By Ian Salisbury
Bill Ackman raised $5 billion for his new closed-end fund, but investors don't appear sold. The fund traded at a steep 14% discount to its net asset value on Friday.
A poor debut isn't unusual for closed-end funds, or CEFs, and Ackman's fund has some quirks that fueled the discount. In an interview, Ackman told Barron's he expects a quick rebound.
Nonetheless, the fund's-less than-stellar debut raises questions: Should investors dip into Ackman's fund -- or even bother with CEFs overall?
Investors need a good understanding of how CEFs work, what could go wrong, and when to buy. They also need to know what's under the hood. That goes for Ackman's fund, Pershing Square USA, as well as CEFs in general.
A longtime hedge fund manager and Wall Street impresario -- with 2 million followers on X -- Ackman is known for making contrarian investments. Perhaps one of his biggest bets is the legal structure for Pershing Square USA.
In going with a CEF, Ackman chose one of the oldest investment vehicles on Wall Street, decades older than conventional mutual funds or ETFs. It's a bit like an Oscar-winning director deciding his next movie will be a screwball comedy -- in black and white.
CEFs have always maintained a narrow base of hard core fans. Along with traditional stocks and bonds, they can offer exposure to assets you might not find elsewhere. The DestinyTech 100 fund, which launchd in 2024, targets venture capital assets that are difficult to own in a conventional fund, for example. SpaceX is a prominent holding.
Many CEFs also use leverage, or borrowed money. That can help produce high yields, particularly in fixed income, an area that now accounts for the vast majority of CEFs.
There are two other key features. One is that CEFs trade like stocks, meaning share prices fluctuate through the trading day -- unlike mutual funds that price once daily, after the close.
CEFs also have a fixed number of shares (hence the name "closed-end"). Mutual funds and exchange-traded funds are open-end, meaning they continually issue or retire shares based on investment flows. That feature allows most ETFs and mutual funds to stick close to their underlying net asset value or NAV.
CEFs often trade at a premium if they're popular; those with less demand trade at discounts. In most cases, investors can only get their money out by selling shares on the market, rather than back to the fund company, as they would with a traditional mutual fund.
For Ackman, keeping the money locked in a CEF is a big plus. It means he can invest the $5 billion he raised without worrying whether investors will demand their money back. That should make it easier to take concentrated stakes in companies or use derivatives. It also means Ackman will collect a 2% management fee on a fixed number of shares, no matter how the fund performs.
Discounts are an endemic CEF problem. The average monthly discount among all CEFs over the past 20 years is 4.9%, according to Morningstar. Nearly 90% of funds CEFs are currently underwater, according to Matisse Capital, a firm which invests in the space.
Ackman's fund quickly joined the discount club. Though shares launched at $50, they traded around $43 on Friday. Ackman's European fund has lately traded at a discount of around 30%.
Ackman said the U.S. fund discount was due to a mixup with retail share allocations that would quickly resolve. "Once that technical overhanging is gone, I believe it's going to trade at a premium, or at least at NAV, " he told Barron's.
It's not yet clear what Ackman plans to buy for his new CEF, although the prospectus indicates he will target 12 to 15 large-cap North American stocks and should invest the offering proceeds within 60 days.
The portfolio is expected to somewhat resemble his European fund, whose holdings include Alphabet, Amazon.com, and Meta Platforms, and conventional bets like Fannie Mae and Hertz Gobal Holdings.
That fund has a 10-year cumulative total return of 380% through March 31,. The S&P 500 returned 276% during that time frame.
Those numbers indicate Ackman performs quite well long-term, but if you want to take a flier on his new CEF, it may pay to wait.
Matisse Capital portfolio manager Eric Boughton, who specializes in trading CEFs and owns shares Ackman's European fund, says he'd consider buying the U.S. version -- but not before shares traded at a "massive discount" to NAV, similar to the European version.
Bear in mind that CEFs overall have a checkered record, and returns that look good on the surface may be less eye-popping after accounting for premiums/discounts, fees, and other factors. The $7.3 billion Pimco Dynamic Income Fund, for instance, boasts a distribution yield of more than 16%, yet its 10-year total return is 8.6%. That still beats the bond market's 1.6% annualized gain but it's a far cry from 16%. The fund now trades at an 8.5% premium to its NAV.
Closed-end funds can offer big rewards, but also bigger risks. Just because Ackman launched one, those features don't change.
Write to Ian Salisbury at ian.salisbury@barrons.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
May 03, 2026 02:00 ET (06:00 GMT)
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