There’s a reason so few hedge fund firms seek a stock market listing: Investors don’t like them. The allure of an economic interest in these money machines is tempered by the risks. First, there’s key-person risk. Many such firms are dominated by a single executive. What happens if he fails to come into work one day, or, say, gets distracted by politics? Then there’s earnings risk. Most profits stem from incentive fees – typically set at 20% of fund performance – but these are unpredictable and in bad years can disappear altogether. The stable revenue streams investors crave are often lacking.
So it’s a surprise Bill Ackman, founder of Pershing Square Capital Management, wants to go down the route — and that he found buyers for 10% of the common equity interest in his firm’s parent company at a lofty valuation.
