All right, we are here with the legendary Bill Ackman. Bill Ackman, how are you doing?
I'm doing great. Nice to see you.
Yeah, good to see you again. You know, last time we spoke, you interviewed me and Shiv, our CFO, about the launch of Robinhood Ventures Fund One, which is also a closed-end fund. And now we're here talking about Pershing Square and Pershing Square USA, also a closed-end fund structure. So it seems like closed-end funds are having a bit of a moment, a bit of a resurgence maybe. What are your thoughts on that? Why do you think that's the case right now?
Sure. So I'm not sure I would say it's a resurgence at this point. I wouldn't count two offerings as that. I would say what's interesting is the closed-end fund structure is a great corporate structure. It's a corporation that has a very favorable tax structure that gives you a lot of flexibility to do various kinds of investing. So for us, it's the ability to buy minority stakes in companies, it's an ability to buy controlling stakes in companies, it offers an ability to hedge risk. But no one's really taken advantage of the structure. Historically, the closed-end fund has been used for a very not particularly interesting purpose. The big fund complexes launched them in a fairly undifferentiated way, they weren't run by Robinhood, they didn't have a particular niche, the person running them generally was a computer as opposed to a person. But it's a structure that's very interesting and it's not something I followed closely until a few years ago. And the more I learned, I said wow, it's a great vehicle to do something interesting.
Great. And maybe just explain the vision for this IPO, how investors should understand it, and in particular, since there's two components, PSQH and PSUS, what's going on there?
So, let me give you just like a 30-second overview of what we're doing in this offering. We're launching a new investment company. It's been listed on the New York Stock Exchange. It's called Pershing Square USA. Each share costs $50 and that will put $50 of cash into the entity minus a small amount of underwriting fees. We're going to invest that money in a dozen great companies and we're going to work to compound that money over the very long term. As kind of a bonus for investing in this new fund, for every five shares you buy for $50, you get one free share in something called Pershing Square Inc. Pershing Square Inc. is the company that I work for. It's a business that collects management fees and incentive fees or promotes as some people call them from the funds that we manage. It's a very good business. It's a business that grows without capital. It's a business that grows with the kind of high return nature of the strategy and it grows every time we raise more assets by launching a new fund. In fact, the launch of PSUS will probably grow our assets by about 50%. So, what we're doing is we're giving a gift, if you will, the lawyers like us to call bonus shares in something called Pershing Square Inc. And that's the investment proposition. So your IPO pop comes in the form of a separate share of stock as opposed to betting that a closed-end fund trades up on the first day.
Okay. And for Pershing Square Inc., which is the bonus shares that you'll be getting, half of the assets that it's managing will be PSUS, the closed-end fund that's IPOing today, and half of it are existing, about a third of its assets. So it will increase our assets from about 20 billion to 30. So that assuming a $10 billion offering, the new PSUS will be about a third of the total asset base of Pershing Square Inc.
Yeah. But Pershing Square Inc. also gets exposure to the existing portfolio.
That's correct. Pershing Square Inc. receives fees from something called Pershing Square Holdings, from a company called Howard Hughes, and now Pershing Square USA. And over time we're going to launch some other closed-end investment companies and that entity will get fees from those new funds that we launch.
So there will be other things similar in structure to PSUS. PSUS is kind of the first one but you anticipate PS Inc. to collect fees from all the subsequent ones as well.
Super interesting. I also saw you mentioned that you rely on permanent capital for the fund. Can you talk a little bit about permanent capital and how important that is for you?
Sure. So we started out in what I would describe as the hedge fund business. A typical hedge fund is a private entity. We're only allowed to raise money from basically rich people. We had an onshore fund and an offshore fund. The nature of our strategy, which is concentrated, we invest in a dozen companies. We get pretty deeply involved in those companies. We join boards of directors. We work closely with management teams. We often recruit a new CEO to one of our companies. We make commitments to people, right? We make commitments about being long-term. When you have money that can leave, let's say there's a pandemic and people panic and they pull their money, it's hard for us to make commitments. We had a strategy that long-term we knew required a stable capital base. What is permanent capital? It's really instead of raising a fund where people invest money in a private fund, here you buy shares in a corporation and then the cash goes in the corporation and we use those cash to make investments. So when investors want their money, they sell the stock. If they want to add to their investment, they can buy the stock. And for us, the money stays and the permanency of that allows us to be a long-term investor and to execute a strategy of getting deeply involved in companies. And that's why that structure is important. And we're really unique in our industry. After this offering, about 98% of our capital will be in permanent capital vehicles and there will be three of them. And that's very good from an investment perspective because we're in a world in which investors are increasingly short-term and if you have the ability to be longer-term, that gives you a significant competitive advantage. It's also good from a business standpoint if you think about this management company or general partner, GP as I've called it, that business receives fees from these funds. So if the capital is permanent, as we generate returns over time, our assets under management grow and the fees grow. So the business, the economic substance of the business, it's like owning a royalty, like this annuity, like fees on a portfolio of these closed-end or permanent capital vehicles that grow because of the high performance nature or the high return nature of the strategy. And so it's a very good business and we're sharing a piece of that business with the public shareholders. Why? Because they're helping us by launching this what we expect to be the largest closed-end IPO ever.
And what about capital return? How are you thinking about it on the PSQH level? Do you anticipate paying a dividend?
Pershing Square Inc., the management company. One of the great things about this business, it does not require capital to grow, right? It's really in some sense an intellectual property business. It's about our ability to make investments and the capital is outside of the enterprise, right? It's in these various funds. So, we can pay out the substantial majority of our profits as dividends. So, it will be what's interesting, it can be a rapidly growing company because it will grow as fast the business grows organically with a compounding of the assets in the funds. It grows in a step-change fashion as we launch new funds. So, this entity will be between 5 and 10 billion in size. This IPO we're doing, if the next one is 10 billion, it will overnight grow our assets by a third. And so this will be a very rapidly growing company, but it doesn't require the reinvestment of capital, which means we're going to send back the substantial majority or nearly all of the cash we generate, we're going to return to shareholders. And so Pershing Square Inc., as we call it, the GP, will be a pretty nice yielding company. But it's also usually companies that can pay out most of their earnings, utilities, REITs, things like this, they don't have the potential to grow at high rates. This is a business that combines the ability to grow at very high rates with the ability to pay a very significant dividend.
Got it. And you know, Pershing Square Inc. is operating in a somewhat competitive space. You've got the other publicly traded alternative asset managers. And I imagine at the end of the day it just comes down to the quality of the team and the culture and the repeatable engine for investing in great assets. Can you talk a little bit about that? How do you think about team and culture on the Pershing Square Inc.?
Sure. So we do certainly have people in our industry but in some sense we don't think of them as competitors. The other companies in our industry are, you know, private equity, real estate, private credit. We're really an equity strategy. So it's a different strategy. And the other different part of the model is we're the only firm in the industry that has permanent capital, which means we're not in the fundraising business. We're not constantly having to raise money for new funds. But one of the other things that's unusual about our firm is our size. A firm like Blackstone has over 5,000 people. We have 48. A 48-person team enables a very different kind of culture than a 5,000-person organization and we're able to operate with such a small team because we have permanent capital. We're not constantly having to raise money which requires armies of people and we own a dozen companies. So we have nine investment professionals who are doing the work on a dozen companies and obviously looking for other potential investments over time but it's an incredibly efficient, lean model that enables a culture. I'm talking to you from our office today. We have 48 people. We have beautiful offices. It's a great environment. It's kind of a family-oriented kind of culture. And I think unusually for our industry, we have really no turnover. No one has left the firm since we've had permanent capital over the last eight years to go launch their own fund or to go to another firm. Why? Because they can't replace the culture. They can't replace the permanent capital. And these are sort of unique attributes that makes this a very attractive place to work.
When you move on to let's talk a little bit about PSUS, the investment vehicle. Maybe share a little bit about the philosophy there. How many investments do you think you're going to hold at any given time? You've described it as a concentrated portfolio. Why a concentrated portfolio versus something a bit more diversified?
Sure. So, you know, I think Warren Buffett once said, diversification is protection against ignorance. If you don't know a lot about the companies that you're investing in, you want to invest in a lot of companies because the diversification will protect you from mistakes. If you have the ability to do deep due diligence on companies and I would say significantly if the nature of your strategy allows you to have a lot of influence over those companies, you really want to pick the best dozen or so companies as opposed to dilute the top 12 or the top 15 with idea 16, 17, 20, 25, 50. I think it's very hard to outperform the market once you become a highly diversified portfolio. And so our returns have come in part because of concentration and our returns in part have come from the fact that we help our companies succeed. We help them improve their businesses and drive shareholder return.
And the number you have in mind is something in that 12 to 15 portfolio company range.
Even within the dozen we concentrate. So the top three or four will likely be half the portfolio. So we concentrate even in the 12 and we pick our favorite ideas in terms of risk and reward.
When you do your diligence, what are you looking for specifically?
