. I think it was Gotham partners. They'll even go back to his first hedge fund and say, look at that history. right um i would say for every if i almost don't even know how to answer this question with a straight face i know but it's the second most popular question i mean it's the second most popular question if i can for for the next 18 years compound at 17 and a half percent with multiple public failures and do it with a smile on my face and still treat shareholders right, then I will have lived a very full life.

Not only that, but you and me, we'll be seeing each other on the beach if that's the case, right? You know what's funny about that? Let me just go ahead and take that one step further. You said, we'll be seeing each other on the beach. You know who's not on the beach right now? Bill active because he's out there making people money. So like ourselves, who are investors in his in Persian Square, I mean, that's what's so fascinating.

to me. It's like, yes, I think you have a very passionate person who puts a lot out there, but the numbers speak for themselves. If the numbers were terrible, then don't invest. But at the same time, I would say, look at where your other options are, hard to find to people that are that honest, that upstanding, that shareholder aligned, that have compounded at those types of numbers. The other question and the other way to explain the discount is the fees, right? So close in fund right now, as we talked about, this might not be a closed end fund forever, but it would still probably be a controlled company. And the fees are 1.6 and 16, if I remember correctly.

So 1.6% asset management fee and then 16% of the profits are going to Pershing, Bill Atman, right? That is high. You know, anybody who invests in mutual funds will know that's a lot higher than mutual funds. But that's high for close end funds on the whole, I would say. Most close end funds in the U.S. don't have an incentive fee. I don't think it's higher. And a lot of people would just say, hey, it's a liquid portfolio of nine large-cap U.S. stocks. Of course, it's going to trade at a discount when it's got that fee structure associated with it. Because we can just, Actman's very public. We can just copy this portfolio, bid it ourselves, and not pay that fee structure.

So it has to trade a discount to attract investors. What would you say about that? Well, I would say that that's not entirely accurate. So in true, Akman style, it's the devils and the details and in the numbers. So Persian Square runs levered. a long only portfolio minus the swapton, which is treated more like a liquidity pool. But it's a levered, it's a levered long portfolio. What the leverage does is it minimizes actually the fee track. So when you, when Bill and the team and I are, and I fully tell people that

Tony and S, the head of IR, long-term head of IR, Persian Square is very readily available to answer anybody's questions that I encourage them to reject Tony because he's helpful in this respect. If you look at the leverage and you run the portfolio, side by side, what ends up happening is that you end up getting the gross return of what it would be had they not had the fees because of the leverage. So the leverage ends up basically compensating you for the fees and compensating them for the fees. Now, if we're going to talk about the fees in and of themselves as being too high. I want to point to the fact that you have a team that has incredible retention that is an incredible team. Ryan Israel, who was just appointed CIO, has been there since

2000, basically 2009, 2010, when he was formerly at Goldman's Special Sitz Group before leading and joining Persian Square. One way that you keep a Ryan Israel and keep him motivated, keep him on board, is by compensating him. We're in a capitalist society and people go where the money is. Ryan's not going to go start his own fund because he has a really great sea at Pershing Square where he's highly compensated and it wouldn't actually make viable sense for him to probably leave and start his own fund because of the fact that he is very well compensated based on the structure there.

Tony, the head of I.R., has been there for also. decades of possibly since inception, I believe. So you're looking at least, you know, at least over two decades, almost two decades, that your head of IR has been at Persian Square. I think team continuity is really, really important, especially as this firm continues to build. So if you're going to look at other larger asset managers, now I don't think of Persian Square Holdings is an asset manager. But if you look at those, they're all. struggling with their legacies. Many of them are struggling with where, what is secession planning? What does this look like? Who are we bringing in? We don't have that problem at Persons Square.

Now, you know, we can have a different debate as to are they overcompensated? Are they too much? Possibly. But, you know, I again say the net returns speak for themselves. And that's where that's where people are going to choose to put their dollars. If I am wrong and they're over and they are overcompensated such that the net return is no longer attractive, we won't stick around. But I think that bill has been really thoughtful around structuring comp and having that carried interest component such that people are encouraged to stay around and put their best work forward.

Let me go. So no discreements there, but let me go back to the first part of what you're saying. You said the leverage kind of can be used to offset the fees, which I get that that is an rational or that that is an argument, right? if you're running 150 long and there's no margin. So you can hold that through thick and thin, right? That will offset a lot of the fees, give people beta upside, all that type of stuff. But right now, they are 106 long, right?

So they're basically not levered at this point. So does that change your calculus at all? Does it change the calculus? I would say yes and no. again at the beginning of the year they were running 128 now they're running 106 there's an averaging out i think we need to give some credence to the investment committee and the team there as to how they want to flex their net in the environment um so i don't want to penalize them too much for saying well you're not running consistently at 128 if the opportunity feels more around what they could be

telegraphing or not, but what we think they could be telegraphing is we're waiting to deploy a little bit more capital or we're waiting to add to the portfolio at a time when we feel a little bit better or a little bit more stable from a macro perspective. Why do you think running 130 at the start of the year in 106 now, right? That's a pretty big 20 plus net drawdown and exposure. Stocks are lower now. Obviously, there's a Ukraine War. There's a lot of macro uncertainty.

we're going to talk interest rates options in a second inflation. But, you know, it does strike me if you were 128 when this, when stocks were higher and now you're 106, like, why do you think that change? It strikes me, it should be the inverse, right? Yeah, you could think of it as the inverse. I don't, I don't necessarily, all the reading that I've done has shown from the previous letters of Bill have shown they're not, Bill is not a market timer. He's a long-term investor.

Many of these positions have been held for a very, very long period of time. If I was, without doing a complete forensic analysis, but just looking off the cuff, it really wouldn't surprise me if the swapsion and the movements in the pricing of the swapsion has really changed gross leverage up and down, because the swapsion by definition has a lot of notional exposure, and so you're going to get a lot of P&L. In fact, just to, because we talked about it, and I did the math. So when you look at it, you're to date, well, actually, let me ask about this option before you get there, just so people, yeah. So look, in the past two years, Ackman's made two just absolutely magnificent macro calls, right? The first was the famous buying

CDS right before COVID hit, which might have been the best trade of all time. And then the second was late last year, he starts buying interest rates options, which basically lets him bet on raging inflation, interest rates going up, all that side of itself, which has paid off beautifully. Get lots of thoughts around that, right? But I guess the first thing is a lot of people think those have paid off well. But right now, a lot of people think that the inflation the interest rate swapsions are really burning a hole in his pocket, right? You have to pay, you have to pay on them every month to keep them going. And a lot of people think, oh, they're not paying off quickly enough. He's burning a lot of premium on those swapsions. I might not have said

that perfectly right, but I think that was the general just. So can I ask you, you know, kind of on a, how much is he paying as a percentage of the portfolio per month on these swapsions? We don't have a good view on the per month, on the per month that we're spending. But, one thing that, so one thing I would encourage everybody to take a look at is there are wonderful transparency reports on the Persian Square websites there on the website. They are very transparent with shareholders. You could easily see on a month-by-month basis what their exposures are, as well as what the attribution is. So looking, just looking near to date, on the long book only, the gross performance attribution has been negative 24%.

So that's saying, you know, without any swapsions and now there's flexing of the leverage there, right, but we're saying that the gross attribution of the logbook has been negative 24%. The short attribution, which is the swaption, has been 7.3% positive, huh? So it's been a positive net for him. Now, yes, I think if you're not going to say, I will go ahead and say the criticism myself. There is a criticism that, you know, we use. used a good, or Persian Square used a good chunk of the short attribution from the swapsion to plow it into Netflix, which then is clearly a long performance track.

So when you kind of net it all out, how does it look? I haven't really, we haven't really looked at that deeply into that. One thing that we have done, though, is saying this isn't really a source of P&L for Persian Square, as much as it's a source of liquidity, and they've been very, very strong in making sure that shareholders understand that and think of it that way, when they, while they've made great macro calls, and there have been many, and there have been other macro calls that have not work out, work out so well. Can you name a macro call that didn't work out well for him? I believe that there was a macro call back, that was a currency situation around the devalue

of the wand in China. I'm not absolutely super accurate about that, but it was- I asked because I could, I honestly just couldn't remember one. So I was, at least you I could remember were swapsions in COVID. Yeah, there's swapsions and there's COVID. But there's actually you can, if you go back, there's tons of letters, all the previous letters are up on the Persian Square website. And you can read back and I believe that there was one where a depag or devaluation of the one was something that Bill had been. had been playing that hadn't really worked out all that well, but actually didn't cost the fund all that much. But at the end of the day, I think you get a macro overlay that is seen

as a source of liquidity. And then you have what is essentially a private equity portfolio on the other side that mimics very much the style of Berkshire Hathaway. So, you know, Restaurant Brands International has been held by Pershing Square for, gosh, I want to say almost a decade now. If I remember, Restaurant Brands International came public through Justice Holdings, which was Athens for SPAC. And so he took this back, took Restaurant Brands, and then he hasn't sold a share. So, yeah.

Yeah, which is also highly tax efficient. I mean, that's for another, that's for another time. Let me ask. So just sticking with the interest rate swapsions and the COVID to the macro place, I've heard a couple, one kind of. of conspiracy theory on them and then a couple of criticisms. So I just want to run by you. The first would be the conspiracy theory. And that's this. Look, Ackman does, he does these. I think he doesn't to make money and stuff. But some people say, look, he does these so publicly

because he wants people to know, look, yes, our portfolio is very public. Yes, our portfolio is very liquid. You could go create this by yourselves. But we're going to make these macro trades. you probably can't create them by yourself, and when we do them, you will not know. So you won't be able to recreate them at the time. And these can be very time sensitive, right? With COVID, if he had tried to put that on three weeks later, it's a nothing burger. So COVID was a real thing. He couldn't have put those trades on if he had tried it three weeks later, right?

So a lot of people think he's doing these macro trades not necessarily to make money, though scoreboard, but he's doing them to lure people. lower people in stock saying, hey, this is the thing that our sock has that you can't get anywhere else. What would you say to people who said that? Well, for one, that is a fact. You cannot get that anywhere else. Where else are you going to price that swap? I mean, somebody else that's large with an ISDA can obviously price that swap option, but you can't. So I think the counter to that is don't disagree with you that Bill is out there saying invest in this vehicle, we have this. It is true that they have this. That's a fact. So what we're not talking about

is somebody who's being disingenuous in saying we have this when in reality they don't. Or it's like a minor piece of the portfolio. You have somebody who's saying that we have this. They actually do have it and it is material. So you make your decision with all the information that you have in order to do that. So I'm not sure if that's really necessarily a criticism. It's, yeah, does that make sense? No, I think that's fine. Maybe I can push on that.

I was just surprised how many, I mean, I've had the thought before, but I was surprised by how many people have suggested that to me. And look, I would do anything to, I would do anything that public. If I was making a hundred X on the trades or something. It's not even just marketing that. Let me just give the counter to that. Is the counter is what is being suggested then is saying, well, actually, as the now CEO, Persian Square holdings, he should, he should not tell people that he had or people

that he has these swapsions on. Well, first of all, I would be, I'm going to be frustrated as a shareholder. I'm a shareholder of Persian Square. I'm actually a material shareholder of Persian Square holding, specifically for me. And I want and I value that kind of transparency in my manager, her saying, this is what we have on. Then I can make my choices to whether or not I want to stay or not or how I need to think about that.

I prefer that vastly to what I think could be the counter to that, which is we have this option on and look how much money we do. made and we never told you that we had the swap shan on before. And it's like, no, that's not the situation. In fact, what it's always been is we have a swap shan on. And then it just turns out that they actually made money and it worked. But if it had it not worked, I think that Bill would say if he was on here and I challenged him, I think Bill would actually be the first person to go ahead and say, yeah, we had the swapsion on it didn't work and lost his money. And he'd own up to that. It wouldn't necessarily be a marketing play. I think it's more of a transparency situation.

Second question, and this is swapsion specific, but I do, it has struck me as a little strange that Bill is, I believe he's on the investment advisory committee for the New York Fed. I think that's his specific role. He's got ties to the New York Fed in some way. And he's making presentations to the New York Fed arguing for higher interest rates, really focusing on fighting inflation and all this sort of stuff. And he's doing that at the same time. I mean, he even tweeted out or put on the Persian Square website, the presentation. he did to the New York Fed, and he's doing all that at the same time that he's got this interest rate swapsing going on. And I understand, like, I understand he thinks inflation is a serious problem. That's why he put this on. That's why he's doing it. But at the same time, it's like, don't ask your barber if you need a haircut, right? Like somebody who would really benefit from interest rates going up and the Fed fighting inflation even more aggressively, and he has a tie to it. Like, how can he make this bet and beyond the Fed committee and all that type of stuff, you know, it just feels conflict of interesting to me, especially for someone who

we're out here arguing, has a lot of integrity, cares about shareholders, that's just a very strange piece. Let me, let me ask about the integrity piece here. So just so I can just pair with this back and understand the criticism. The criticism is, is Bill publicly discloses that he sits on this committee. He publicly pre-discloses that he has this swapsion on. He then publicly discloses that he has a view that interest rate should go up, which he also publicly discloses he could benefit from. And that's a conflict and interest at a problem versus something like my husband makes trades and I'm a senior person, i.e. Nancy Pelosi. So I think that they're not necessarily the same. You know, no necessarily view positive or

negative on Ms. Pelosi, but I see them as vastly different when you have somebody who, as we just agreed, is literally saying this. By the way, you know how we're finding out about this. We're finding out about Bill and his presentation because he put it out there. We're not finding out about it from the New York Post that is back running trades that are not easily disclosed. So I think we're dealing with a very different, I think, you know, if the I think the criticism is Bill's just really good at his job. And he just happens to be really transparent about it. And people can say what they want to say and be critical of it. And I get that. But you cannot criticize the guy for being transparent because he's been transparent.

It's not like, okay, he hid this. And this thing happens. It's like it's vastly different to me. It's funny you mentioned the congressional trading because I've personally been of the view like Congress people shouldn't be allowed to trade individual stocks. Like, I don't see how that's even a kid. But the one, more than what you just said, the one I would almost point it to is, do you remember at the height of COVID in February, a bunch of senators like got public, it got private briefings and they immediately call up their brokers and sell everything. And then they go on TV and say, everything's okay, nothing to worry about.

And I understand you don't want to incite panic and people and stuff, but they were literally liquidating their entire portfolios. And I would compare that to this where Bill puts a position on very publicly says, I have this position and then goes and argues to the Fed, hey, I have this position. Here's why you need to take this stuff seriously. Like at least it's full like pretty much open kimono versus the other side. That's the one I would more acquit it to. But yeah.

Yeah. I just I just think of them as as night and day. I believe not just from my own personal experience, but I think anybody's experience with Bill has always been nothing but. the highest of integrity and very open and honest, if anything, the criticisms that I've heard is that if you were going to tell me that Bill is on a very high horse and thinks so highly of himself that he's like this absolute white night, I would totally agree with you. But he also talks to talk and walks to walk. So, I mean, I can't fault him for it.

So just looking at the portfolio, at this point, there are nine names, and they're large. largely, if I had to describe them, it is large cap, growthy, not growthish, but growing typical, growing better than your average stock, much better business than your average company holding. So like, you know, the one that pops in my mind immediately is Hilton. Dominoes before he sold it. That's a franchisor, really nice growth. It's not hypergrowth, but it's good growth. Lots of cash flow. And most of them are trading in the 20 to 25 times free cash flow range, right? That's just broad, broad. odd strokes of everything. And I guess I would have two questions on that. The first,

do you think his portfolio, his portfolio there is also coloring his views on the inflation swap option? And I mean it in this way. The inflation swap option works really well because higher interest rates are death for stocks trading at 20 to 25 times free cash flow. So you kind of get both sides, right? Interest rates go up. Your stocks go down. So the interest rate, the interest rate protection goes up. If they don't pay off, well, your stocks probably go up because if interest rates go from three to two, well, your 20 times free cash earnings go to 30 times free cash earnings. Does that make sense? It does. And I think that that's absolutely accurate because that is very much in line with the way that we see Bill running the portfolio as

if in a rising interest rate environment, those swapsions at when he decides to exit them or decides to latter exit them, however he believes the best way to play it is, they will provide liquidity to then buy into or add to these positions or buy due positions at lower or more attractive valuations. I think it is significantly more efficient to have the swap option and provide liquidity than try to sell and exit these positions, many of which he's a D-D filer on and certainly a 13F filer on where he's going to have to disclose that he sold down some of these positions. I just don't think that that's efficient.

I don't think that that's accretive to shareholders in Persian Squareholdings. I think that what's the way that Bill is running is the way I would like to see it be run with transparency, with integrity, but also in a way that is actually really elegant. This swap option provides a lot of liquidity in an environment where interest rates maybe continually going up. Let me ask the second question. The portfolio. I mean, I have no, I have no issues with it.

I like, I've done some work on some of the companies here. I like most of the companies in here, right? Like, especially Hilton, I've mentioned that a few times that I really like that business and that thesis. But when you just look at, again, broad strokes, it's 20 to 25 times free cash flow companies growing nicely, but not hypergrowth or anything, lots of free cash flow, but they're not going to, you know, take over the. world tomorrow or something. When you look at that portfolio, you know, you talked, you said earlier,

one of the first things you said is you're investing in a manager with a 20 year history of almost 20% annualized returns, right? How do you get close to that returns with this portfolio here? Right. It's a, it's 100% invested, basically. It's invested in good companies that are trading 20, 25 times. But if they grow 5% and they yield 5% in terms of free cash flow, that's about a 10% return, which is better than the market will do over time. But it's hard to see, especially once you later the fees on, how this is going to do materially better than that unless I'm kind of missing something or you're factoring in a big macro call or he's going to sell all these and roll in something really interesting. Does that make sense? Yeah, no, it makes sense.

So I would say, look, if you're thinking typically equities have been yielding around, you know, if you're looking at the SMP, like 10% annualized, let's put a side of the fact that is a realized actual historical number, that Bill has basically doubled that over the last 18 years. But putting that aside, if we think, okay, we have a five-year time horizon view. Others might be longer, but let's just look out the next three to three-ish, three or five. Let's say the portfolio is really going to be annualizing around nine or ten percent. Okay. Now you say you layer on the fees. Well, then you add on the leverage. So now you're looking still at nine or ten percent. So you're still looking at the growth side. It's like,

okay. And so then you're asking me, well, where are we going from? What should I be thinking about from here? Well, let me tell you what I think we should be thinking about. What we need to go back to is the crutch of the thesis, which is twofold. First, you have a redomiciling effort that we think is going to be actively underway within 24 months where this will be moved. I think high level in this, this is a permanent, this is Bill's only capital vehicle. This is not just one product or treated as a product. This is, this is it. And it is, you are looking at a person who is very patriotic, who I firmly believe, and he has said himself that Guernsey is just not, the final destination for Persian Square holding. And he's already been making moves to what we

would be making moves to indicate that he's going to redomicile that. And so once we go through that redomiciling effort, you're now no longer, we're never longer going to be talking about Persian Square, the portfolio. We're going to be talking about Bill Ackman's, the investment holding company. We're going to be thinking about this more around the view. Bill Ackman 3.0, like, what is he doing at the operating company level, whatever operating company that's going to be? How is he allocating cash to the portfolio? How's the portfolio being run? Which is really, as he's been saying, going to be more aligned with Ryan, with Israel and how Israel is treating that portfolio. We think that this is like, we think we're at the beginning.

I hate to say this because this is not like a Tesla, you know, like company, Persian Square Holdings, you are looking at something today that is not going to look like this in the future. What we're looking at today is not what, if you and I get back on the call, huh, five years from now, six years from now, we're going to be talking about a vastly different company. And that is what is really exciting to me. You getting in, getting into Persian Square Holdings today gets you in to basically the ninth inning, huh, of what was that, of what was previously a hedge fund, talking about a hedge fund, closed end fund, holding company to now something really, really exciting. I thought of this off the top of my head and I'm going to let you steal it, but, you know, Bill is mid-50s and the way you describe it, it's just like all of a sudden strike a court with me, like what you're describing with Persian Square Holdings is basically, I mean, I think Buffett was in his. late 30s at the time, but it's kind of equivalent in the late 60s or early 70s when Buffett returns all of the cash share, all of his partnerships to shareholders. And he gives him the Berkshire stock. And he says, hey, you can keep this or leave it. Like, you go from the fund to you get the

kind of operating company. And what you're saying is Pershing PSH right now is kind of you're investing in that thing right on the verge from going from the hedge fund portfolio, it's the operating company portfolio. And, you know, if you follow those, if you follow that line, of thought, you know, Acman's 55. That's actually pretty young for an investor. If you had invested in Berkshire, when Buffett was 55, that would have been, what, the late 80s or so, if I'm doing the math off the top of my head, right? That's right. Most people would have been pretty happy with how Berkshire performed from the late 80s till today. So that only sold us on to the, go ahead. No, you're preaching to the choir. I think that this is a very, very exciting

time for Persian Square Holdings. I think this is a very, just really exciting time for current Persian Square Holdings investors and shareholders like ourselves, like me, certainly me. I just really believe, yes, typically closed-end funds are not sexy. What I think is just so exciting about this situation is we are pre the transformation of a transformation that is being very methodically, thoughtfully, and carefully telegraphed by bill. This is this is not a capital allocator or a person that does rash decisions or makes decisions that he is not fully committed to and sees them through, huh? Just history has shown committed. And on both sides, by the way, so committed to Valiant and that parabolic ride

and also committed to general growth and that massive home run that that became. So that's how, that's how I, that's what I see. And that's what I think is really incredibly exciting about it. I'm internally laughing because if people just tuned in for that clip, and this is just on my side, they would have heard me comparing Ackman to like a young to middle age Buffett. And I actually have huge respect for Ackman, but they'd be like, oh, he's just a homer. But if they had listened 20 minutes ago, they would have heard me talking about like,

conflicts at the bed or something. he'll be like, oh, this guy really doesn't like acting or something. So I'm just laughing on my end of it. Let me ask you one last question and then we'll kind of wrap this up. But last question, we've talked about rational capital allocation through all this, right? And I think the underlying trend through everything is if you're going to make this investment, I mean, you could try to ARB and like hedge everything out and bet on the clothes or something. But the only thing is if you're betting on Pershing, you're really betting on Ackman's capital allocation.

Let's just say the Persian team's capital allocation. There's one thing that strikes me as funny in there. they paid this dividend, right? And their stock trades at a 30% plus discount to NAV. And they're paying a dividend. And it just, this is a rational guy, right? If he buys into a company, he's going to go to them and say, hey, you're trading at 50. I think you're worth 100. He's not going to say, I need you to start paying a $2 per share dividend every year so I can get a, he's going to say, I need you to take all your cash flow, do accretive growth investments, and everything else after that is buying back shares. And here's a guy who's taking money and sending it out the door

instead of buying back shares when his liquid portfolio is trading it at a 30 to 35% discounts any of D. So I just want to ask you on the dividend. I know his arguments for him. How do you think about the arguments for the dividends? Okay. So we think of it, I totally agree with you. We would prefer not to see the dividend. Now, however, the dividend is X very much as a pick at the shareholder's choice. So we do get a dividend. We choose not to take the dividend in cash. We take the dividend in shares,

which we're then getting a negative 35% discount to, yeah. So putting that aside, there is actually a functional reason for the dividend, mostly why I think a lot of people on this podcast are not actively hearing about Persian Square holdings as an actual company is because of the fact that they are incorporated in Guernsey while they are, while they are headquartered in the United States, prevents them from marketing to U.S.-based investors.

In fact, you don't hear about any closed-end funds in London that are actively marketing to the United States because they're not allowed to. So that means you have a shareholder base that is largely, European. And from a cultural perspective as investors, those investors very much look positively towards dividends. And not only do they look positively, some of them actually have functional mandates that require them to investing companies that pay dividends. So as strange as that sounds, that is how it is across the pond in our conversations. And so the dividend is important for that shareholder base.

My pushback there would be like, that is doing something that looks good, but doesn't actually fundamentally detracts from value, right? Because if you believe that you can create, if you believe you can compound value at higher than market rates, you should be keeping every dollar that you have. And to go back to earlier I compared to Berkshire and Warren Buffett, like there's a reason I think Berkshire got one dividend out the door in the 60s or something. And Buffett was kind of, he joked like,

Hey, where was I during that meeting? But you don't pay dividends if you can compound at better than market rates. And particularly if you traded a 30% discount, you don't pay dividends because you can just buy back your shares. And I get, yes, it pleases shareholders. But, you know, there's a lot there that it looks like window dressing. And I think like hyper rational people, I'd understand it. But I would just rather not be there. Look, you're preaching to the choir here.

We also would rather it not be there. and we would rather increase the share buyback program. And part of it was also functional was that by buying back so many shares, which they were, decreasing the flow, actually prevented them from uplisting to the premium section of the London Stock Exchange to the Futsi 100. And I think that that's a really big deal that's being understated right here. You have a U.S., basically U.S. headquartered business that is in the Futsi 100.

100, 100 largest companies in the footsie. Like, that's a really big deal. It's a really big accomplishment. And some of that had to do with just the actual logistics of share count, market cap, and the fact that by buying back shares, you're decreasing the share count. So there's some functional reasons for it. I get the argument. It's very difficult to defend him.

I kind of think of it as slightly negligible. but it is something that we think is over time. It's just going to get even doubt. I'm just laughing because you know what? You and I, James, on the heels of this podcast, we'll just go activists on Pershing. And our one demand will be, stop the dividend, V-VAC shares. Exactly, exactly.

Please, Bill, if you are listening, you have two shareholders here that are telling you the dividend is not needed. It did strike me as, it did strike me as interesting. One of the things you described in there, and then we can wrap this up is, look, Pershing is mainly known to you, invest. Obviously, bills got a credit across, got influenced across the world, but their portfolio is basically all U.S. stocks, and it's listed in London. And there's, they can only market to people in Europe, a lot of the people want dividends. But one of my favorite catalysts has been, like,

when you've got something that's only U.S., that all their operations are in the U.S., and it's listed in London, like often, it sounds so simple, and I used to dismiss it so much, but it kind of has been true, once they listen to the U.S. and they can kind of get their natural owner base into it, the stocks do tend to, again, I hate to say, close the discount. The stock tends to work on a relisting when we're talking about somebody that I think the thesis is will compound at above average rates for a long time. But that's just how it seems to work to me. Yeah, I would say real quickly, you know, we've been talking about this. We've been thinking that they were going to do this. We've been speaking with Tony that we would encourage them to do this since 2018.

And it was the first conversation that we had with IR was, please redomile this business, huh, and buy something. That's what we would like to see happen here. What I think is exciting why it's timely for the podcast is that you now have Bill in writing saying that is an option that they are aware of, that they are thinking about, huh? And Bill doesn't typically, historically ever put anything in writing that he's not going to put effort behind. So we just think that this is the time where we're not just talking about a company that's in Europe, but saying, look, they should just red domicile. We're talking about a company in Europe that is actively telegraphing that they are aware and they are really thinking about it. And so that's where I think the difference is.

So if you think, if you're asking me how I think about it, again, not investment advice, how I think about it. I think about it as if we're training a 35% discount today, which you are, how much do I advertise that over? Is that over two years? Because that's 15% annualized, by the way. If that closes it to par, just to par, or is it, you know, 12 months? I think that's a little tight. But if you're looking at 12 months, I mean, that's 35% just from the move. So, I mean, my point is, like, there's, there's a lot that the math works here in some pretty incredible ways. If you just think, like we were talking about before, if the portfolio is only annualized at 10%, which we think is unlikely, but let's say it annualizes only at 10%. And then on top of that, you have this redomiciling effort. If that happens in 24 months, you're looking at IRRs in excess of 40%. I mean, the IRAs like really become eye popping here. Yep, yep. Well, hey, I actually have a dentist appointment.

It's been about an hour. I want to give you your time back. So I think we'll wrap it up here. But the last two things I would say is, A, if they read it, domicile or do anything to close the nav discount in the next 18 months, I think you and I 100% take credit. This podcast was the catalyst. There's no doubt about it. No one else can take credit.

Absolutely. And then the second thing, James, it was great. It was great having you on. You know, I didn't realize it'd been over a year. we've got to have you back on more frugently because this was a great conversation, really enjoyed it. It was. Looking forward to the third one.

This is fun. Okay. A quick disclaimer, nothing on this podcast should be considered an investment advice. Guests or the hosts may have positions in any of the stocks mentioned during this podcast. Please do your own work and consult a financial advisor. Thanks.