저자: 미상 · 외국인
요약 보기
2014년 Pershing Square Holdings(PSH) 주주서한 분석. PSH는 2014년 순수익률 40.4%로 S&P500(13.7%)을 크게 상회. 2013년 IPO로 약 40% 영구자본 확보 후 장기 행동주의(2.0) 전략으로 전환. CP(철도 턴어라운드), 에어프로덕츠(마진 개선), Allergan 적대적 인수전(약 $227.51 매각), Herbalife 공매도 등이 수익 기여. 전반적으로 장기 보유와 고확신 집중투자 전략을 강조.
다듬은 글
We are jumping right into a pretty high octane year in high finance. We really are. Specifically, we're doing a deep dive into the 2014 shareholder reports and letters from Persian Square Holdings, PSH, right? And we're going to dissect the strategy, the big transformations, and you know, the specific bets that led to one of the most explosive years in modern activist investing.
and explosive almost doesn't cover it. When you actually look at the raw numbers, PSH delivered a just a staggering 40.4% net return in 2014. Wow, that is massive outperformance. You have to stack it against the benchmark, the S&P 500, which returned a very respectable but uh much smaller 13.7%. So, we're not just talking about good stock taking here.
This is a deliberate strategy that really changed the whole trajectory of the fund. Exactly. This year wasn't just about the performance numbers. It was about laying the groundwork for what they called Persian Square 2.0. Precisely. And the structural context is everything. You have to remember October 1st, 2013, that was PSH's initial public offering on the Euronext Amsterdam exchange.
And that wasn't just a fundraising event. Not at all. It was an anchor. They raised $2.73 billion from new investors. That brought their initial public capital base to over 6.2 billion. So this IPO, it really cemented that philosophical pivot, right, away from a typical hedge fund, which is always subject to redemptions
to what they started viewing as a true investment holding company, one focused on these deep activist strategies. But this whole 2.0 strategy, you know, the deep engagement, the four-year timelines, none of it works if you don't have the runway. Which brings us right to that crucial factor, permanent capital.
That is the absolute engine of this entire model. the stability from that IPO plus the employee capital which is all locked up it meant that roughly 40% of their assets under management were suddenly you know effectively permanent okay so if 40% of their capital is permanent what does that let them do that a typical hedge fund one running on quarterly redemptions just physically can't
it's a huge competitive advantage it's all rooted in liquidity management right a typical fund they have to hold a large cash buffer or you know invest in highly liquid passive positions just in case a big investor wants their money back. But PSH with nearly half its capital being permanent, they could commit a much bigger slice of the pie,
a much greater percentage. Yeah. To those less liquid long-term activist strategies, they don't have to worry about being a a forced seller during a downturn to meet redemptions. It gives them patience and the objective guiding all this stable capital. It's classic value investing really, but just applied very aggressively.
The goal is compounding capital at a high rate while minimizing the risk of, you know, permanent loss. But the method changed. The method changed completely from what they called 1.0, which was characterized by much shorter holding periods, focusing on things like spin-offs, to 2.0, which is where you have to roll up your sleeves and really get your hands dirty with the long-term operations.
Exactly. This is the deep engagement model. We're talking about typical holding periods of four or more years. They want to acquire large minority stakes, often becoming the largest or maybe second largest shareholder, right? Aiming for board representation and working to influence core managerial and operational improvements from the inside out.
They want a transformation, not just a transaction. And they were already making a strong case for why PSH as a closed end fund should trade at a premium to its net asset value, its NAV, which is pretty counterintuitive. It is a bold thesis, but they backed it up. They had historical data. They pointed out that their prior fund PSLP had generated an average return on equity or ROE of 20 to 25% since 2004.
And why is that ROE number so critical? Because they compared it globally. They said, look, if you screen public companies around the world that consistently hit a 20 to 25% ROE, those companies trade at a median price to book ratio 3.5 times. So their argument was that PSH treating at a discount was a relative bargain that should really command a premium.
A premium based on its high historical compounding rate. Yes. And then you layer on the structural benefit of being organized as a Gernzie company. For our listeners, what does avoiding entity level taxation give them strategically? Oh, it's enormous. Yeah. I mean, if they were a typical US investment corporation, every single time they sold an investment for a profit, they'd face an immediate 35% tax drag.
That's a huge hit to compounding, a massive hit. By being a Gerszy company, they just remove that friction. Their gains aren't exposed to that corporate tax, which means the fund's profits can compound much, much faster. It's a key strategic lever. Okay, so let's look at where this conviction really paid off.
The transformation stories. Canadian Pacific Railway or CP seems like the poster child for this 2.0 strategy. It adds 7% to gross performance in 2014 alone. It's one of the great turnaround stories in modern railroading. Truly, it installed Hunter Harrison as CEO after a really fierce proxy contest,
and the results were immediate and astonishing. CP had set this 4-year target for operating margin improvement, and they hit it in just 2 years. They went from being the least efficient class I railroad in North America to the third best. And the future value they were projecting was just almost unbelievable.
The revised plan was for $10 billion in revenue by 2018. But the earnings projection was the staggering part. $20 per share in earnings by 2018. And what was it before? Well, when Harrison took over in 2011, earnings were only $3.15 a share. So, a projected six-fold increase. A six-fold increase in the earnings power of the business.
That scale of uplift is the core thesis of Persing Square 2.0. Was that kind of success repeatable though or was it a one ina decade shot? Well, it certainly required a unique situation. You had poor prior management and the uh genius of a specialist like Harrison. But the model itself finding an underperforming asset and inserting proven leadership.
That's what they try to repeat. And we saw something similar though maybe faster with air products and chemicals APD. Right. APD contributed 5.1%. And you're right, it was fast. They described the transformation after the new CEO Safi Gasmi started as having remarkable rapidity. His mandate was pretty clear.
Get operating margins from 16% up to 23% basically matching the industry leader Praxair. He started in July 2014 and by the end of that quarter margins were already up. Overhead is down 7% and the operating margin hit 17.6%. The highest in over 9 years in just one quarter. That speed of execution is, you know, pretty compelling evidence that the strategy can work.
And we also saw the creation of a massive global fast food player, Restaurant Brands International RBI, right? Through Burger King's acquisition of Tim Hortons for 12 billion. And that was a fascinating deal. It was because it leveraged the expertise of 3G Capital, Burger King's controlling shareholder.
And they are famous for their zerobased budgeting and transformative turnarounds. This created a new platform with a huge opportunity for global unit growth. Okay, let's move from the transformations to the battles. 2014's biggest winner by far was that epic takeover drama with Allergan. A massive 19.1% gross attribution.
Yeah, this was not a friendly deal. Not at all. This was textbook highstakes activism. PSH entered a joint venture with Valiant to go after Alligan and they bought a 9.7% stake at about $128 a share. Allergan fought them tooth and nail. They resisted everything. Management access information. They used their bylaws to make it as hard as possible.
That's right. The whole battle was fought through litigation and proxy contests. And the resistance was so intense that a Delaware chancellor famously described Alligan special meeting bylaws as quite a horse choker of bylaw. A horse choker. You know you're in a tough fight when a judge is saying that.
Exactly. So, how did PSH reconcile that kind of messy, hostile fight with their own New York Times test for reputational risk? That's a very sharp question. I think they would argue that the uh immense undervaluation of Allergan and the really clear path to value creation justified the aggression. The goal at the end of the day was to force the board to act in the shareholders best interest,
which they eventually did because despite all that resistance, Allergan ended up merging with Activist on November 17th. And PSH really had the last laugh. The final value was $227.51 per share, which was incredibly favorable compared to their $128 cost basis. A huge win. A huge win. It generated substantial cash in stock and they shared about 344 million in profits with Valentin.
Okay, so on the opposite side of the ledger, you have the massive short position on Herbal Life that continued to play out, contributing 6.1% to gross performance. And the thesis there was pretty clear. The company's fundamentals were getting worse because its underlying model was flawed, right? Q3 earnings were poor.
Overall volume growth was flat, which is just catastrophic for a multi-level marketing company. And crucially, they saw declines in their strongest markets like North and South America. And there's a fascinating detail in there buried in the Venezuelan currency situation, the uh the Venezuelan nugget.
This is a classic example of forensic accounting paying off. For a long time, Herbal Life had been using a totally unrealistic boulevard to dollar exchange rate about 10.7 to1 to report its Venezuelan revenues, which was just inflating their results. Totally inflating them. And at the end of Q3 2014, they finally had to change the rate to 50 to1.
And what was the immediate impact of admitting that reality? It forced them to take an impairment charge and it materially reduced the reported revenues. It validated the argument that their financial health was, you know, artificially propped up by these unrealistic accounting practices. And on top of that, the governance issues were starting to pile up.
Absolutely. The resignation of Leroy Barnes was the fourth independent director to either resign or not get renominated in 8 months. Plus, you had one person chairing both the audit and the compensation committees, which is a clear conflict of interest. Shifting to new investments, late 2014 saw a major commitment to Zoatus, the animal healthcare leader.
What made that business so special? Well, Zoatus, which was spun off from Fizer, is the world leader in branded animal health. It really met their high bar for quality because it benefits from these strong secular growth trends. You know, the global increase in protein consumption and the rise in pet ownership.
But most pharma companies rely so heavily on patents. What was the durable advantage for Zoatus? This is where it gets really interesting. Zoatus' portfolio is incredibly durable, even though 80% of his products don't have patent protection. So, how does that work? It's just simple economics. Animal health products are generally small.
Few of them exceed 100 million in sales, and they have lower gross margins than human drugs. That combination makes them a really unattractive target for generic manufacturers. The cost to enter isn't worth the limited upside. Exactly. It creates this very effective, durable barrier to competition. A great moat.
A fascinating moat. Now, let's talk about the highest risk bet in the portfolio. The investment in Fanny May and Freddy Mack, FNMA, and FMC only about 3% of capital. Yeah, this is a very calculated risk. It's based on a two-part legal and economic argument around what's called the net worth sweep. The core issue being that the Treasury just unilaterally decided to take a 100% of all their future earnings.
That's it. So the first prong of their argument which they pursued in the US court of federal claims was that the sweep was an unlawful taking of shareholder property under the fifth amendment. A constitutional argument. And the second argument was more about the economic sustainability of the whole system.
Exactly. They argued it was just an untenable arrangement. By stripping all the earnings, the Treasury was preventing the companies from rebuilding capital buffers. And this, PSH argued, exposed the US taxpayer to grave risk in the next downturn because the government would just have to bail them out again.
Again, a small bet, but a high stakes one. And finally, we should mention the Howard Hughes Corporation, HHC, right? Its stock price had quadrupled since its 2010 spin-off, really thanks to a great management team executing a long-term plan. They were converting these underutilized assets into incomeroucing real estate, a powerful internal compounder.
So if we synthesize 2014, it was the year PSH really executed that transition to the activist investment holding company model. It was defined by moving that anchor of nearly 40% permanent capital directly into these deep concentrated long-term commitments. They just embrace high conviction which means they are willing to absorb high short-term volatility
and that conviction is managed through a specific risk filter right the sleep at night approach and of course applying that New York Times test for reputational risk and that ties into a critical part of their philosophy balancing confidence with humility. How so? They stress the importance of being able to abandon an investment and to do it promptly when new facts emerge no matter how public it is.
You just can't let ego guide your capital. And lastly, their use of what they called mispriced probabilistic investments like buying credit default swaps or CDS. For the listener, why use CDS? They buy these CDS contracts, which are basically insurance against a company defaulting on companies they believe are exposed to massive underestimated risk.
They're looking for asymmetric bets. So, a small potential loss for a huge potential payoff. Exactly. a modest capital loss if the world is fine, but a massive payoff if a financial disaster happens. It's both portfolio protection and a standalone investment. So, the lesson here for anyone watching concentrated portfolios is that the mandate is really clear.
Focus on management, focus on intrinsic value, and trust that high short-term volatility is the price you pay for the best shot at high long-term returns. And the provocative thought we'll leave you with is this. Given how much of PSH's massive 2014 success came from the realization of value from earlier activist win CP Allergan HHC how reliant is a strategy like Persing Square 2.0 on the durability of those prior successes to keep fueling that long-term compounding rate. They really need their old wins to keep on giving.
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