The hedge fund manager Bill Ackman has claimed his firm made $2.6bn (£2.2bn) betting that the coronavirus outbreak would cause a market crash, barely a week after warning that “hell is coming” for US companies.
Ackman took advantage of bond market turmoil to make almost 100 times his original outlay of $27m on bets on market movements, he said on Wednesday in a post on the website of Pershing Square Capital Management.
The returns were made by buying “credit protection on various global investment grade and high-yield credit indices”, protecting his fund from steep stock market falls that were happening at the time.
In a post on the fund’s website, Ackman wrote: “On 23 March, we completed the exit of our hedges generating proceeds of $2.6bn for the Pershing Square funds, compared with premiums paid and commissions totaling $27m.”
On 18 March Ackman tweeted that Trump should “shut down the country for the next 30 days and close the borders”. In an interview with CNBC that day he said that US companies should halt share buybacks to preserve cash because “hell is coming” – although he also said that he was buying some stocks.
“The hotel industry and the restaurant industry will go bankrupt first, Boeing is on the brink, Boeing will not survive without a government bailout,” Ackman said.
However, Ackman’s opinions appeared to change rapidly, after the US government started to move towards its $2tn stimulus deal. Pershing Square started to unwind its bets on the market falling on 23 March, only five days after he gave his warnings.
The fund used the money earned to buy shares in companies such as the Hilton hotel chain and coffee chain Starbucks, as well as in Warren Buffett’s investment vehicle Berkshire Hathaway.
In Wednesday’s web post Ackman said: “We became increasingly positive on equity and credit markets last week, and began the process of unwinding our hedges and redeploying our capital in companies we love at bargain prices that are built to withstand this crisis, and which we believe will flourish long term.”
The profit, if confirmed, would rank as one of the most profitable trades ever disclosed by a hedge fund. During the global financial crisis a decade ago, funds run by John Paulson made a reported $15bn betting against the US housing market, gaining him fees of $3bn.
It also represents a turnaround for Pershing, which had lost money in the first two months of the year, according to its monthly reports. At the end of February the firm reported assets under management of $6.6bn.
Ackman made his name as an activist investor, buying stakes in companies and pushing for management to make changes that could profit the firm. He co-founded Gotham Partners in the early 1990s, before starting Pershing in 2004.