Why $PSUS deserves a premium to NAV and $PS deserves a premium multiple | Marlton's James Elbaor

Episode Summary

Executive Summary: The episode examines Pershing Square's new U.S. closed-end fund PSUS and the newly public manager PS, arguing both may be mispriced because investors are applying standard closed-end/asset-manager discounts to a unique, permanent-capital franchise. James Elvar sees PSUS narrowing its discount over time and PS rerating on recurring fee streams, operating leverage, and optional future fund launches.

Main Topics: PSUS launch and valuation vs. traditional closed-end funds (Priority: 5/5): James argues the new $5B Pershing Square USA fund is not a normal closed-end fund and should eventually trade closer to peer discounts or potentially a premium because of Pershing's brand, access, reporting cadence, and franchise quality. PSH London vs. PSUS U.S. wrapper (Priority: 5/5): The discussion compares the London-listed Pershing Square Holdings with PSUS, including domicile/tax access, mandate differences, performance fees in PSH, and the broader investor base each can reach. Pershing management company (PS) valuation (Priority: 5/5): They debate how to value PS as a public asset manager with recurring fee-related earnings, high insider ownership, and permanent capital, contrasting it with listed alternatives like Apollo, KKR, Blackstone, and Blue Owl. Permanent capital, operating leverage, and growth (Priority: 4/5): A major thesis is that Pershing’s capital base is unusually sticky, allowing a very small team to manage growing AUM with limited headcount growth, which could justify a premium multiple on fee-related earnings. Capital allocation and payout policy at PS (Priority: 4/5): The conversation explores how PS might distribute cash, potentially with a high payout ratio and dividends while retaining some balance-sheet capital for strategic investments and seeding new vehicles. Future fund launches and optionality (Priority: 4/5): Possible future launches such as Pershing Square Asymmetric or Spark-related structures are discussed as key upside drivers for both PSUS and PS, with an emphasis on Bill Ackman’s ability to execute new products. Key-man risk and team continuity (Priority: 3/5): They address succession risk around Bill Ackman, arguing that long-tenured executives like Ryan Israel and Ben Hakeem materially reduce the risk that the franchise depends on one person alone.

Key Arguments: PSUS should rerate from a large discount because it is effectively a branded permanent-capital vehicle with deeper disclosure, quarterly earnings calls, and institutional-style access rather than a generic retail closed-end fund. PSH is more flexible and has a longer track record, but PSUS may be more attractive for many investors because of access, tax, and structure; PSH also carries a performance fee that PSUS does not. PS is best valued on fee-related earnings, not AUM, because the capital is long-duration or permanent and should compound with very limited operating expense growth. Pershing's small team and concentrated permanent capital create operating leverage; if AUM grows, earnings can expand meaningfully without a commensurate increase in headcount. A major part of the bull case is franchise optionality: future products, possible asymmetric/macro vehicles, and creative structures like Spark-related transactions could create new fee streams. Bill Ackman's track record should be evaluated in totality, including the COVID and inflation hedges and other large wins, rather than excluding outlier successes. The public manager PS is unusually aligned with shareholders because insiders own the vast majority of the company, reducing the chance of incentive misalignment common in asset-management models. Even if the market is skeptical today, the combination of strong reported results, potential dividends, and future capital raises could make the current valuation attractive over time.

Data Points: PSUS IPO size: $5 billion - Described as the largest closed-end fund launch in history and one of the biggest U.S. IPOs in decades. PSUS discount to NAV: About 17% - Current trading discount discussed during the episode. PSH discount to NAV: About 32% - London-listed Pershing Square Holdings trading discount cited as a comparison. PSUS target discount (bull case): 4% - James referenced Gabelli as a precedent for a much tighter discount. PSUS target discount (base case): Around 9% - James said he expects PSUS to trade closer to the peer average for U.S. closed-end funds. PS market cap: About $17 billion - Based on roughly 400 million shares outstanding at around $42.50 per share. PS shares outstanding: 400 million - Management launched PS with a fixed share count. PS share price discussed: About $42.50 - Approximate trading price at the time of the conversation. Fee-related earnings estimate: $550M to $590M - James's internal projection for PS adjusted fee-related earnings. Management fee/AUM base: About $34.1 billion - James’s model included PSH, Pershing Square LP, Pershing Square International, Howard Hughes, and PSUS. Run-rate FRE yield assumption: 1.8% - Used to bridge the AUM base to projected fee-related earnings. PS current FRE estimate from roadshow: $300 million - Andrew referenced slide 31 from the roadshow as the IPO-era baseline. Headcount at Pershing: 50 employees - Used to argue for strong operating leverage versus larger peers. Headcount at Carlisle: 2,200+ employees - Used as a comparison to show the scale difference among asset managers. PSH performance fee: Yes - James noted PSH/London pays a performance incentive that PSUS does not. PS ownership by insiders: Over 85% - James argued insider ownership strongly aligns management and shareholders. PS float: About 6% outside, only 2% freely tradable - Presented as evidence of tight alignment and limited free float. PSUS launch target: $10 billion target, $5 billion raised - James framed $5B as a strong result even if below the aspirational target. Long-run Pershing compounding: ~20% annualized - Used to support the idea that permanent capital can grow materially over time. Peer asset manager multiple: ~27x next-12-month fee-related earnings - Average of Apollo, Ares, KKR, Blackstone, TPG, Carlyle, Blue Owl, and others. PS valuation discussed: ~30x fee-related earnings - James argued PS should trade at or above peer multiples because of permanence and operating leverage.

Pivotal Quotes: "This is not going to be treated like a closed-end fund product from an asset manager. This is going to be treated much more like a holding company." — James Elvar: Explaining why PSUS may deserve a different valuation framework than typical closed-end funds. "If you want like free base Bill, like you want like pure Bill, I would say Persian Square Holdings London has significantly more of those characteristics." — James Elvar: Distinguishing the London-listed vehicle from the U.S. 40 Act fund. "Where there is a will, there is a way." — James Elvar: Used to describe Pershing Square’s ability to structure creative transactions and new products.

Implications: The market may be underpricing both Pershing vehicles by using standard discount/multiple frameworks. If Pershing compounds and launches new products, PSUS could narrow its discount and PS could become a high-quality permanent-capital asset manager with expanding recurring cash flows.