Bill Ackman's Pershing Square Sells Automatic Data Processing (ADP): Q1 2010 13F Filing ~ market folly

Tuesday, May 18, 2010

Bill Ackman's Pershing Square Sells Automatic Data Processing (ADP): Q1 2010 13F Filing

(This post is part of our series on tracking hedge fund portfolios. If you're unfamiliar with tracking investments they disclose via SEC filings, check out our series preface on hedge fund filings.)

Next up is Bill Ackman's hedge fund Pershing Square Capital Management. Ackman runs a value and activist fund with a highly concentrated portfolio so it is ideal for tracking purposes. He received his undergraduate degree from Harvard and his MBA from Harvard Business School. As we recently reviewed, Ackman and the saga surrounding his short position in MBIA (MBI) is the subject of Christine Richard's new book, Confidence Game: How a Hedge Fund Manager Called Wall Street's Bluff. It's definitely worth a read if you want to learn more about Ackman, the short selling process, and perseverance in general. Additionally, for more background on Bill Ackman's hedge fund, we've previously detailed a profile of Pershing Square.

The positions listed below were Pershing's long equity, note, and options holdings as of March 31st, 2010 as filed with the SEC. All holdings are common stock unless otherwise denoted:

Brand New Positions
Kraft Foods (KFT)

Increased Positions
Yum Brands (YUM): Increased position by 10%

Reduced Positions
Target (TGT): Reduced position by 0.51%

Positions With No Change
General Growth Properties (GGP)
Corrections Corp of America (CXW)
Landry's Restaurants (LNY)
Borders Group (BGP)
Greenlight Capital Re (GLRE)

Positions They Sold Out of Completely
Hyatt Hotels (H)
Automatic Data Processing (ADP)

Pershing's Entire Long US Equities Portfolio (by percentage of assets reported on 13F filing)

  1. Target (TGT): 32.79%
  2. Kraft Foods (KFT): 29.89%
  3. Yum Brands (YUM): 17.56%
  4. General Growth Properties (GGP): 11.62%
  5. Corrections Corp of America (CXW): 6.55%
  6. Landry's Restaurants (LNY): 0.84%
  7. Borders Group (BGP): 0.55%
  8. Greenlight Capital Re (GLRE): 0.20%

Given Ackman's concentrated portfolio, there's not a lot to cover in terms of portfolio adjustment. However, we want to first immediately address misinformation that is floating around in mainstream news land regarding Pershing Square's portfolio. Firstly, we'll start with the fact that CNBC yesterday wrongly reported that Pershing added 23.9 million shares of General Growth Properties (GGP). Other news outlets have mistakenly followed suit. This is merely the exact same position that Pershing has held all along. As we've detailed countless times, General Growth Properties traded on the pink sheets for a period of time under the ticker GGWPQ. When this occurred, these shares became a security that was not deemed reportable by the SEC. As such, Pershing Square still owned it but was not required to disclose it.

Fast forward to the present as the new 13F filings come out and you see that General Growth Properties is listed on Pershing's disclosure. This is merely because shares now trade on the NYSE under ticker GGP, a security that *is* deemed reportable by the SEC. So, people not familiar with tracking 13F's or those who blindly follow sorted data will be viewing what *looks* like a new position in GGP, but in reality, isn't.

Ackman was on television a few weeks back talking about how he thinks GGP could double over the next few years "if done correctly." One thing this disclosure does provide us is knowledge of Pershing Square's total equity ownership in GGP of just over 23.9 million shares. Since there was essentially a 'dark period' when no one knew how much equity they owned due to the disclosure issue we touched on above, we now get clarification. To get an idea as to Ackman's total position, we've in the past detailed Pershing's economic exposure to GGP as they own other securities as well.

Secondly, back in January when we covered Pershing's fourth quarter portfolio, we made special note that they had sold out of Hyatt Hotels as per a 13G filing and it is obviously just now reflected in their latest update. They only owned shares briefly as they purchased them sometime in the fourth quarter of 2009 and then sold them in the first week of January 2010.

Thirdly, regarding their stake in Yum Brands (YUM), we just wanted to highlight that they did not disclose this position until April 2010 when in reality they owned it as of December 31st, 2009. In their original 13F for the fourth quarter 2009, Pershing did not disclose their YUM position. But via an amended 13F in April, they all of a sudden disclosed the position. So now via the first quarter 2010 13F filing we see that they have since added to the position to the tune of 10%. Whew, got all that?

In terms of other recent portfolio activity not covered via 13F filing, we saw that Pershing sold its Sears Canada stake to Sears Holdings for around $560 million. Lastly, in the past we've covered a ton of Pershing's investment presentations regarding their positions and have posted links below for those of you wanting to learn about their specific investment thesis for each name:

- Pershing's presentation on Kraft (KFT)
- Pershing's Corrections Corp of America (CXW) presentation
- Pershing's updated General Growth Properties thesis & we also detailed their original GGP presentation from when they first established the position

Assets reported on Ackman's 13F filing were $3.3 billion this quarter. Data from the SEC is aggregated and sorted automatically by Alphaclone, our source that seamlessly sorts through all the hedge fund portfolio maneuvers and backtests the performance (Market Folly readers can receive a special free 30 day trial). Remember that these filings are not representative of the hedge fund's entire base of AUM.

This post is part of our daily hedge fund portfolio tracking series. We've already detailed activity from numerous managers so click the links below to be taken to the respective portfolio updates: Seth Klarman's Baupost Group, Warren Buffett's Berkshire Hathaway, and Stephen Mandel's Lone Pine Capital. Be sure to check back daily for new hedge fund updates.

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