Billionaire Bill Ackman details a $2 billion bet he just made that coronavirus will be a 'temporary but massive economic shock'

• Bill Ackman, the billionaire investor and manager of Pershing Capital Square Management, said that as of March 23, the firm removed all of its hedges betting against the market in a Wednesday letter to investors.
• That generated $2.6 billion in proceeds, compared with premiums and commissions of $27 million. "Substantially all" of the proceeds were reinvested, Ackman said.
• Ackman also wrote that he believes the federal government will soon initiate a total-US shutdown with a defined reopening date about 30 days later to combat the coronavirus pandemic.
• Read more on Business Insider.

Billionaire investor and Pershing Square Capital Management manager Bill Ackman gave further details Wednesday on the $2 billion bet he's making that the coronavirus pandemic will be a temporary shock.

As of March 23, Ackman's firm removed all of its hedges betting against the market, he said in a Wednesday letter to investors. That generated $2.6 billion in proceeds, compared with premiums and commissions of $27 million.

"The federal government and the U.S. Treasury have intervened in financial markets in an unprecedented fashion, and the Congress is on the brink of passing legislation which will help bridge the economy and our country's workforce and citizens during what we believe to be a temporary but massive economic shock," Ackman wrote.

Given the recent developments in the last week to combat coronavirus, Ackman redeployed "substantially all" of the proceeds from the hedges by adding to existing investments in Agilent, Warren Buffett's Berkshire Hathaway, Hilton, Lowe's, and Restaurant Brands. The group also purchased several new investments including Starbucks, reestablishing the previous investment in the coffee chain that Pershing sold in January.

"The proceeds of the hedges have enabled us to become a substantially larger shareholder of a number of our portfolio companies, and to add some new investments, all at deeply discounted prices," Ackman wrote. "Even after these additional investments, we maintain a cash position of about 17% of the portfolio."

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The hedges Pershing used were purchases of credit protection on various global investment-grade and high-yield credit indexes that had "minimal" risk of loss as they were purchased near the all-time tightest levels of credit spreads, Ackman wrote. Going forward, Ackman said that the portfolio is likely to see higher turnover during the period of market volatility brought on by the coronavirus pandemic.

"New opportunities may present themselves that are superior to investments we currently own. This may lead us to sell certain of our existing holdings including investments we recently purchased," Ackman said, adding that the group may also choose to reestablish similar or different forms of hedges or raise more cash based on developments with the coronavirus and other market factors.

Even though Ackman is betting on a US recovery following the coronavirus pandemic, he said that he thinks the best course of action is for the government to lock down the entire country for a month.

"We believe that the federal government will soon initiate a total-US shutdown with a defined reopening date about 30 days later," he said. "If the federal government does not impose such a lockdown, we believe it is likely that effectively all fifty states will do so eventually, with the additional delay costing many thousands of more lives, and much greater economic destruction."

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Ackman said that upon completion of such a lockdown, the country could be carefully reopened, as has been recently seen in China. The key to a successful reopening is a broad-based testing regime and tracing program, in addition to social distancing, hand washing, mask use, and other practices, he said.

"This will enable the inevitable viral breakouts to be identified early and minimized with localized quarantines, reducing the impact on the overall U.S. economy and the need for future shutdowns," he said.

He continued: "Until there is a vaccine, however, seniors and other at-risk members of the population will need to exercise a high-level of caution."

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