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[snorts] Last Friday, Citi downgraded Bill Ackman's own fund, Pershing Square, to sell. But the analyst left a door open. Quote, "It could change if asymmetric investments, such as the Howard Hughes or GSE holdings, generate upside." Translation, one bet decides everything. And this week, the other half of that bet made its move against Ackman.
That bet is Fannie Mae and Freddie Mac. Pershing Square has held their common shares since November 2013. 13 years. The original 13D filing, 9.77% of Freddie Mac, 9.98% of Fannie Mae. Today, it owns more than 210 million shares combined. Ackman says that's roughly 12% of both companies. The largest common shareholder in the game.
The thesis has a name. On March 5th, Ackman called it his best idea for 2026. End the conservatorship, recap, and release. His math? The companies paid the government roughly $301 billion in dividends against about $100 billion in bailout support. Ackman's plan? Treasury formally acknowledges the bailout as repaid, unlocking more than $300 billion in additional profit for the federal government.
Then it gets mechanical. Step two, Treasury exercises its warrants for 79.9% of the common stock. Step three, relist both companies on the New York Stock Exchange. Ackman says the exchange told them it's a few week process. Step four, unwind the government's stake gradually over roughly five years. Walk before you run.
Why now? Because the payoff in his model is enormous. On a Sunday evening in March, March 29th, Ackman posted on X, "Fannie and Freddie are stupidly cheap. Asymmetry at its best. They could be a 10x, and it could happen soon." He added that some of the highest quality businesses in the world were trading at extremely cheap prices, and called it one the best times in a long time to buy quality.
The market heard him. That Monday, Fannie Mae jumped 41 to 54% in a single day. Freddie Mac rose 34 to 47% the biggest one-day moves for either stocks since President Trump first mused about privatizing them. And the post got a famous cosigner, Michael Burry, the big short investor, reposted Ackman's call that same day with his own line.
Cannot emphasize enough how rare this is in this market. Which makes what Burry did 6 months later so remarkable. Ackman's target math. He estimates each company's shares could be worth about $34 a piece when they launch an IPO in late 2026. And if that IPO happens in the fourth quarter of this year, the companies would only need to raise around $30 billion to meet capital requirements.
What Ackman called a highly achievable outcome. But he's in no rush. Last August, Ackman backed the idea of merging Fannie and Freddie into one company. Tentatively, the Great American Mortgage Corporation. For what he called huge synergies in operations and in mortgage bond spreads. Then, in a live-streamed November presentation, he warned the administration that a rushed IPO is neither feasible nor desirable.
It would produce, quote, a failed public offering or an offering at a price well below the intrinsic value. His sequencing instead, merge first, keep the companies in conservatorship, acknowledge that senior preferred stock is repaid, exercise the warrants, relist on the NYSE, and only then sell down the government's stake.
A rushed IPO, he argued, would destroy the very value the offering is supposed to unlock. While the GSE bet waits, Pershing Square just rebuilt its public portfolio. In the second quarter, Ackman completed his exit from Alphabet, a position worth about $98.7 million at the end of March, now down to zero.
And he opened four new positions worth about $4.35 billion combined. The four new bets, Netflix, 13,081,465 shares, worth $934 million. Visa, 3 million 270,470 shares worth 1.122 billion. Mastercard, 2 million 124,646 shares worth 1.091 billion. And S&P Global, 2 million 593,155 shares worth 1.056 billion.
A decisive rotation into subscription and toll collector businesses. Now, the other side of the trade. Michael Burry, the man who amplified Ackman's March post, has gone the other way. In his October article, Burry revealed he sold his Fannie and Freddie common shares and bought junior preferred stock instead at roughly 26% of par value.
Why? Burry's model. The preferred offers roughly 3.7 times upside against about 38% downside because preferred sits ahead of common in the capital stack. And there's a mountain in front of common, a roughly $388 billion Treasury senior preferred claim. In a recapitalization, Burry's math says common faces at least 90% dilution.
So, here it is. Ackman bets on common, the recap and release, the IPO, the 10X. Burry bets on preferred, capital structure priority, paid before common sees a dime. Same trade, opposite sides. One of the great investors of our era is about to be very wrong. Which brings us back to city. On October 9th, analyst Matthew Heiman downgraded Pershing Square, the listed fund ticker PS, to sell with high risk and a $45 target against a share price around $53.
His case? Near-term valuation can't be justified. His concession? It flips if the GSE bet pays off. The pressure is real. Pershing Square Holdings net asset value fell 12.6% in the first half of 2026, while the S&P 500 rose 10.2%. That gap could complicate Ackman's planned 2026 public offering of his management company.
But note what he did the day before the downgrade. On October 8th, the fund bought back 28,970 MFA of its own shares at $49.46 against against a net asset value of $77.68 per share, a 36% discount. He was buying his own funds assets for 64 cents on the dollar. What happens next is politics as much as finance.
The end of conservatorship means the Treasury, the housing regulator, and the White House to move in the same direction and on a timeline that fits a fourth-quarter IPO. Any one of them can stall it, and Citi's clock is ticking on the valuation. So, the question for investors, and this is educational, not financial advice, two of the sharpest investors alive are staring at the same two companies, the same $388 billion claim, the same housing market.
One is buying the common. The other is buying the preferred. They can't both be right about the structure. Which side would you take? Tell us in the comments.
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