If you haven't seen it already, here's the latest investor letter out of Bill Ackman's hedge fund Pershing Square Capital Management courtesy of Dealbook. In it, we learn that Pershing has started a new position in Nestle (OTCPK:NSRGY) as Ackman's fund previously did not own it. Pershing thinks the company will boost margins going forward and has possible catalysts ahead. This all comes in addition to Pershing's recent entrance into Landry's Restaurants (LNY). (For the rest of Pershing's positions, we covered its portfolio earlier as well).
Arguably, the most important part of Ackman's investor letter is the section on General Growth Properties (GGWPQ.PK). Since it is no longer a reportable security for SEC filing purposes, it did not appear on Pershing Square's 13F filing. However, Pershing still owns unsecured debt and is also one of the largest equity holders in the name. Ackman overall provides very positive commentary and his position on the board of GGWPQ means he has been very much in the loop regarding all the bankruptcy emergence activity.
Once GGP has extended the substantial majority of its secured debts, the company will be well positioned to emerge from bankruptcy as an independent company. Alternatively, it might be sold to a strategic buyer or a private equity firm, or a U.S., foreign or other investment consortium, if a sale would achieve a higher value for GGP stakeholders. Despite this dynamic, we believe the stock trades at a substantially lower valuation than Simon Property Group (NYSE:SPG) because many market participants and other analysts have incorrectly assumed that GGP's unsecured creditors will meaningfully dilute shareholders' ability to achieve a substantial recovery ... We expect that GGP will be the second or third largest REIT by market cap once it emerges from bankruptcy and will therefore be a must-own company for all of the various REIT funds and index portfolios.
Pershing was up 12% for the third quarter of 2009 and is now up 24% as of the end of September. Embedded below is the entire investor letter from Bill Ackman's hedge fund firm Pershing Square Capital Management.
As always, a nice in-depth look at the latest portfolio developments from Ackman's hedge fund and close followers of the General Growth Properties situation will be glad to see Ackman's positive comments on the ongoing situation. While Ackman is very upbeat overall, he does mention that there are still risks involved (obviously).
One last thing caught our eye in Pershing's investor letter and it pertains to Pershing's exposure levels. We found it worth pointing out that Pershing Square listed its long exposure at 93% and short exposure at 9%. While the fund typically has high net long exposure, we still found it interesting that it did not include credit default swaps (CDS) in its short exposure figures.
As we've mentioned in our profile on Ackman & Pershing, the fund typically likes to put on its short positions via CDS and its omission of CDS from its exposure levels throws us for a bit of a loop. In the letter, Ackman cites improving credit markets as a reason for CDS being less attractive and that Pershing has seen a "substantial reduction in (its) CDS notional exposure." However, he also makes special note that this is not a macro bet and this is just how things have played out currently.
For more on Ackman's hedge fund Pershing Square, you can read up on how it has boosted its stake in McDonald's (NYSE:MCD), you can check out its presentation on Corrections Corp of America (NYSE:CXW), as well as its case for a short of Realty Income (NYSE:O).