US hedge fund scoops $2.6bn from initial $27m bet that coronavirus would crash global markets
A US hedge fund made well over $2billion from a one-off bet that the coronavirus outbreak would cause a global market crash – and less than a week after its boss said ‘Hell is coming’.
Pershing Square Capital Management hedge fund manager Bill Ackman wrote on his company’s website his firm had made $2.6billion from an initial $27million outlay the pandemic would create market havoc.
The enormous return came barely a week after Ackman claimed ‘Hell is coming’ for US business.
His firm seized upon bond market turmoil during the Covid-19 crisis, in buying ‘credit protection on various global investment grade and high-yield credit indices’.
Bill Ackman (pictured) co-founded another firm, Gotham Partners, before starting Pershing Square Capital Management in 2004
The bet, which was designed to protect Pershing Square Capital Management from falling stock markets triggered by Covid-19, saw his firm make almost 100 times its initial $27million investment.
The firm completed the transaction on 23 March.
Ackman had taken to Twitter on 18 March advising US President Donald Trump to ‘shut down the country for the next 30 days and close the borders’ due to Covid-19.
He also asked for a 30-day rent, interest and tax ‘holiday’ for all US citizens.
Adding: ‘The shutdown is inevitable as it is already happening, but not in a controlled fashion which is extending the economic pain and amplifying the spread of the virus.
‘With exponential compounding, every day we postpone the shutdown costs thousands, and soon hundreds of thousands, and then millions of lives, and destroys the economy.’
Ackman also appeared on CNBC on 18 March, advising US business to stop share buybacks and to preserve cash, forecasting that ‘Hell is coming’.
Desolate scenes – Wall Street in New York stands almost empty amid the Covid-19 outbreak
He warned the hotel and service industry would be compromised by the market turmoil, and that Boeing ‘will not survive’ without a government bailout.
Later that day he clarified his remarks, saying: ‘Some investors have been confused by remarks.
‘To clarify, I am confident the president will do the right thing in temporarily shutting down the country and closing the borders. If that happens, we can win the war against the virus and the markets and the economy will soar.’
But Pershing Square began to change tact once the US government moved towards a $2trillion stimulus package for its economy, which has now been passed by the Senate.
It unwound bets on the market tumbling on 23 March, just five days after Ackman gave his stark warning.
Pershing Square then began using the money it had earned to buy up shares in various companies, including the Hilton hotel chain and the coffee franchise Starbucks.
It also bought shares in Berkshire Hathaway.
Bill Ackman is often called to speak publicly about the financial markets. His recent $27m bet could stack up as one of the most lucrative ever, if confirmed
In an online post on Wednesday, Ackman wrote: ‘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.’
Pershing Square’s profit from the trade could stack up as one of the most lucrative ever, if confirmed.
Pershing Square had been losing money in the first two months of 2020, according to reports seen by The Guardian newspaper.
The $2trillion US stimulus bill has now been passed by the US Senate and is currently being finalized by congressional lawmakers.
In addition to helping ‘Main Street’ businesses, hard-hit airlines, US manufacturing firms, and other business, Americans could receive $1,200 each.
Married couples could receive $2,400 from the bill, and American parents could get $500 for each child under the age of 17.