Bill Ackman’s Pershing Square Capital read the Covid signs early for good return

Bill Ackman’s Pershing Square Capital Management delivered a record 70 per cent return in 2020.

Bill Ackman, chief executive officer of Pershing Square Capital Management. Photographer: Patrick T. Fallon/Bloomberg

Bill Ackman’s Pershing Square Capital Management delivered a record 70 per cent return in 2020, as a bet in the early days of the Covid-19 crisis paid off to the tune of $US2.6bn.

The billionaire investor’s hedge fund this week reported that its net asset value jumped from $US27 per share in early January to more than $US45 per share by the end of December.

The stellar return for the year — which compares to a 16.2 per cent return for the S&P 500 — follows the fund’s previous 58 per cent record return in 2019, which came after three years of negative returns.

Mr Ackman, long known for his big calls, made headlines earlier this year when he reaped a $US2.6bn payday weeks after pumping $US27m into credit default swaps in February, just before the market suffered its swiftest correction in history.

Detailing his thinking behind the trade, Mr Ackman told Australian attendees at the Sohn Hearts & Minds Conference in November that alarm bells started to ring for him in the early days of the outbreak.

“I started reading about Wuhan, which was very reminiscent of the film (Contagion),” Mr Ackman said. “The first significant moment was when the Chinese decided to shut the entire city.

“But the way they did it … they basically announced a curfew and a shutdown, effective in 12 hours and I said ‘look everyone is gonna leave’, and then several hours later, the news stories were ‘everyone is leaving’ and then it was reported that five million people had left Wuhan.”

A second alarm bell went off, he said, when he suggested Pershing Square should cancel its annual investor meeting in London.

“People thought I was crazy, which got me concerned,” Mr Ackman said.

After running through a series of options on how to trade the pandemic, Mr Ackman and his team settled on hedging credit default swaps.

After netting the $US2.6bn pay-off in the short-term trade, Pershing’s investment team then pumped billions into a “recovery bet” on the economy, increasing stakes in Hilton and Lowe’s, among others, after their shares had tanked on the widespread sell-off.

In July, Mr Ackman created the largest blank cheque company in the world, raising $US4bn taking his special purpose acquisition company public with the intention of acquiring a “mature unicorn”.