Pershing Square USA trades 20% below IPO as closed-end fund discount widens

Bill Ackman's closed-end fund Pershing Square USA trades at a 20% discount to its IPO price, exposing structural differences between fund vehicles and operating companies like Berkshire Hathaway.

Pershing Square USA Ltd., Bill Ackman's closed-end fund, trades about 20% below its initial public offering price, allowing investors to buy $1 of Ackman-selected assets for roughly $0.80.

"The closed-end structure means the fund's shares trade based on supply and demand, not the portfolio's underlying value, creating a persistent discount that an operating company doesn't face," according to a Motley Fool analysis of the fund's structure.

Berkshire Hathaway, by contrast, is an operating company that owns and runs businesses including insurance, utilities, railroads, and home building, in addition to holding stakes in publicly traded companies. The closed-end fund structure issues a fixed number of shares at IPO, meaning the share count doesn't change even as the portfolio value fluctuates daily. This creates the potential for the market price to diverge from NAV — a dynamic that has pushed Pershing Square USA to a roughly 20% discount.

Ackman is also building a Buffett-like business around Howard Hughes Holdings, an operating company that recently acquired an insurance business to mimic the Berkshire formula. That structure, unlike the closed-end fund, does not face the same discount risk because its shares reflect the value of underlying businesses, not a portfolio of liquid securities.

The 20% discount signals weak investor demand for the closed-end fund structure, even when managed by a high-profile investor like Ackman. It could dampen enthusiasm for similar celebrity-managed fund IPOs and put pressure on Ackman's reputation and future fundraising capabilities. Existing investors face immediate paper losses, while prospective buyers get a bargain that reflects structural risk, not just a temporary mispricing.

The divergence between Pershing Square USA's market price and its NAV highlights a structural challenge unique to closed-end funds. Unlike mutual funds, which are bought and sold at NAV from the fund sponsor at the end of each trading day, closed-end funds trade on exchanges based on supply and demand. When demand falls short of supply, the shares trade at a discount — and that discount can persist for years.

For Ackman, the discount represents a reputational setback. The billionaire investor has long positioned himself as a Buffett-style value investor, and the Pershing Square USA IPO was marketed as a way for retail investors to access his concentrated portfolio of high-conviction bets. The 20% discount suggests that investors are not willing to pay full price for that access.

The broader implication extends beyond Ackman. If a high-profile launch like Pershing Square USA struggles to maintain its NAV, other fund managers considering similar closed-end structures may face a harder sell with investors. The closed-end fund market has historically been prone to persistent discounts, but the scale of this discount — 20% on a newly launched vehicle — is notable. Closed-end fund discounts in the U.S. have historically averaged between 5% and 10%, making Pershing Square USA's discount roughly double the typical range.

This article is for informational purposes only and does not constitute investment advice.