Ackman on His Hong Kong Dollar Trade

It's been so long since we've seen commentary about Bill Ackman's Hong Kong Dollar trade that we wanted to quickly highlight his comments on CNBC yesterday.

He says Pershing Square still has the trade on and they believe it's a good play.  He says that, "if you own the options, it's a 50:1 or 80:1 payoff, even if you renew the bet every 18 months to 2 years, one day you're gonna be happy."

He thinks eventually it will appreciate and it can make sense to put some money in HKD's instead of US money market accounts as you can get some interest with the potential for appreciation in a lower risk play than the options.

We originally posted Ackman's Hong Kong Dollar presentation if you haven't seen it.

Skip ahead to 3:30 in the video to hear his thoughts on the HKD as the first part of the video deals with education reform:



Be sure to also check out Ackman's thoughts on CP and running a better railroad, as well as his latest comments on Burger King.

Bill Ackman's Presentation on the Hong Kong Dollar: Linked to Win

Yesterday we covered Pershing Square hedge fund manager Bill Ackman's latest investment: long the Hong Kong dollar. Today we present the slideshow presentation he gave at the Delivering Alpha conference entitled: Linked to Win.

In summary, Ackman thinks that the Hong Kong dollar (HKD) is headed for massive inflation and a real estate bubble. He argues the country can effectively mitigate this by allowing the Hong Kong Dollar to appreciate.

Ackman says there are four principal revaluation alternatives:

1. Allow the HKD to float
2. Repeg the HKD to a trade-weighted basket
3. Repeg the HKD to the RMB
4. Keep the USD peg, but revalue to an appropriate exchange rate

The Pershing Square manager feels that the Hong Kong government will repeg the HKD at a stronger exchange rate to the USD and believes a 30% revaluation to 6:1 is likely. As such, he says there are 3 ways to make money on the trade: buy HKD outright, buy HKD with USD leverage, and buy HKD call options.

Embedded below is Ackman's presentation on the Hong Kong dollar (email readers click the link to come read it):



To read more on Pershing Square, head to our posts on Ackman's recent portfolio activity as well as Pershing's hedging strategy.

For more hedge fund insight from the Delivering Alpha conference, check out the hedge fund best ideas panel featuring Kyle Bass, Dan Loeb, Leon Cooperman, and Phil Falcone.

Bill Ackman's Latest Investment: Long the Hong Kong Dollar

At the Delivering Alpha conference today, the keynote speech was given by hedge fund manager Bill Ackman of Pershing Square Capital Management. He revealed his latest investment idea: long the Hong Kong Dollar (HKD).

He thinks the trade has the potential to return 100x and has purchased the currency as well as options on the currency. (Pictured left speaking at the conference, image courtesy CNBC)


Currency Re-peg

Ackman's presentation began with a history of Hong Kong's currency. He said that very low interest rates in Hong Kong were driven by US monetary policy, which in turn will cause a Hong Kong housing bubble and high inflation. Ackman seems to believe that Hong Kong will end its US dollar peg by 2015. He says that US rates at zero provides a signal Hong Kong to re-peg.

In terms of position sizing, Ackman says the trade is one of the smaller ones he's put on, but it has the potential to be the most profitable. He feels inflation will force the country to see its currency inflate by 30%. He argues that in 3-6 years, HKD could easily be convertible into the yuan.

The Pershing Square manager also noted that if China implodes/has a hard landing, that's obviously bad for the trade. However, he feels that there's minimal downside mainly due to the fact that the HKD has been pegged to the US dollar since 1983.

Ackman says there's 3 ways to play the trade: buy Hong Kong dollars outright, buy with leverage because the carry cost is low, or buy options on the currency.


Bought in August

Ackman was buying in August and we detailed his investor letter where he bought $600 million worth of investments in various equities and apparently currencies as well. In late August, he revealed that he had bought shares of Family Dollar (FDO), Kraft (KFT), Fortune Brands (FO), and Citigroup (C).

However, he also mentioned that Pershing had bought two new investments that he declined to name. Well, now we know one of them was the Hong Kong Dollar.

In his recent letter to investors, Ackman compared one of the at-the-time-unnamed investments to that of his past play in General Growth Properties (GGP) where there was a chance of exponential return. This Hong Kong Dollar play seems to be the one he was referring to.


Ackman a Macro Trader?

The most intriguing thing here is the notion that Ackman has stepped into the global macro ring of investments. Typically, he has focused on equity and real estate-centric investments in the past. We'll have to see how his first major foray into macro bets plays out.

You could join Ackman on this macro trade as Bergen Capital tweeted that you can mimic this trade by buying "$100mm notional exposure of 1Y HKD calls at 7.50 strike (~4% OTM) for roughly $700k." Though while that's a 1 year trade, Ackman thought the peg wouldn't end until 2015.

This leaves one more unnamed investment from Pershing Square. Perhaps Ackman will reveal it at the upcoming Value Investing Congress?


Embedded below is the video of Ackman's talk from the conference:



We've also posted Ackman's slideshow presentation on the Hong Kong Dollar.



For more from this prominent hedge fund manager:

- Pershing Square bought $600 million worth of investments during August volatility

- Why Bill Ackman bought more Citigroup

- Pershing's hedging strategy