Bill Ackman's Pershing Square USA Fund IPOs Today. What Stocks Will It Hold?

Legendary investor Bill Ackman is taking a new closed-end fund public today at an initial public offering price of $50 a share.

The fund is called Pershing Square USA, and Ackman, the CEO of hedge fund Pershing Square Holdings, initially hoped to raise between $5 billion and $10 billion for it through the offering. The ticker for the new fund will be PSUS. At the moment, it looks like the IPO will attract about $5 billion.

Ackman is also taking his asset management firm public. That firm, Pershing Square Inc., will manage the PSUS fund as well as Pershing Square Holdings, which trades in the United Kingdom, and Howard Hughes Holdings (NYSE: HHH). The management firm will trade under the ticker PS.

To attract more investors to the PSUS IPO, Ackman is offering one free share of Pershing Square Inc. for every five PSUS shares purchased today.

It's not yet clear exactly what PSUS will invest in. According to the prospectus the company filed with the Securities and Exchange, the Pershing Square USA fund will invest in "large minority stakes in high-quality, predominantly North American-listed, large-capitalization growth companies at attractive valuations during periods in which we believe they have underperformed their potential and/or when we believe they are undervalued."

That's very similar to what Pershing Square Holdings invests in now. It holds large stakes in Google parent company Alphabet (NASDAQ: GOOGL), Fannie Mae (OTC: FNMA), Freddie Mac (OTC: FMCC), Brookfield (NYSE: BN), Uber Technologies (NYSE: UBER), Amazon (NASDAQ: AMZN), and Meta Platforms (NASDAQ: META) , among other companies.

Alphabet is the top holding in all Pershing Square-related funds.

The new fund may also make small investments in alternative assets, such as private credit and interest rates.

Going public avoids investor redemptions

Taking a fund public is a way to avoid redemptions by investors. Instead of demanding their money back at the net asset value, as open-end fund investors are entitled to do, investors in PSUS will have to sell their shares at the market price to exit the investment, as with any other stock.

It's thought that Ackman is attempting to build a holding company similar to Berkshire Hathaway (NYSE: BRKB) by listing it publicly and, of course, focusing on companies that are underperforming their potential or are undervalued, exactly the kind of long-term value investing that made former Berkshire CEO Warren Buffett rich and famous.

"Our long-term goal for Pershing Square Inc. is to build one of the most valuable companies in the world by generating one of the best long-term performance records of any investor ever," Ackman wrote in a letter to investors.

Attaining Buffett's stature in the investment community won't be easy for Ackman, however. Earlier in his career, he was known as an activist short-seller. That included an ugly, five-year battle against supplement maker Herbalife, which Ackman accused of being a pyramid scheme. In the end, that short position resulted in huge losses for Pershing Square.

Ackman has since exited the short-selling business and says he's now focused on long-term growth and value creation in his portfolios.

Ackman is also trying to attract retail investors to the IPO. He reduced the minimum purchase order from $5,000 to $250 and is partnering with retail brokerages to tap their user bases. We'll find out this week how well that strategy worked.

As with all IPOs, it's wise to see what the share price does in the days and weeks following the offering before diving in. About half of all IPOs pop on the first day, only to trade lower in the days that follow.

Matthew Benjamin has positions in Alphabet and Berkshire Hathaway. The Motley Fool has positions in and recommends Alphabet, Amazon, Berkshire Hathaway, Brookfield Corporation, Howard Hughes, Meta Platforms, and Uber Technologies. The Motley Fool has a disclosure policy.