Why $PSUS deserves a premium to NAV and $PS deserves a premium multiple | Marlton's James Elbaor

Summary

James Elbaor of Marlton makes the case that $PSUS will trade at a premium to NAV instead of the typical closed-end fund …

Transcript

You're about to listen to yet another value podcast with your host, me, Andrew Walker. Today, I got James Altucher from uh from Carlton back on the podcast. James is an expert on closed-end funds and in general and Pershing Square in particular. And we're going to talk about PSUS, the new Pershing Square closed-end fund, and we're going to talk about PS, the new I can new the Pershing management company that came public alongside PSUS. And it is a fascinating conversation. You know, I think James has a let's just call them divergent views on both pieces and PS and PS. Pieces, he thinks it's going to trade for a premium to NAV and it's going to be kind of the premier closed-end fund over time. I don't want to put words in his mouth, but I think you'll listen to the podcast to hear that. And on PS, I mean, we just have a fascinating, fascinating discussion of there is a lot uh you know, it is a brand new management company just traded the the cone is so wide in terms of which way it can go. And I think James is seeing the ball very clearly on where it's going and the valuation discussion, all that sort of stuff. So, we're going to get there in 1 second, but first, words from our sponsors. Today's podcast is sponsored by fiscal.ai. Fiscal.ai is a modern financial data provider for global equities. In addition to their web-based terminal, Fiscal is one of the leading data connectors for Claude and ChatGPT. With their self-serve API, you can connect in real time fundamental data directly to your LLM. And look, I said it in podcast before and I'll say it again. I am They're not just an appetizer. I've been doing lots of cool stuff with Claude and Cohere in particular building all sorts of awesome tools, and I needed a API. So, guess what? I signed up with my own money, tossed my own credit card down and said, "Hey, fiscal.ai, I I need you guys to plug into my Claude Cohere for me so I can keep building these cool tools and have access to real-time fundamental data and stock prices and everything." And that includes more than 20 years of financial statements, ratios, filings, segments, KPIs, and all sorts of other things. Unlike other providers, their data updates within minutes of earnings reports, not days. So, whether you want powerful out-of-the-box terminal or the real-time AI connector with API, you can use my link at fiscal.ai/yab. That's fiscal.ai/yab to get 15% off. And they'll be a link in the show notes, too. All right, hello and welcome to to the another Roly Podcast. I'm your host, Andrew Walker. Today, I'm happy to have on for the first time in a long time, my friend James Altucher. James, how's it going? It's going great, Andrew. Good to see you again. Hm. I I'm really excited for the conversation we're going to have today. Before we get started, reminder, nothing on this podcast is investing advice. There's a full disclaimer in the show notes and at the very end of the podcast, as well. James, the company we're going to talk about today, it's kind of two companies, but it's the Pershing Square complex, you know, uh they just IPO'd the PSUS, which is the closed-end fund, and they just IPO'd alongside that, PS, which is the Pershing, you know, management company overall. And I will just pause there. We can talk either piece of those, but you are like kind of the expert when it comes to the the Pershing complex, so I'll pause there and ask, what is the Pershing complex and why are they so interesting right now? Yeah, so when we first did when we first did the podcast with you, we did Pershing Square Holdings, which is a closed-end fund. It's technically a UK investment trust, trades in London. I think what I want to mention about that investment, cuz I looked back, uh you would as of as if you had invested in September 2022 when we did, again, not investing advice, but since you know, from there to where we are now, that has compounded greater than the S&P 500 with the exception of the last, two months, you know, into this year where we've seen where we've seen a pullback. So, instead, you're matching the S&P 500. And then you had a free option on the fact that he could could redomiciled that business. So, that's That closed-end fund sits out there. That discount still is it trading in the mid mid-20s. So, we still think that that's a great compounder and doing fantastic job. But, I did want to bring that up because I'm really quite proud that you know, if people did listen to that, they did okay. Oh. That's all you hope for, right? They They did Well, I guess you can hope for better, but it is nice to be able to say okay instead of There have certainly been some Hey, if people listen to that, they got their shirts ripped off and they're looking under a bridge. Getting 19% annualized, I think is I think is fantastic. But, to each each his >> on on that real quick. It's funny where you say, "Hey, you you did along the lines of the S&P 500." And then you're like, "Oh, the S&P's compounded at 20% per year for the past 3 and 1/2 years." Like, if you match that, it's so simple to It's so try to say, "Oh, you matched that." It's like, "Dude, 20% per year for 3 years is like kind of legendary, right?" Like, anybody would take that. So, and I'm not saying that about Pershing in particular. I'm just saying as managers, like you are ultimately benchmarked to indices. And sometimes it's like, "Man, I'm just matching indices." And then you step back, you're like, "Well, the indices are running like 15% every year." And yes, it's a huge tailwind, but if you're If you have any cash, any underexposure, if you're less conser- If you're more conservative than that Anyway, just ramblings of somebody who watches the indexes go up every day. No, all good. So, I mean, let's talk about like where we are this year. This is already one of the largest financial launches, gosh, in in years, okay? So, when when Pershing's IPO'd, they're talking about the sixth largest IPO of the past decade. So, you know, among the 20 largest IPOs, truly in in US history at this point. You know, and it's two times larger. So, Pershing Square at 5 billion is two times larger than the current largest US equity closed-end fund. Well, you can't say that anymore because it is the the US equity closed-end fund. So, how it is it is the largest. >> And I feel like, you know, the market is looking at this and treating this like a closed-end fund, but in you know, to me, Andrew, the scale, the structure, and just generally the franchise quality are unlike anything that you really see in the general retail market that these closed-end funds typically traffic in. So, I think what investors are going to start to see that they aren't seeing right now is that this is not going to be treated like a closed-end fund product from an asset manager. Her this is going to be treated much more like a holding company just in the wrapper of a of a 40 Act fund. So, you're going to see you're going to see quarterly earnings calls, you're going to see reports, report significantly greater reporting, much much greater corporate access to to Bill and the team. I I think it's I think it's quite a exciting in I I think it's exciting in that respect. You're talking about PSEC right now, which is the closed-end fund. For people For people who For people who tuned in for PSEC, we are going to talk about that in a minute. But, let me gently push back on what you just said. And I want to push back in two ways. I mean, you say, "Hey, this is going to treat get treated like a holding company." And we can talk holding company versus closed-end in a second, but my first push back would be, "Okay, I I know a lot of holding companies, right? IAC, all of the Liberty complex, Cannae, a multiple others." Now, all of them have varying degrees of, you know, different management teams, different management structures, incentive fees, prefer what whatever it is. But, none of them traded at a premium, right? So, when you say, "Hey, I think PSEC is going to be a holding company versus a closed-end fund." And I'm not sure if he's going to actually take like full control of businesses or not in that. I can't remember if he meant the from I just reviewed the first the roadshow. He didn't wasn't talking about that, but maybe that that would be the step to a holding company versus closed-end fund. But, even if I gave you it's going to be treated like a holding company not a closing fund. Every holding company trades I mean PIMCO is trading at about a 15% discount right now. Like that's on the high end of holding companies. So my first question that would be if you if you get what you wish for it's kind of it's after that. Like would it really trade at a premium? So you know just to to level set for those that are unfamiliar with Maralten. We're an investment firm. We focus on US closed-end funds and UK investment trusts and structurally discounted securities. If I can if I can toot your horn you've done a great work. I mean I know the Persian discussion we had had a great great work. I know you were instrumental in the the third point the London thing and the the thing that become Mount that became Mount Logan. I mean that deal was I I can't say I was like in deep in the weeds but I think it was going to be quite poor and you guys were instrumental in pushing back and getting a lot more economics for shareholders. So you guys really specialized in this stuff. Briefly about Turn and Mount Logan you know when we were the activist there shareholders and speaking about premiums to NAV shareholders received 110% of NAV in that deal and much more typical deals are NAV for NAV deals. So so you very rarely see a premium. We did push for that. We do like the BC people run by Ted Goldthorpe and his team there and we think you know real view on Mount Logan today but I do think shareholders that were in Turn that then went into the merged entity receiving 110% of NAV was was certainly fair. We would have liked more but was was still fair. But speaking about premiums here just just on a second. So you can take a look at you know Robinhood's latest venture fund that came out is trading at a large premium now too. So there I track I track all the big movers every day and the other day I was like what is this RBI the Robinhood venture fund was like the best performing stock in the entire market yesterday. So, there are there are times where these entities do and will trade at premiums to NAV. Generally, they will trade at discounts to NAV. And I like to think of discounts very similar to multiples. So, there will always be some type of a compression on the multiple or a multiple may not fully reflect the true economics of the business or the earnings power that you think the business is going to recognize. I think the same thing with discounts. These will These trade at structural discounts. The issue is how do we allocate capital? How does underlying NAV grow? And then you can think about the discount as if it is a multiple, huh? In in that way. Like greater discount, uh cheaper, you know, smaller discount, more expensive, more risk, huh? That you're not going to see the underlying growth that you think you're going to see in NAV. So, that that's how we think about it. That that makes total sense. So, but but let me just push on there. I I hear you on the greater and smaller discount, but again, you said, "Hey, I think P Securities is going to be treated like a holding company, not a closed-end fund." And even if I agree with that, like I I would just come back to a 15% to 20% discount is not atypical for a holding company, especially one that is This is an externally advised holding company, right? 2% management fee is what they're paying. So, why do you think this will trade at a premium when, you know, even if I grant you it's a holding company, every almost every holding company trades at a discount? So, I would look at the just generalized performance. We think We think that this is going to significantly trade much closer on on a base case, significantly closer to a nine discount, which is the peer average within US equity closed-end funds. And frankly, if you if you You know, I'm not trying to be big cheerleader here, but I really believe that it should be much closer to a four discount, which is where Gabelli's closed end fund is trading right now. Gabelli's closed end fund is about a $2 billion closed end fund, trades at a 4% discount to NAV, has underperformed the S&P 500 since inception. And Bill has outperformed. So, I think maybe it's a function of time as to letting the market see this. You got to remember PSH PSH now still hasn't even reported NAV. So, you we're not even sure what's in the portfolio yet. We're not even sure what NAV is. I think there's a lot of catalysts to kind of unfold there to see what what's in the portfolio, how the portfolio has performed. And once we get into a cadence of regular reporting, that that discount is not going to be sitting at 17. I just I just fundamentally don't see it that way. So, what you're saying is because their website has the weekly NAV. They've got the 4871 as the NAV right now. But we don't know what's in. We don't know what they've bought. I mean, I'll be it's certainly going to mirror what Pershing PS London PSH London has, but we don't know kind of how they've deployed, how much is cash versus deployed, all that type of stuff. That's right. Yeah. Okay. Let me ask you so just quickly on let me go to there. I mentioned PSH. PSH is trading at a 17% discount to NAV. PSH, if I just pull up my little Bloomberg NAV thing, is now trading at a 32% discount to NAV. And I'm sure if I said either or, you might say, "Hey, why make me choose between both?" But why would someone consider PSH? And this doesn't Again, nothing's investment advice. You don't have But just when you're weighing the two between each other, what is the upside downside? And I think there's that question and we can also talk the management fee, performance fee, all that sort of stuff. But why one versus the other? So, I would say in the most practical in the most practical way, huh, there is an invest There is a investor base that just cannot invest in PSHD that's trading in London. But can invest in PSH because of where they're domiciled and their tax considerations. Similarly, there are like for example, Texas teachers. Texas teachers filed a D on PSH. They could not invest in PSH in D in London. They're just not They're not permitted to further mandate. Separately, huh? You can You can now have a whole investor base that can invest into PSH. You have a completely more European centric centric investor base that can invest in Pershing Square Holdings in London. Pershing Square Holdings in London does pay a performance incentive, which you do not see in PSH, but Pershing Square Holdings in London has a significantly longer track record in addition to a lot more flexibility to make investments that are a lot more esoteric that the 40 Act is much tighter on. And I think and you can correct me if I'm wrong. Yeah, let me just kind of recap that real quick, Andrew. So, what what I would say is if you want like if I hate to make a reference like this, but if you want like free base bill, like you want like pure bill and team, I would say Pershing Square Holdings London has significantly more of those characteristics. PSH is much more of a traditional 40 Act fund, but that will be different. You're talking about a team that never does things, you know, they they don't they don't follow the path that's always been followed before them. They're They're very much trailblazers. They're very much iconoclast in that way. So, I anticipate and I feel that PSH will be different than typical closed-end funds because that's just the history of that team. But I you know, there are real-world 40 Act constraints there and so it will be significantly slightly more constrained than the way that PSHD in London trades, but because of that in Pershing Square Holdings in London, you're going to pay the you're going to pay the performance incentive there. I'm going to come back to Pershing Square London in a second, but I do want to ask you a question on the 40 Act. Uh You know, a big pitch that Bill has been making for the past multiple years for Pershing is, "Hey, you don't just get our stock picking skills, right? And our concentrated holdings of like kind of the best businesses that we can find at reasonable prices and all all this stuff stuff." You get our hedge book. And Bill made, you know, one of the best trades of all time in the >> [laughter] >> I mean, it's funny when you say he made one of the best trades of all time and if I stop there, you would say, "Oh, which one of his trades are you talking about? Are you talking about GG P in bankruptcy?" But the one I was actually referring to was the COVID trade, right? The COVID hedging trade, where he says, "Hey, we made basically 100 times our capital on that." And then he makes the inflation trade in 2000 late 2020 through early 2022. Makes the inflation trade, where he makes 10 X his money. So, a big pitch for Pershing recently has been, "Hey, we're not only going to get our stock picking skills, we actually have demonstrated track record. We've got those two, plus we've got the hedges we did during the GFC, which was like a 20-bagger. We're The next time there's a big macro event, there's a decent chance we're going to see it ahead of time and we're going to hedge it and we're going to make multiples of our money, right? Can they do that in the 40 Act fund, the P- pieces? So, I would say traditional closed-end funds do not do that type of activity. But I fully anticipate that there will be a creative way that Bill and team will allow that vehicle to make trades like that. I would I I I would just, you know, circle back cuz otherwise I'm going to have to, you know, pontificate as to how they could go ahead and do that and I don't have the time to do that right here, but what I would say is just to reiterate what you said because I think it's worth saying. We're less than 30 days into trading, huh? We both agree and I think most people would agree, huh? Some of the greatest trades put on of all time, huh? And the vehicle's trading at a 17% discount to NAV, huh? And I would then go ahead and take a look at other vehicles, you know, like you mentioned like IAC, Barry Diller's fantastic, great capital allocator, huh? But you also trades at a perpetual perpetual discount to NAV. You're consistently trying to allocate capital in the best possible way to create shareholder value. I think you're super early innings at a very wide discount on Pershing Square Tontine You know, it's funny when I've talked to people about Ackman's track record over let's just say the past 10 years before. A lot of them have said something along the lines of, "Oh, if you take out the COVID hedges, it doesn't look as good." And look, I'm of two minds. I'm like, "Okay, I hear you. One trade." But at the same time, A, we live in a scoreboard world and B, he called his shot and uh you know, if if you took that out if if you said I I don't know the numbers exactly off the top of my head, but if you said, "Hey, over the past 10 years he's outperformed the S&P 500 with that and without it he I mean, he got 100 baggers. So, without it, okay, he's in line with the S&P 500. We live in a slugging percentage world. I I I you can't take that out. So, anyway, I I just Yeah, I don't think it's fair. I I wouldn't say I I would say that that's you know, almost I don't want to say it's a silly argument. I understand the argument, but I do think it's a little silly. Like people make the investments that they make. If you go ahead and say, "Well, then I guess you have to take out General Growth." I think you then you have to go ahead and take out that he you created a very um he created Spark or he launched the largest SPAC of all time in uh Tontine. There's you you can't you can cherry-pick, but you know, somebody's history is somebody's history in their entirety and I think you have to look about it look at it in the entirety. Hm. If I can take a hit of my hypothetical bong and put us in a college dorm room for a second, while I agree with you, you know, I do the reason I think about it is there was some there was one person who I was talking to in like late 2020 and they were like, "You know what my best stock idea is? GameStop. People are going to be, you know, I think this is a killer company like earnings are going to go through the roof." All this type of stuff. And every piece of their thesis that they laid out was comically wrong. I mean, comically wrong. But GameStop had this massive short squeeze and all of this type of stuff. So, I I don't know if they held onto their position or not. It wasn't someone like I really talked to a lot, but you know, if they had a track record and they had held it, their track record would put everyone else's track record to shame and wouldn't like, "Well, yeah, but you kind of were like literally the monkey that landed on a lottery ticket." So, I look at I I just keep that in my head all the time and I'm not saying that but it is, you know, that is such an extreme hypothetical example. It illustrates the point very nicely. Um, anything else on me after hitting that hypothetical bong or do you I'll I'll dive back into PSH if you want to unless you want to talk about anything there. No, I I think we're I think we're good, but let's let's PSH because PSI is actually like really really quite interesting. Uh. So, PSH if I can just ask you on on that real quick. So, that trades in London at a 33% discount and I believe you also get they they have a little bit of leverage which PS is good. For react companies can have leverage, but they obviously don't have leverage yet. I you can tell me if they're going to have leverage or not. If you if I just said, "Hey, you know, strip aside especially the mandate piece of it, PSH versus PS, which do you think is kind of more attractive?" Oh, right now I I would say I would say PS. So, I we feel we anticipate that PS will will run slight lightly levered. Um. I think, you know, for for us, for us in the immediate term, the the comps, uh for PICES and where PICES should trade, uh at a nine discount, uh we're just they're just deploying capital now. I think makes PICES, uh significantly more attractive, uh than PSHD. We like PSHD. We were in PSHD, uh uh we don't Full disclosure, we're not in PSHD at the moment. We are in PICES, obviously, uh But, you know, for those that are in PSHD, uh you have a bunch of positive catalysts that are happening there. You know, the discount is at at 30 plus is historically wider than being at 25, uh Uh so, we expect that that could probably come in, uh as PICES and other assets outside of PSHD grow, uh you're going to get a fee rebate, uh that can grows at PSHD, uh which is hugely creative, uh to those shareholders there, uh I think that there's I think that there's plenty of plenty of positive positive attributes there. I I also think that realistic, like truly, what we have discovered, if anything, from our time in London, and we do spend quite a bit of time because of our UK investment trust exposure there, uh the investor base, uh in London, uh does not really see or understand Bill in the way that American investors, uh and you know, retail and institutional see and understand Bill, uh like trying to pitch, uh Uh yeah, I'm not I'm not going to use names, but trying to to the big allocators in London that invest into UK investment trusts, uh that pitch is, uh much more difficult to get people comfortable with this American investor, her in this UK part of the world, than it is to get American investors comfortable with who Bill Ackman is. I'm just laughing because the stereotypical British manager allocating capital, like they want to allocate to well-dressed, well-spoken, silver-haired managers. And Bill like check, check, check every one of those boxes. And I understand, hey, that's a stereotype. I'm laughing, I'm not trying to make but Bill checks the boxes so hard. It's just kind of funny. I guess American versus British. Uh let me ask about the Pershing portfolio, right now, right? I The reason you're in Pershing and you think it will trade at a premium over time and Bill thinks it will trade at a premium and all this sort of stuff is they're arguing Pershing is going to outperform. People will pay for that performance. And especially once you start putting non-recourse leverage onto something that's generating an alpha. I mean, my my god, the the sky's the limit if that is true. The The trick is always if that is true and if that is leverable. But I think when I think one question people might have is, hey, if I look at the Pershing portfolio right now and I'm trying to find where I saved this, but you know, it is great businesses, but Google, I can't find definite sheet, but Google, uh Amazon, and Meta are three of the positions, right? Hey, those are three of the largest positions in the S&P 500. I mean, those are three of the largest companies in the world. I think when you you kind of look at those, you might say, hey, great, he's allocating to these great businesses, but how are you going to generate like alpha if you're kind of matching that? Essentially, we see that as first, they're great businesses, as you said. Second, on a multiple basis, many of them are trading at multiples below the S&P 500. And secondly, so one practical implication is you could say or you could argue, Bill's going to hug the index and why should I pay 2% of a management fee to Bill when I can get a almost negligible ETF? Well, what I think you're going to get is you're going to get a portfolio of securities that probably hugs most hugs major components of the index so in addition to these smaller investments that have significant significant embedded upside. So an example would be Spark. Any type of a SPAC forward purchase agreement, I think they're going to be incredibly creative as to these different types of securities that will be in there her that may be valued at cost or undervalued when when you actually put a real market market value on that you know and that's going to be a function of them being either a level two or level three security but it it essentially I think there is a real going to become over time a real view that these are much more of a sum of the parts story and that the NAV may be understating really the embedded growth that you're seeing in there. In addition to the fact that if this if these closed end if this closed end fund which we anticipate will have a distribution rate and pays a pays a dividend you have you have that as well. So there's a couple there's a there's a couple different ways that I think this is going to play out well for shareholders. And can they get I mean you mentioned Spark which full disclosure I think I'm a bunch of them from the the old version days and kind of rolling it Can they can they get tier two assets into a 40 into pieces which is a closed end fund 48 company like I I suppose there's a creative way to do it but something like Spark or we had mentioned with holding companies buying a whole company it doesn't seem like it would fit in there. No no there's there there well okay so I think there's a couple different things. One uh can the security be embedded into the 40 act? Yes. Can can they absorb a private company into PSUS the closed end fund? One thing that I have learned, and I think it hasn't been said enough by media or others, is that for the Pershing Square team, where there is a will, there is a way. So, I would never say never that they can't do something because they consistently show people that they can. Uh Do I think it's, you know, likely? I think it's unlikely, but I would never say never. That makes sense. Um I want to talk a little bit about the the thing I'm, to be honest, more interested in, which is PS, Pershing, the the management company that was publicly traded alongside this. But, I I just want to make sure before I kind of move on to that pasture. Is there anything else on PSUS or or PSH or anything we should be mentioning or people should be thinking about? No, but I So, I would say, you know, to lead into that, I'd say you you've got PSUS is PSUS is the fund. And then you have PS is the business. Yeah. So, that's where you have, you know, that's where you have really really the business side and the franchise side. Uh of of this. So, PS was, you know, the it is publicly traded now. It is the Pershing management company. This is the thing that owns and collects all the management fees and performance fees and everything from all the Pershing funds. And interestingly, you know, all the Pershing funds, not just now, but that he launches going forward out of out of Pershing Square. And obviously, that is the appeal, right? The the potential for this to become an asset gatherer, and I think he mentions launching in the potential to launch an absolute return fund, the potential to launch a private equity fund, all this sort of stuff. Like, When you're buying PS When you're buying the management company, okay, you're buying the management fee streams, you're buying the economics of the permanent capital vehicles that they may hold on balance sheet, you're investing in any future fund launches, you're investing in really the the growth of the AUM on on the management platform. You're investing You're investing at the top top of the tier. So, they launched and they were very nice equity holders. They launched with a clean, "We're going to have 400 million shares outstanding no matter what happens with this launch." right? So, there's 400 million Persian outstanding. As we're talking, it's trading for about 42.50 per share, so the market cap is 17 billion. How do you look at the valuation everything? Because I I I've got I've got upsides and downsides to talk about, but how do you just kind of look at the valuation and the value of the PS manager there? Okay, so we see this as trading This is just our view. I'm just pulling up our own model here. Because I think it might help people. You For us, our projection on adjusted fee-related earnings, this is just again our projection. Okay, this is all internal to us. We believe We see them doing anywhere between 550 and 590 in fee-related earnings. So, that puts us at approximately 30 times fee-related earnings. And then what Do I have >> pause you there? So, you said 550. I'm just going to choose that number. They have a slide in their deck slide 31 of their roadshow that shows FRE for 2025 is 300 million. And then you layer on top of that what they get from PS, what they get from HHH, and anything else they do. So, could you just walk me from the bridge from their 300 trailing before PS, before HHH number to your 550 number? Sure. So, let me tell you kind of the fee-paying AUM numbers that we that we're using so that if it's helpful for others that are building their own models. For us, we have Pershing Square Holdings at 21.2 billion. We have Pershing Square LP at a billion. We have Pershing Square International at about 500 million. We have Howard Hughes at about 5.4 billion. And then we have Pershing Square USA at at a year end closer to 6 billion. So that takes us to a total of 34 billion. And then you know that's not counting the fact that the uh Financial Times which has not been you know not been commented on but so we really don't know but the Financial Times mentioned that there may be a launch of Pershing Square Asymmetric which would be this more kind of global macro hedge his his larger hedger bets. And so there's no credit for any AUM growth that you see there. But all that takes you to 34.1 billion. And then you know we're applying a run rate you know fee related earnings yield of about 1.8%. So that takes you to 597. I am uh I am kicking myself because so the IPO and you know PS. This was right in my alley. It was like hey weird IPO structure some people might want PSUS and get the PS shares some people might want PS. So I was following it and I had a bid in for 20X my fee related earnings and uh my fee related earnings were just a little bit lower than yours but it was it was the difference between me having a bid like right when it IPO'd filled and not filled. And the stock is about a double since it IPO'd. So if I had just uh maybe model checked my numbers with you maybe I would have gotten filled on something that doubled. But Maybe maybe what's helpful Andrew is just to talk about the comps for a second because it does come down to like what the multiple is right? Yeah yeah I was that's where I was going to drive so please let's let's talk multiple the comps and I I do have some gentle pushback I'll give as well. Yeah but please do cuz we'd love to hear it. But like for when we're when we're looking at when we're looking at the comps, okay, so if you take Apollo that's trading 30 plus, you've got Ares very very high 20s. Then you KKR, Blackstone, TPG, Carlyle, Blue Owl, Blue Owl, and then you if you want to add Grosvenor in there, which is which is at a very low multiple, you could you could add Grosvenor as a as a comp as well. So, in general, these comps are trading on an average of like 27 next 12 months. Pershing Square, there's something very specific about Pershing Square that is not like these others. Almost all of these other asset managers have made a bet on their business specifically on private credit and the growth of private credit. In addition to these businesses being more liquid capital businesses, traditional LP funds. So, you are consistently adding new products, new funds, you have a very heavy business development team, uh that is constantly replacing capital and then trying to grow generalized capital as well. On the Pershing Square side, you're looking at 34 billion of permanent capital, capital that cannot leave. Uh And a head count of 50. Uh 50. Uh Carlyle's head count is over 2,200 employees. Uh So, where do we see more growth? By the way, they've compounded just just take this one step further. Pershing Square has compounded capital at roughly around 20% annualized over the last let's say the 5 years for argument sake. That means by definition if they continue to do that for the next 3 years. AUM will now be over 60 billion dollars. And there is significant operating leverage in this business. We don't see this team going from 50 to to to 2,000 when they're managing 60 or even 90 billion dollars. We see this team staying pretty stable. Maybe incrementally adding an employee or two a year. So you're looking at getting to 90 billion and the employee count is going to be sub 75 people. Great. Great overview. And you really hit the nail on the head with this is why I was so interested in it. And then God, damn I'm just kicking myself. I was just too conservative on it. But these are like literally permanent features. You know, PSH, I don't think there's anything you can do to say, "Look at PSHUS. Good luck. It's a 5 billion dollar closed end fund manager my person." Like these are they're permanent. So you can apply huge multiple on them. It's just it's fascinating. But let me give some gentle push back. Number one, uh oh HHH, absolutely permanent there. I think my first push back would be, "Hey, even if it's above 30 and it's as permanent as I'm saying, that's great. But you do still need to grow the business, right? Like KKR, all these guys, they're still locked in. They you have the private credit issues. But I mean these are as they used to say, "Nobody ever got fired for buying for buying IBM." No CIO ever got fired for saying, "Hey, we're investing in KKR's X funds." So these guys are just like uh levered levered growth on just financial assets, right? PSH, if I look across the board, HHH, PSHS, PSUS, everything's trading at a discount to NAV. It's going to be hard for him to grow. Now, PS's argument is if we get one big launch, it's a step change function for us first so cuz we're so small, but it's hard to see the growth there just because everything trades at a discount. So, if I you say, "Hey, this is over 30 X and the numbers are better." I'd say, "Yeah, but everything else has like a much cleaner path to growth." So, I'll pause there and do have a few more uh I want to talk there. So, I was sitting at lunch recently with somebody that you and I both know, a a former head of venture investing at a very large >> enough anymore, but he I I I know who you're talking about and I'll I'll shout out if he's listening. >> What I would say is uh the argument came the the question came up said, "Why in the world, James, are you excited about this about this launch? This is never going to launch. Pershing Square in London is trading at a 30% discount to NAV. Nobody Nobody's going to do this." Okay. And not only did they do it, it's the largest closed-end fund launch in history at $5 billion. So, I would not Again, I would not want to bet against or discount what this team is capable of doing. I hate to be this kind of person that draws that draws comparisons here, but I really believe that they have shown themselves that Bill is essentially the Elon Musk of finance and will when he wants to do something, he will do it and it will get done. I think, you know, practically speaking, people say, "How can you launch another vehicle? You now have multiple vehicles trading at discounts to NAV." Look at Spark. We think that Spark could come out and do a deal very similar to Howard Hughes uh where they take a private company public and end up managing the business or managing the capital allocation component of the business and feeding off of feeding off of the gross AUM there. I think that that's perfectly something that this team is that this team could do. Don't know if they would, but I think that it's certainly something that they should consider if they haven't considered that already. Um I There are many creative ways uh where her I I say it this way. We have You and I both have invested in in firms that have um your financial engineers at at the helm. Uh uh One thing I've noticed about my experience investing in the complex of Pershing Square is that that team structures deals where her if shareholders do well, huh, Bill just does a little bit better. Her If shareholders do poorly, Bill does just as poorly. Uh uh It is a great alignment of incentives there. It is not like other structures that we have seen. Uh uh where it is heads I win, tails I win, and shareholders lose. So, this is very much a very strong alignment of interest in PS, by the way, which I still think you haven't necessarily missed. You could buy some today. Huh? If you looking at PS, huh, that's 6% of the shares are essentially been uh are floated out there. So, you got 2% that are actually freely tradable, 6% outstanding. You That puts you at over 80 80% of that business. Uh uh Over 85% of that business is owned by Bill and that team. Huh? Talk about an alignment of of interest. Who is more aligned in seeing that business business successful? Huh? But, I can tell >> let's Let me ask you another alignment of interest. So, there there's two interesting questions to pull on here cuz I I I I can certainly hear you there, and I do think you know, I'm not a huge fan of how they structured HHH. We can talk about that in a second. But, I do think you're you're on something there like hey, HHH was perma-discounted, all this sort of stuff, and it's hard as a share I mean, he comes to a lot of cash in, and he's really not going to make much money on there unless HHH stock goes up substantially. Though, you know, I I I hate having On the PS >> water mark by the way that compounds? So Yeah, yeah, yeah. Well, but people could have said like, you know, the board I'm just saying like the Howard Hughes board did a good negotiation here. That that high water mark compounds with inflation, but go on. Dude, on PS I I my two things. A, 6% float. There is Right now, let's just use the number 30. So three 3.3% cash yield before taxes on the fee related earnings, right? Uh there is going to be cash flow and it's hopefully going to be growing as net. What is the capital allocation at PS itself look like over time? Cuz they've got this tiny float and it's a asset light company, so there's going to be a lot of cash flowing in. What do they do? Are Are they going to start investing in these their deals? Are we going to see dividends? How are they going to make money here? Okay. So we That's a really good question. Share buybacks probably off the table by definition. We think that there's going to be a very large payout ratio. So we think that, you know, I think a lot of this cash is going to get dividend it out. And then I would expect that there So we're modeling in This is just our model, okay? We're modeling in 80% payout ratio, 20% being held for continued balance sheet investments that you've seen previously like anchoring Spark, anchoring PSUS, doing Howard Hughes. Uh so we think that there's going to continue to be balance sheet investments that are that are made, but I but we fully anticipate that this is going to be paid out as a dividend. And let me explain why. If you look at G&A, uh Okay, if you look at if you look at G&A and employee comp, uh you're not seeing you're not seeing a huge line item here where salaries are coming are coming out. Really, the Pershing Square team is getting paid. uh A from the dividends that they're going to receive from the management company, just like they normally would in a private scenario, and then you have shareholders also, which by the way, they own 85% of still home. You're going to get this press on the performance incentive, and then anything greater than the first 5% of return is going to go to compensate the entire team. So, what you're what you're really going to see from an asset manager, if you if you look at the other comps to use comps, okay, look at the blue owls, look at KKR. We think that when you look at PS, you're going to see a significantly cleaner income statement that is much easier to model, that is much easier to rely to generate forward fee related earnings on, and that deserves a higher multiple. But, go ahead. No, I I'm glad you get on this cuz this is something again, I I I I was looking at this, I was looking at this pretty close. You know, they've got a slide 31 there where they've got the FRE and it's management fees and then preferred performance fees and that's what they counted as their their fee revenue. And at first it's like nobody throws performance fees into FRE, but this is preferred performance fees. So, can you just dive a little just explain one more time, you kind of highlighted but just the preferred performance fees, what are they and then I'll have a follow-up question now. Sure, so you have a so, there's an incentive fee in a in a hedge fund, if you if you perform, you get paid at the end of the year on realized and unrealized gains in in a hedge fund structure. Um, so the performance incentive really is coming from the PSH D side of the London listed vehicle here, where you will get performance incentive on unrealized gains. So, when you when you take that, okay, if if Pershing Square's performed 5%, you know, all the performance incentive is going to the PS shareholders. And if Pershing Square performs 10%, uh you're getting that split essentially 50/50. >> Mhm. Yep. Per- So, management, Bill, and all of them, obviously they will get paid on they own, what is 85, 90, whatever percent of PS is. So, they get paid if that goes up. But, they also get paid if PS has a banner year. They're at high water mark, they go up 100%, they clip 20% performance fees, you know, whatever that is. They'll take the vast majority of that incentive fee is what what happens. Yes, but then also just to talk about how this is like this this is this wonderfully virtuous circle here, huh? I I understand the headline number, and I understand the the criticism cuz I've I've heard this. Um There was no criticism there for me. I was just making sure I >> say, yes, you you go ahead and you have this banner year where all of a sudden you're up 100%, and you double AUM, and this massive performance incentive fee goes to pay the team, huh? You've also doubled permanent capital AUM that cannot leave, and now in the next year in the out year, you're going to see fee-related earnings revenue coming to you based on the doubling of AUM, and all the value accretion to the shares that you've seen there, huh? I want to be clear there was no criticism for me there. I was just making sure I I illustrated it properly. I mean, I guess you could The criticism and this actually leads to the next question. The criticism you would have is, "Look, if you give uh an incentive where all the let's just call the management fees, all the management fees go to one thing, and then all of the incentive fees go to the people who are like actually running it, well, you're kind of incentivizing them to if they see something that might be a single and something that might be a grand slam or a strikeout, you're incentivizing them to go for the grand slam every time because, you know, if you get if all of your money comes from the incentive fee, you make the same amount of money whether you're if you make the same amount of money if you're below higher watermark whether you're plus 5% or negative 95% but if you're negative 95% or plus 400% you'll get paid on the plus 400. The push back there would be to make it for you. They own so much of this management company they're not going to do that but I that would be the criticism. >> That's what I was going to say. I was going to say yes, if they owned very little of the management company huh, then they are fully incentivized to go ahead and hit massive home runs because that's where their compensation is. However, because we're they own over 85% of said management company huh, you have a complete balance of incentives here. I What I would say is under the current structure how it looks right now huh is not at all dissimilar to how Pershing Square was operating privately and compensating employees privately for the previous five years. So, if you liked the previous five years and you said gosh, I would really love to own that management company which is what we thought um you are now going to continue to see that for the out next five years. So, What's we're going to I think the other push back I hear we we described everything on FRE number. The other push back you'll hear is the AUM here is what it's going to be about I should be able to do this off the FRE number that we just talked about but it's going to be about 40 billion. You can correct me if I'm wrong. About 30 about 34. 30 34. The other push back I'll get on PS is hey, you have an asset manager that is now trading at 50% of AUM. You know, cuz PS is 17 billion and they've got they manage 34 billion. There is no asset manager that comes anywhere close to that to that valuation. How would you respond to that kind of that push back? Well, I would respond to that pushback in saying this is permanent capital that cannot leave. You can say just so just so that we're on the right definition here because everyone seems to define this a little bit differently and you have to look in the footnotes how this is defined. You KKR, Blackstone, they have permanent capital. If they have it for six plus years six years. So, you know, essentially the timing between roughly what our last conversation and now, you know, that that's permanent capital. I mean, I don't think that that's really permanent capital. This is functionally truly permanent capital. So, no, you know, it's not a it's not a necessarily an engine to gather and say out loud that I, you know, Pershing Square has a, you know, a hundred billion dollars of permanent capital. Huh? This is or or a hundred billion dollars of capital generally of AUM of assets under management. I think what's more important here and why you should look at fee-related earnings as a multiple of fee-related earnings is this permanent this capital is permanent. It cannot leave. It will continue to compound. There's you could make an you could make an argument that this really is a sum of the parts story. But, putting that aside, huh? I would say really looking at this as fee-related earnings is the way to look at it. There's not I don't want to talk about competitors or other asset managers, but there are other asset managers out there. Huh? They have AUM. It is not permanent. They may call it permanent. It's like six-year capital. Once that capital leaves, it leaves. Another maybe another argument that should be made which I think is somewhat under appreciated again, is this headcount is 50 people, huh? You have 2,200 employees at Carlyle, huh? The if if that AUM at Carlyle, as an example, huh? Nothing against Carlyle, but if that AUM starts to leave, huh? Where how quickly are you firing employees? What are the costs to reducing that headcount and creating synergies? There's real friction costs there. There's real issues. So, I think looking at this as a percentage of assets under management really is not capturing the margins and the earnings the earnings power that Pershing Square is going to have here. I think I I think if anything you you this is going to be like the Visa of asset managers. People are going to be really pleasantly surprised as they continue to see this over the years that this is really a compounding machine. And as you said, generates significant cash, huh? Look, I I came into this conversation at the price it's trading at. I think people would hear I I had a lot of interest, although I think I I'm really getting convinced here. Um let me ask you on oh, might as well address it, key man risk. Bill is about 60, I believe. Yep. Um great investors tend to have a nice track record of living a long time. Buffett is in his early 90s, Munger almost at 100, I believe. Uh but there's nothing that guarantees that. Bill is much fitter than Buffett. You know, Buffett's over there chugging cherry cokes and Bill is about to make a $3 billion investment into uh Kraft Heinz or whatever or into Mondelez. And his investment team takes it as a good sign that the man eats two Oreos. And by the way, a little skeptical. If you can stop at two Oreos, I'm a little skeptical of him in general. I'm rambling. But I I I quickly on key man risk. Like a a lot of the assets are locked up, but what you worry about actually is kind of what's happening in Melone, right? The key man uh dies or steps back as he ages and then the underlings take over and the underlings, because they don't own as much stock, their incentives, you know, the incentive issues I was talking about earlier, really morph because they don't have that huge management control. So, how do you think about key man risk succession? Hopefully it's a problem we don't have for 15, 25. Let's let AI take us to 45 years, but how do you think about that going forward? So, those that listened, I think it's I understand the point. Because Bill is this iconoclast and has cemented himself as a legendary investor. I get that. What I think is somewhat underappreciated is how long the tenure of Ryan Israel has been there and is and leading that team and the type of leadership that he has taken under, you know, underneath him. He is now technically the chief investment officer there. For those that didn't listen, um when Pershing Square Holdings in London, this is pre the IPO, had their annual meeting, that was two hours of just Ryan Israel speaking. So, Bill can be there for personal reasons and he he did he was on Zoom for Q&A, but Ryan Israel led that led that meeting uh from start to finish understood that book backwards and forwards as a chief investment officer should. To kind of go back to maybe my generation of like of the Miami Heat and LeBron and Dwyane Wade, you know, I would say that Ryan is like the D Wade to Bill's LeBron. You have they they complement one another. It's not just it's not just Bill. It's >> Dude, I I laughed in my heart mainly because D Wade to LeBron, I mean they were great, they won two titles together, They probably should have won three, but you know, one of the issues there was because especially LeBron hadn't developed his three-pointer, they were so great, but they like, you know, it was not necessarily a one plus one equals three situation. So, I'm not sure and Dwyane Wade retired before LeBron's still there. All of Dwyane Wade retired seven years ago. Yes, I just remember I just remember that run when he went to the Heat and just how how great that team was. The I look, I I the bigger point that I'm that I'm trying to make here is that it takes you to use another saying, it takes a village. It takes a team. That team has significant tenure. I would say, you know, without wasting the time here, I would argue like go back, look at the presentation. You can see the tenure of that team. Ben Hakim, who's on that team, has been there a very has been there quite a long time and is instrumental in in all things, you know, IPO related and Howard Hughes in in PS. Like that team has a very very deep bench uh and performs uh And so, I would say, you know, there is there was there was a risk, you know, a key man risk of Bill and I think that that has been significantly mitigated now. If we were to lose Bill, it would be it would be material, but I think that people would be pleasantly surprised that one of the great things about PS is that if Bill were to get hit as he says by the proverbial pie truck, none of the capital can leave. And so, you so you're now looking at the next generation that is stepping in and managing, you know, the 34 plus billion that maybe that would hopefully be closer to 100 200 billion at that point moving moving the ball forward and growing this franchise. Did he say pie truck instead of bus? Yes. I mean, at least say ice cream truck, man. Yeah, that's a good one. You know, one other thing just when you compare to other managers, another issue you have and you don't have this so much at KKR though, you know, the short sellers would tell you this. PS's book is almost entirely liquid marks, right? Very liquid marks. Like I mentioned Meta. You can go look at Meta. You could do I I have done it before. You can go to the daily NAV of PSH and they, you know, they own a lot of the stock, so maybe they couldn't realize it in a day, but they could hypothetically realize it within 3 days, 5 days. You look at a KKR, like you are really trusting a lot of those marks, not just on what they own on the balance sheet, but they're marks on their funds, right? And it's not unheard of for a fund to say, "Hey, everything's going great. This fund's worth 100 million." Oh, yeah, we sold all the assets for 2 million. And I'm not accusing KKR, but we've seen this in the private credit space. So, another nice thing here is you can have very, very high confidence confidence in the NAV, at least right now. Not to say that won't change going forward, but two more questions and then, damn, I'm really having fun, but we started a little late, so we might have to wrap it up. Hey, just on capital allocation. So, you think probably I'm going to put words in your mouth, probably in the near term, the management fees in the capital allocation are mainly going to kind of seeding funds as they did PSUS, as they did getting the H H H investment, but probably in the medium term, which I'll define as two to four years, this becomes a dividend payer. Is kind of how you think about that? Yeah, I would say Yeah, I would say we believe that they will they will grow balance sheet cash, uh huh. But we do think that in the medium term, they there will be a very large payout ratio, uh huh. And I I would say, you know, we we have to we haven't This is our That's our current view, uh huh. Let's wait until till their first earnings call because I fully expect that that's going to be question number one is what is the capital allocation policy? And I fully expect that the company will give guidance at that point. >> Mhm. And okay, that makes total sense. And then question number two, you know, I I I think a big question for this to really work, uh 100% year as I mentioned earlier would help, but they're going to have to launch new funds. What do you think the the new fund launch schedule? Obviously, we don't know, but like what do you think the highest priority target is and when do you think they'll make headway on that? So, I actually would push back just a little bit. I would say for this to really work, you have to underwrite that they're going to continue to compound at 15 plus percent a year. Her. That if they do that alone, that certainly to us certainly supports the current valuation that you're seeing at around 30 times. So. If you if you want to you if you want to say, "Okay, but I need I need even faster growth, then I would argue needs to be over 30 because of the permanent capital nature. But I think that Spark is coming next. I think this team just went through again, you know, one of the six largest IPOs in the in the past decade, 20th largest IPOs in history, US history. Let them breathe, uh and I think Spark is Spark is coming next. And by the way, just to just to let other people on this call know, look at Spark. Go go look at the Spark filings. The Spark filings are public. We've look we track it. We continue to track it. Look at the legal fees. The legal fees at Spark on a quarter-over-quarter basis went from something negligible around like 50 to 100K to well over a million dollars in a 30 in a 60 90-day period, so in a quarter. Her. You know, I pay lawyers as much as anybody else does in C's to to know that they're they're working on something. Her. Well, don't we know what they're working on cuz they Yeah, we know what they've offered You know what they've offered with with Universal Music Group, huh? And how they've and how they've structured that with Spark and there it is publicly disclosed that I think it was asked on a CNBC interview, huh? That whether or not uh the Universal whether or not Universal Music Group, huh? And or Bolloré at Vincent Bolloré has responded at all and I think Bill's comment uh specifically was we would not have released that if we hadn't spoken with uh the French uh I think was his term, huh? Or uh or with Universal Music Group. So, whether or not that does come to pass, we shall see, but I do think that it goes to show that that arrow in the quiver is probably what's next to come, huh? Okay, that makes total sense. That makes total sense. Hmm. Man, I Hey, I'm kicking myself cuz as I said, if I just hit up the master and had you brush up my FRE number, I had I had you do it. I'll just leave it I'll just leave it with this and I'll leave everybody with this before before we go cuz I know that we're at time, huh? And if anybody fast-forwards to the end, they should see this. This is again, this is roughly trading around 30 times fee-related earnings. So, okay. Apollo is roughly trading at around 30 times fee-related earnings, huh? Who's going to grow AUM faster, huh? If if Apollo adds, let's say a another $10 billion fund, huh? All right, it which is not permanent, by the way. So, a 10-year life fund, like 10-year 5-year deployment, 5-year harvest, maybe two two you know, two two-year extensions or three one-year extensions, huh? That does not move the needle. You add another $2 billion fund, huh? $3 billion fund, you've now increased AUM by 10%, huh? I again, I think the 30 multiple is just really undervaluing the growth that you're going to see here, huh? You know, this is the in the in the filings, too, right? Like, hey, compare us to our peers. If we raise a $5 or $10 billion fund, it blows up our AUM versus our peers, it it's like around there. Like, they need to raise multiple of those every year just to sustain them. Definitely, but I'll give one last pushback. PSHS is trading at a discount to NAV right now. PSH is trading at a discount to NAV right now. HSH is trading at a discount to whatever the it's hard to say NAV, but it's trading at a discount to NAV. He just pressed a lot of hands and kissed a lot of babies to get PSUS off the round with five billion, and the target was 10, right? So, I think the one probably fair pushback would be, hey, without a big win in the near term, it seems kind of tapped out on the fee raising side, right? All right now, right? Like, it's I doubt they're going to launch another five to 10 billion fee raise. You know, maybe it's smart to change that. >> I would say tapped out on the offering that was PSUS. So, but I think that there's certainly demand. I think there's certainly demand for a Pershing Square asymmetric. I know that we're going to invest in that in that offering. I mean, we have to see it, but I think you know, our inclination is to invest in that offering. With that with that said, uh with that said, you know, I I would say you you say that he a lot of people say, you know, $10 billion was the target, uh and he only raised and he only raised five, uh And I'm putting air quotes heavily around only raising five. >> Okay, he only raised the largest closed-end fund of all time, at five. If he had raised 10, it would be double the large double that. So, you putting things into context here, I think is is somewhat important, to say that he had to really struggle to get to the five. I think anybody would have to struggle to get to five. It is the largest closed-end fund of all time, and two times larger than its closest peer. So, you the Just putting it to context here, I think while you maybe 10 was like we were hope we were hoping for 10. Realistically, you know, I think five was fantastic. Five's a great outcome. Huh? Yeah. Look, this has been super helpful. Look, I was I'll be I you know, again, I think you're here. I I'm not crazy skeptical of PS, but I was skeptical of the price. But as you just start doing all the math that you laid out so clearly and and think about the optionality and I I kind of push back the one the place I'd probably push back hardest There were some place I disagree with you. The place I'd probably push back hardest you said, "Hey, this needs to compound at 15% per year from here to work." I don't think I I honestly don't think so. And obviously both of our numbers are without any future asset raises. Like I think if this does S&P numbers underneath if PSH PSUS, if they do S&P 500 like numbers underneath, I think PS is going to it starts to look very interesting very quickly. Well, yes, because it it should deserve at least an S&P 500 multiple at that point, which is roughly around what? 20 25 times. Ooh. This has been awesome, James. Any Any last thoughts or anything you want to hit before I No, I I always love I always love chatting with you, Andrew. So, it was it was great to talk. This is great. And again, just the stuff you got in close and funds and correct. James, well, I'll have you back on soon to talk. There's plenty other close and funds out there. We'll talk soon. Anybody else? Bye. A quick disclaimer. Nothing on this podcast should be considered 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.