Berkshire Hathaway (NYSE: BRKA )(NYSE: BRKB ) was a way for people to invest with CEO Warren Buffett. Buffett has retired, so the company is now run by Greg Able, his hand-picked successor. Pershing Square USA (NYSE: PSUS ) is a way for people to invest with another famous investor, Bill Ackman. But it’s nothing like Berkshire Hathaway. Here’s what you need to know when looking at Pershing Square USA’s discounted price.
A dollar investment for eighty cents?
Berkshire Hathaway is an operating company, which means it owns and operates businesses. The list of businesses is huge, including insurance, utilities, railroads, and home builders, among others. It also has stakes in publicly traded companies. The giant conglomerate is a very complex investment that gave way to side-by-side trading. Famous investor Warren Buffett. Abel still has to prove himself as an investor, but he was trained by Buffett, so it’s unlikely the company’s approach will change dramatically.
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Seeing Buffett’s success, other famous investors have also introduced public vehicles. For example, Bill Ackman is building a business around himself like Buffett. Howard Hughes Holdings (NYSE: HHH). Like Berkshire Hathaway, Howard Hughes Holdings is an operating company, and it just bought an insurance business to mimic the Buffett formula. That said, the business is still a work in progress, as it has only just established the structure it hopes to benefit from in the long run.
However, Ackman also created Pershing Square USA, a closed-end fund. This is a more straightforward way to invest with Bill Ackman. Like a mutual fund, a closed-end fund is a pass-through entity that owns a collection of stocks and/or bonds. A mutual fund and a closed-end fund’s value, the net asset value, is simply the value of their investment portfolios. But a closed-end fund is not a mutual fund or an operating company, so there are some important nuances to consider.
Specifically, closed-end funds trade on a supply and demand basis like stocks on a stock exchange, but they also have a net asset value (NAV) per share, e.g. A mutual fund. NAV per share is the value of the portfolio divided by the number of shares outstanding. Mutual funds are bought and sold from the fund sponsor at the NAV at the end of each trading day, so you never pay more or less than the NAV. Closed-end funds issue a fixed number of shares when they have their initial public offerings, so the number of shares does not change even though the value of the portfolio changes every day. A closed-end fund’s price and its NAV don’t always match, and Pershing Square USA’s current discount is about 20%. This means you can buy $1 worth of assets selected by Bill Ackman for $0.80.