FREJN - Pershing Square Holdings 2023 Letter To Shareholders

2024-03-24 08:45:00 ET

Summary

• Pershing Square Holdings, Ltd. is a closed-ended investment company. Its investment objective is to preserve capital and to seek long-term capital appreciation commensurate with reasonable risk.
• In 2023, Pershing Square Holdings generated strong NAV performance of 26.7% versus 26.3% for our principal benchmark, the S&P 500 index.
• 2023 was yet another year of geopolitical and economic uncertainty, and  2024 will likely be no different with the upcoming U.S. presidential election, unresolved wars in Ukraine and the Middle East, and continued political disharmony globally.

To the Shareholders of Pershing Square Holdings, Ltd.:

In 2023, Pershing Square's 20th year, Pershing Square Holdings (PSHZF) generated strong NAV performance of 26.7% versus 26.3% for our principal benchmark, the S&P 500 index. ⁶ Our total shareholder return was 36.0%, as PSH's discount to NAV narrowed by 4.5 percentage points from 33.2% to 28.7%. ⁷

Investors who invested in Pershing Square, L.P. at its inception on January 1, 2004, and transferred their capital account to PSH at its inception on December 31, 2012 ("Day One Investors") have grown their equity investment at a 16.5% compounded annual rate over the last 20 years, compared with a 10.0% return had they invested in the S&P 500 during the same period.

With the magic of compounding, our 16.5% compound annual NAV return translates into a cumulative total NAV return since inception of 2,078% versus 592% for the S&P 500 over the same period. In other words, Day One Investors have multiplied their equity investment by 22 times versus the seven times multiple they would have achieved had they invested in a zero-fee S&P 500 index fund. ⁸

Using PSH's stock price return rather than per-share NAV performance, Day One Investors have earned a 15.0% compounded return, a 17-times multiple of their original investment. ⁹ This lower return reflects the 26.3% discount to NAV at which PSH's stock currently trades. ¹⁰ Our strong preference is for PSH's shares to trade at or around intrinsic value for which we believe NAV per share is a conservative estimate. We recently announced a number of important steps that we believe will help to close the discount to NAV, which I discuss later in this letter.

2023 In Review

2023 was another excellent year for our portfolio companies and their stock price performances. Despite a challenging geopolitical backdrop with two major wars underway and a large and sustained increase in interest rates, our portfolio companies continued to generate strong growth in revenues, profits, and shareholder value. This outcome is not guaranteed every year, but it is certainly intentional. We seek to identify businesses whose business models, competitive advantages, barriers to entry, balance sheets, and excellent management teams enable them to succeed despite the negative extrinsic factors (i.e., factors that are not inherent to the business itself) that inevitably emerge....

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