Bill Ackman exits market hedges, uses $2 billion he made to buy more stocks including Hilton

Investing

Bill Ackman, founder and CEO of Pershing Square Capital Management.

Cameron Costa | CNBC

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Pershing Square’s Bill Ackman exited his market hedge positions earlier this week and used the more than $2 billion in proceeds to bulk up on his fund’s existing stakes as well as reinvest in coffee chain Starbucks.

In a letter to Pershing stakeholders, Ackman said the fund completed the exit from his bets against the market on March 23 and generated $2.6 billion compared with premiums paid and commissions totaling $27 million. He first announced his market hedges on March 3.

“The federal government and the U.S. Treasury have intervened in financial markets in an unprecedented fashion, and the Congress is on the brink of passing legislation which will help bridge the economy and our country’s workforce and citizens during what we believe to be a temporary but massive economic shock,” Ackman wrote.

For those reasons, “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,” he added.

The billionaire investor explained that Pershing’s hedges included credit protection on various investment-grade and high-yield credit indexes. Ackman said that since Pershing was able to purchase the hedges at near-all-time tight levels of credit spreads, the risk of loss was “minimal.”

That bet proved prescient ahead of one of the worst market sell-offs in the modern era as the S&P 500 and Dow Jones Industrial Average plunged more than 30% in the weeks thereafter.

Ackman said he used the influx of cash to add to Pershing’s existing investments in Agilent, Berkshire Hathaway, Hilton, Lowe’s and Restaurant Brands. The fund also purchased “several new investments including reestablishing our investment in Starbucks,” which it had closed in January.

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