Pershing Square Tontine Holdings – An Ethical Investment?

Bill Ackman, activist investor and founder and CEO of Pershing Square Capital Management has today launched a new enterprise. Pershing Square Tontine Holdings (PSTH) had its IPO today but doesn’t yet have a business – it’s a Special Purpose Acquisition Company (SPAC) that first raises money through an IPO and then later invests that cash in an existing business. So we’ve no idea yet what PSTH will be investing in – it’s likely that it’ll take a minority stake in a mature business and speculation ranges from Airbnb to Impossible Foods and Bloomberg. Most of the board members all have some experience in media, so that may be a clue (or not!).  I’ve written about ethical investing before, so why do I consider PSTH to be of interest? It starts with the way that Ackman has set up the company…

Tontine Holdings and social equality

Normally when a company goes public the investment firms who launch the IPO (JPMorgan Chase, etc.) benefit though massive fees and the ability to nab shares at a discount. You may recall that many of these same firms are not exactly bastions of integrity, taking huge risks with people’s money and then having to be rescued during the 2008 financial crisis – JPMorgan Chase received $29 billion to bail out Bear Stearns.  In an attempt to break this mold, when Ackman decided to launch PSTH, he included several smaller minority-owned and/or woman-owned investment banks, such as CastleOak Securites.

But what makes the offering important is that for nearly the first time in Wall Street history, Ackman decided to give seven, very small, veteran-, women-, and minority-owned investment banks meaningful roles not only in the millions of dollars of fees the underwriting will generate but also in the distribution of the stock being sold. He is hoping that by sharing the economics of the deal with these less well-known and less-powerful firms, he will provide them the capital and profits they need to compete more effectively with the big boys on Wall Street.

He’s also hoping that by giving them a meaningful number of shares to sell to their clients of what he believes will be a “hot offering,” the clients will make money and want to return the favor to the small banks—and a virtuous cycle will have been started that will inure to their economic benefit. – Vanity Fair.

Here are two of the underwriters discussing PSTH and SPACs in general:

PSTH also included other features that are trying to break the patterns on Wall Street that have historically enabled inequality.  They include:

* A cap on fees paid to investment banks

* Half of the board members are women

* A mechanism (Tontine is a reference to this) that rewards shareholders who hold onto their stocks for longer

* Pershing Square itself gets no fees or stock incentives from the launch of Tontine Holdings

“What’s new in our structure is that we’re taking no compensation: no management fees, incentive fees … we’re not buying cheap stock. There’s literally no compensation to the sponsors,” Ackman said Wednesday. – CNBC.

Activist Investing

So, the way in which PSTH has been launched is, in itself, a form of activism – attempting to change the status quo in the financial world. I bought some PTSH stock today in support of this move, but I’ve no idea yet what company Tontine Holdings will decide to invest in. If you want to get an idea of Ackman’s modus operandi, take a look at the documentary, Betting on Zero, which charts his campaign against Herbalife. Ackman maintained that Herbalife (a global multi-level marketing corporation that develops and sells dietary supplements) is a pyramid scheme that exploits low-income people, particularly in Latinx communities. Here’s a related video that looks at Herbalife, providing an interesting contrast between the business dealings of the public company and the folk sitting near the bottom of the Herbalife pyramid.

I won’t reveal the outcome, in case you want to watch Betting on Zero.

Another famous Ackman moment is his interview on CNBC at the peak of the market crash, imploring Trump and other leaders to shut down the world for 30 days. Sadly that didn’t happen…

But I guess you could say that Ackman made lemonade out of the situation by executing one of the most profitable trades in history.

Pershing Square Tontine Holdings – Bottom Line

Pershing Square Tontine Holdings raised $4 billion in funds today, making it the largest SPAC in history. What will they do with their blank check? That’s anyone’s guess right now. I’m just hoping that, whatever it is, Tontine Holdings will continue with the theme of disrupting the status quo in financial markets. It has made a pretty good start so far.

If you’d like to read a bit more on the topic, here’s my previous post on ethical investing.