Pershing Square Holdings, Ltd.
2022 Annual Report
Annual Report 2022
ii
Pershing Square Holdings, Ltd.
Pershing Square Holdings, Ltd.
2022 Annual Report and Accounts
Annual Report
Company Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Company Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Chairman’s Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Investment Manager’s Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Principal Risks and Uncertainties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Report of the Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Directors’ Remuneration Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Corporate Governance Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Report of the Audit Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Report of Independent Auditor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Audited Financial Statements
Statement of Financial Position . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Statement of Comprehensive Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
Statement of Changes in Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
Statement of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
Supplemental U.S. GAAP Disclosures
Condensed Schedule of Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110
Financial Highlights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112
Disclosures
Certain Regulatory Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113
Affirmation of the Commodity Pool Operator . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 5
Endnotes and Disclaimers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116
Annual Report 2022
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Pershing Square Holdings, Ltd.
Company Overview
The Company
Pershing Square Holdings, Ltd. (“PSH”, or the “Company”) (LN:PSH) (LN:PSHD) (NA:PSH) is an investment holding
company structured as a closed-ended fund principally engaged in the business of acquiring and holding significant
positions in a concentrated number of large capitalization companies. PSH’s objective is to maximize its long-term
compound annual rate of growth in intrinsic value per share.
PSH was incorporated with limited liability under the laws of the Bailiwick of Guernsey on February 2, 2012. It commenced
operations on December 31, 2012 as a registered open-ended investment scheme, and on October 1, 2014 converted into
a registered closed-ended investment scheme. Public Shares of PSH commenced trading on Euronext Amsterdam N.V. on
October 13, 2014. On May 2, 2017, PSH’s Public Shares were admitted to the Ocial List of the UK Listing Authority and
commenced trading on the Premium Segment of the Main Market of the London Stock Exchange (“LSE”).
PSH has appointed Pershing Square Capital Management, L.P. (“PSCM,” the “Investment Manager” or “Pershing
Square”), as its investment manager. PSCM was founded by William A. Ackman on January 1, 2004. The Investment
Manager has responsibility, subject to the overall supervision of the Board of Directors, for the investment of PSH’s
assets and liabilities in accordance with the investment policy of PSH set forth on pages 32-33 of this Annual Report (the
“Investment Policy”).
The substantial majority of the Company’s portfolio is typically allocated to 8 to 12 core holdings usually comprising
liquid, listed large capitalization North American companies. The Investment Manager seeks to invest in high-quality
businesses, which it believes have limited downside and generate predictable, recurring cash flows. The Investment
Manager is an active and engaged investor that works with its portfolio companies to create substantial, enduring and
long-term shareholder value. The Investment Manager aims to manage risks through careful investment selection and
portfolio construction, and may use opportunistic hedging strategies, to mitigate market-related downside risk or to take
advantage of asymmetric profit opportunities. For more than 19 years, the investment strategy pursued by the Investment
Manager has generated a 15.7% annualized net return and cumulative net returns of 1,557.3% for PSLP/PSH (as converted)
compared to a 9.0% annualized net return and cumulative net returns of 426.8% for the S&P 500, PSH’s historical
benchmark index, during the same period.
1,3
Annual Report 2022
2
Pershing Square Holdings, Ltd.
PSLP/PSH Net Return* PSLP Net Return
(1,2)
S&P 500
(3)
2004 % % %
2005 % % %
2006 % % %
2007 % % %
2008 ()% ()% ()%
2009 % % %
2010 % % %
2011 ()% ()% %
2012 % % %
2013 % % %
2014 % % %
2015 ()% ()% %
2016 ()% ()% %
2017 ()% ()% %
2018 ()% ()% ()%
2019 % % %
2020 % % %
2021 % % %
2022 ()% ()% ()%
Year-to-date through March 21, 2023 % % %
January 1, 2004–March 21, 2023
(1,4)
Cumulative (Since Inception) % % %
Compound Annual Return % % %
December 31, 2012–March 21, 2023
(1,4)
Cumulative (Since PSH Inception) % % %
Compound Annual Return % % %
Company Performance
Pershing Square Holdings, Ltd. and Pershing Square, L.P. (“PSLP”) NAV Performance vs. the S&P 500
Pershing Square, L.P.
Pershing Square
Holdings, Ltd.
1,557.3%
1,405.5%
426.8%
IPO of PSH
Oct-01-14
Dec-31-05
Dec-31-06
Dec-31-07
Dec-31-08
Dec-31-09
Dec-31-10
Dec-31-11
Dec-31-16
Dec-31-17
Dec-31-18
Dec-31-19
* NAV return an investor would have earned if it invested in PSLP at its January 1, 2004 inception and converted to PSH at its launch on December 31, 2012. Also see endnote
1 on page 117. Past performance is not a guarantee of future results. All investments involve risk, including the loss of principal. Please see accompanying endnotes and
important disclaimers on pages 116-119.
800%
600%
400%
200%
0%
PSLP Net (20% Performance Fee)
(1,2)
PSLP/PSH Net (20%/16% Performance Fee)*
S&P 500
(3)
Dec-31-20
1,000%
1,200%
1,400%
1,600%
Jan-31-04
Launch of PSH
Dec-31-12
1,800%
Dec-31-12
Dec-31-14
Dec-31-04
Dec-31-15
Dec-31-13
Dec-31-21
Dec-31-22
Annual Report 2022
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Pershing Square Holdings, Ltd.
Chairman’s Statement
INTRODUCTION
Since the onset of the global coronavirus pandemic three years ago, the world’s economy has endured one of the most
volatile periods in memory. Uncertainty persisted in 2022 as central banks attempted to navigate a delicate balance between
making changes to monetary policy to tame inflation, while avoiding an overreaction that could have a material negative
impact on the global economy.
Despite these significant headwinds, our portfolio companies continue to perform well at the operating company level, and
to deliver strong results. Nevertheless, market volatility, higher interest rates and multiple compression have led to declines
in valuations, and our portfolio companies have not been immune. The Investment Manager pursues a long-term investment
strategy and does not typically engage in short term trading in the shares of our portfolio companies. In addition, it rarely
uses hedges to protect its mark-to-market performance from short-term downward volatility. However, the Investment
Manager does seek to use asymmetric hedging strategies to protect the portfolio from extraordinary negative macro or
market events that it anticipates may occur.
In an asymmetric hedging strategy, the Investment Manager invests a typically small amount of capital in a position which
will generate a large multiple of the invested capital as the likelihood of the hedged event occurring increases. When
realized, this capital is then available to reinvest into existing portfolio companies or other equities at the appropriate time.
The Investment Manager’s strategy and execution of its hedging program is a significant competitive advantage for PSH.
During the three bear markets since the Investment Manager’s inception, it has substantially outperformed the S&P 500 due
to hedging-related gains and opportunistic investments in high-quality, durable growth companies.
The Investment Manager became concerned about the negative impact of inflation in late 2020 and implemented a hedging
strategy which anticipated the prospect of a rising interest rate environment. The investment thesis was correct, and the
strategy has successfully oset a meaningful percentage of the mark-to-market stock price declines experienced in the
portfolio over the same period. In its report, the Investment Manager discusses its belief that while the stock prices of the
portfolio companies have declined, their intrinsic values have increased, which positions PSH well for the future.
INVESTMENT PERFORMANCE
During the year ended December 31, 2022, PSH’s Net Asset Value (“NAV”) per share, including dividends, decreased
by 8.8%, ending the year at $51.76 per share.
i
PSH’s share price, including dividends, decreased by 14.6% over the
same period as a result of the widening of the discount to NAV at which PSH shares traded from 28.3% to 33.2%.
ii
By
comparison, the S&P 500 declined 18.1% during the year ended December 31, 2022, representing PSH NAV and share price
outperformance of 930bps and 350bps, respectively.
iii
PSH’s compound annual return over the past five years to December 31, 2022 has been strong with a NAV return of
25.1% (PSH share price 21.9%, S&P 500 9.4%) during that period. These returns are measured after the deduction of
management fees and performance fees. The Board is very pleased to highlight the Investment Manager’s strong and
consistent track record in generating substantial gains in NAV and in the share price, especially amid the recent volatile
macroeconomic environment.
Annual Report 2022
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Pershing Square Holdings, Ltd.
PSH’s outperformance of the S&P 500 in 2022 was driven by its interest rate hedges. Since the inception of this hedging
program in late 2020, these hedges have generated total proceeds of $2.8 billion from a total cost of $419 million for PSH
and the other two Pershing Square funds (“the Funds”), as of March 21, 2023. Including the 2020 COVID-19 hedges, the
Investment Manager has generated more than $5.3 billion in total hedging proceeds from a cost of $446 million.
iv
Whilst
the scale of the gains reflects the impact of particularly anomalous events disrupting financial markets, the Board views
these figures as truly extraordinary and appreciates the foresight and execution discipline exhibited by the Investment
Manager on behalf of shareholders.
The performance of the entire portfolio along with additional information about the Investment Manager’s hedging
program is discussed in more detail in the Investment Manager’s Report.
INVESTMENT MANAGER
The Board has delegated the task of managing PSH’s assets to the Investment Manager as set out in the Investment
Management Agreement (the “IMA”) entered into by PSH and PSCM at the inception of PSH (as amended from time
to time). Although the Board does not make individual investment decisions, the Board is ultimately accountable for
oversight of the Investment Manager.
The Investment Manager is a fundamental value investor that utilises a range of engagement strategies to unlock long-
term value for shareholders and, among other things, seeks to invest in excellent businesses with opportunities for
improvement. These businesses tend to be large cap companies domiciled in North America that generate relatively
predictable and growing free-cash-flows, with formidable barriers to entry and a compelling value proposition. The
Investment Manager continues to engage constructively with many of PSH’s portfolio companies through direct board
representation in some situations, and less formal, private engagement in others.
PORTFOLIO CHANGES
As I discussed in my letter to you in August, the Investment Manager established a large position in Netflix in January
2022, and sold the investment in April. The decision to exit the position was taken after the company’s Q1 earnings report
in which information came to light that caused the Investment Manager to lose confidence in its ability to predict the
company’s future prospects with a sucient degree of certainty. Although this led to a loss for PSH, the Board was pleased
to see the Investment Manager act decisively when the facts changed, which ultimately allowed the Investment Manager to
move on and focus on other opportunities.
Also in 2022, the Investment Manager exited its position in Dominos and liquidated Pershing Square Tontine Holdings
(“PSTH”). As I stated in the 2022 Interim Financial Statements, although our commitment to PSTH did not result in an
investment for PSH, we did benefit from the process as it led to our investment in Universal Music Group. The Investment
Manager has filed a public registration statement for Pershing Square SPARC Holdings, Ltd. (“SPARC” or “Special
Purpose Acquisition Rights Company”), which has been designed to be a significantly more ecient and improved
successor to the traditional Special Purpose Acquisition Company (“SPAC”). SPARC is subject to SEC review, and if
approved, will allow the Investment Manager to work on a potential merger transaction without burdening investors
with the opportunity cost of keeping their money in a trust account as is the case with traditional SPACs. The Investment
Manager has provided an update about SPARC in its report.
Annual Report 2022
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Pershing Square Holdings, Ltd.
CORPORATE ACTIONS
In 2022, the Board announced a number of corporate actions. In May 2022 PSH redeemed the $631 million balance of its
outstanding 5.500% Senior Notes due July 2022. PSH continues to believe that its ability to access low cost, long-term,
investment grade debt is a competitive advantage, and its long-term debt management strategy is to manage leverage over
time by increasing NAV through strong performance and laddering maturities through new issuances. At present, PSH’s
debt profile is comprised of a laddered set of maturities, matching our long-term investment horizon, with a weighted
average maturity of 9 years and a weighted average cost of capital of 3.1%. PSH’s total debt to total capital ratio as of March
21, 2023 is 19.5%.
v
The Board believes that this amount of leverage is conservative, particularly given that PSH’s portfolio
is liquid and easy to value.
The Board also announced a 25% increase to its quarterly dividend and a new methodology for determining future
dividends that ties future increases in dividend payments to NAV growth. In January 2023, the Board increased the
dividend again by 4.6% for 2023, based on that methodology.
Finally, the Board also authorised a total of $300 million in share repurchase programs in 2022 as it believed it to be a good
use of capital in the current environment.
DISCOUNT TO NAV
Despite PSH’s five-year annualized NAV return of 25.1%, representing annual outperformance of 930 bps to the S&P 500 as
of December 31, 2022, PSH’s discount widened from 21.5% to 33.2% over that period.
vi
While shareholders captured over
82% of the value of the five-year increase in NAV as the share price appreciated 170.0%, the Board is not satisfied with the
current discount.
The Board has undertaken a number of corporate actions in recent years to address the discount, and I have set them out below:
• Secured a listing on the London Stock Exchange and subsequent elevation to the FTSE 100 index. As of March 21,
2023, PSH is the 73
rd
company in the FTSE 100 and would be the 52
nd
were PSH to trade at NAV.
• Returned a total of $1.4 billion of capital to shareholders since inception as of December 31, 2022:
o Repurchased 59.1 million PSH Public Shares for $1,100.6 million in the past six years, which represents 24.6%
of shares outstanding prior to the repurchases.
o Initiated a quarterly dividend in 2019 beginning at $0.10 per share and have since increased the dividend twice,
by 25% and 4.6%, respectively.
• Increased marketing eorts in the U.K., specifically to retail investors and the “platforms” they use and remained
focused on reaching a broader array of potential investors.
• Obtained a reclassification from The Association of Investment Companies (“AIC”) for PSH from its Hedge Funds
group to U.S. Equity, which more accurately reflects PSH’s investment strategy.
Annual Report 2022
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Pershing Square Holdings, Ltd.
In addition, PSCM aliates own 49.4 million of PSH shares as of March 21, 2023, representing 26% of shares
outstanding.
vii
This is one of the largest insider ownerships for a FTSE 100 company and demonstrates the alignment of
the long-term interests of the Investment Manager with shareholders.
The Investment Manager devoted a significant portion of its letter to shareholders in the 2022 Interim Report to discussing the
existence of the discount and I encourage shareholders who have not yet read it to do so. The Board continues to believe that
the most powerful driver of long-term shareholder returns will be continued strong absolute and relative NAV performance.
ESG
While PSH is an investment company without employees or physical operations, the Board has encouraged the Investment
Manager to consider ESG best practices within its own organisation and to actively engage on these issues with its portfolio
companies when appropriate. The Investment Manager’s ESG Statement, available on the Company’s website, further
describes its ESG practices and how they are integrated into investment selection, risk management and stewardship. ESG
risks are analysed as part of the Investment Manager’s due diligence process. A business that has not addressed material
ESG risks or that has unsustainable business practices will not meet the Investment Manager’s investment criteria unless
its investment intent is to use its influence to address these issues. ESG risks may present opportunities to engage with
boards and management to improve practices that pose sustainability risks in order to stimulate long-term value creation.
CORPORATE GOVERNANCE / BOARD
The Board continues to work eectively and diligently on behalf of all shareholders. The Board has welcomed four new
non-executive directors in recent years: Andrew Henton in September 2020, and Tope Lawani, Rupert Morley and Tracy
Palandjian in May 2021. Due to COVID-19 travel restrictions, the first time these Directors were able to attend a Board
meeting in person was in Guernsey in May 2022. Since then, the new directors have also travelled to New York to meet the
Investment Manager’s team, and we met again at the annual investor meeting in London in February 2023. Although the
Investment Manager and the PSH Board have maintained an open and productive dialogue via virtual meetings, you gain
additional knowledge and insights from meeting in person, so we are very pleased that this is now possible again. I would
like to thank my fellow directors for all of their contributions and time commitment throughout the year.
EVENTS / SHAREHOLDER ENGAGEMENT
After two years of holding PSH’s annual investor meeting virtually, it was wonderful to see so many of you in person this
year at the annual investor meeting on February 9, 2023. In addition to our largest in-person audience, we had several
hundred shareholders join via webcast. During the meeting, the Investment Manager presented a portfolio update, and
slides from the presentation are available on PSH’s website: www.pershingsquareholdings.com.
PSH’s 2023 Annual General Meeting will be held in Guernsey on May 3, 2023. Details of the event will be posted on
www.pershingsquareholdings.com. I will report to you on the first half of 2023 in August 2023, and the Investment
Manager will keep you informed of any significant developments in the portfolio before then, when appropriate.
/s/ Anne Farlow
Anne Farlow
Chairman of the Board
March 28, 2023
Annual Report 2022
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Pershing Square Holdings, Ltd.
Investment Manager’s Report
LETTER TO SHAREHOLDERS
(5)
To the Shareholders of Pershing Square Holdings, Ltd.:
In 2022, Pershing Square Holdings generated strong relative NAV performance of negative 8.8% versus negative 18.1% for
our principal benchmark, the S&P 500 index.
6
Our total shareholder return was negative 14.6%, as PSH’s discount to NAV
widened by 4.9 percentage points, from 28.3% to 33.2%, during 2022.
7
Investors who invested in Pershing Square, L.P. at its inception on January 1, 2004, and transferred their investment
to PSH at its inception on December 31, 2012 (“Day One Investors”) have grown their equity investment at a 15.7%
compounded annual rate over the last 19 years, compared with a 9.0% return had they invested in the S&P 500 during
the same period. With the magic of compounding, our 15.7% compound annual NAV return translates into a cumulative
total NAV return since inception of 1,557% versus 427% for the S&P 500 over the same period.
8
In other words, Day One
Investors have multiplied their equity investment by 16.6 times versus the 5.3 times multiple they would have achieved had
they invested in a zero-fee S&P 500 index fund.
Using PSH’s stock price return rather than per-share NAV performance, Day One Investors have earned a 13.5%
compounded return, an 11-times multiple of their original investment.
9
This lower return reflects the 34% discount to NAV
at which PSH’s stock currently trades.
10
Our strong preference is for PSH’s shares to trade at or around intrinsic value for
which we believe our NAV per share is a conservative estimate. With continued strong performance, we expect that PSH’s
discount to NAV will narrow over time, and its NAV and market value returns will converge.
The Last Five Years
2022’s performance reflects a continuation of our strong absolute and relative performance over the last five years. Since
the beginning of 2018, our NAV per share (including dividends) has more than tripled, up by 207% compared to 57%
for the S&P 500 over the same period. We attribute this high degree of outperformance to our decision to refocus our
investment strategy on the core principles that have driven our profitability since the inception of Pershing Square.
Beginning in late 2017, we returned to our roots as an investment-centric operation and made the strategic decision to
stop raising capital for our open-ended hedge fund vehicles. Doing so allowed us to reduce the size of our organization
and focus our resources on investing rather than the business of asset management, and the associated resource-intensive
requirements of continually raising capital.
Over the last five years, PSH has generated a compound annual rate of return of 25.1%, even better than the results of our
first nearly 12 years during which time we compounded investor capital at a 21% annual rate until July 2015, the beginning
of a two-year period of substantial underperformance which we have previously described and analyzed in great detail.
11
Over the last five years, we have been an enormous beneficiary of the increased stability of our capital as PSH now
represents 87% of our assets under management, 26% of which is owned by aliates of the investment manager.
12
Our
private funds, which comprise 13% of our assets under management, also have highly stable capital as aliates of the
investment manager comprise 40% of their capital, with the balance held by long-term Pershing Square investors, many of
whom have been partners and shareholders since our earliest days. With more than $3.2 billion of equity capital invested
alongside our shareholders and other investors, we are well-aligned and highly incentivized to generate high long-term
rates of return while carefully managing the risk of a permanent loss of capital.
13
Annual Report 2022
8
Pershing Square Holdings, Ltd.
Stock Market Volatility is the Friend of the Long-term Investor
While our NAV declined by 8.8% in 2022, the volatility markets experienced in 2022 should set the stage for greater long-
term outperformance for PSH. Last year, we made few portfolio changes other than with respect to the acquisition and/
or disposition of hedging instruments and the purchase and sale of Netflix which we have previously described in detail
here. We prefer less rather than more investment-related activity as it is an indication that we have made good decisions
about where to invest our capital for the long term. Constant turnover of the portfolio of a so-called long-term investment
manager is generally an indication of poor investment decisions that had to be reconsidered.
We think of PSH as a vehicle by which one can own an indirect, proportionate interest in our underlying portfolio
companies, cash, and hedges. While most of our portfolio companies share prices declined in 2022, they continued to
generate strong business performance, increased earnings, and greater free cash flow per share. Our companies’ long-
term prospects remain highly attractive, and we accordingly made minimal changes to our core equity holdings in 2022.
About half of our companies (or five of seven if we exclude Fannie and Freddie which are unable to repurchase shares)
repurchased their own shares during the year thereby increasing our ownership without any additional investment from
PSH. As a result of PSH’s and our companies’ share repurchase programs in 2022, our shareholders’ ‘look-through’
ownership of PSH’s underlying portfolio increased by 8.2%, half from PSH buybacks and the balance from share
repurchase programs of our portfolio companies.
14
If we are correct in our assessment of our companies’ future prospects,
our increased ‘look-through’ ownership will amplify our returns in future years as our companies continue to increase in
intrinsic value, which over the long term will be reflected in their share prices.
Share Repurchases and Our Discount to NAV
While a corporation’s persistent discount to its intrinsic value impairs its ability to raise low-cost equity capital and is a
negative for shareholders who seek to sell in the short term, it can be a significant opportunity for long-term owners of
PSH. We have no interest in raising equity capital, but relish the opportunity to buy back shares at 30+% discounts to NAV.
We took advantage of the discount in 2022 by purchasing 8.3 million shares representing 4.1% of shares outstanding at an
average price of $31.94 and a discount to NAV of 33%.
Since we began our share repurchase program on May 1, 2017, we have acquired 59.8 million shares or 25% of our shares
outstanding at an average price of $18.80 and discount of 28%, which has added 1.2% per annum to our annual NAV
returns since the inception of the program.
We intend to continue to opportunistically repurchase shares if it remains a good use of our capital relative to other
opportunities. Our requirements for buying back shares include:
(1) we have substantial free cash available for purchases, and do not believe that we will be able to identify an attractive
new investment in the then-current market environment,
(2) our existing holdings are trading at large discounts to their intrinsic value,
(3) the repurchase will not cause PSH to be overleveraged,
(4) the price paid is a very large discount to NAV, and
(5) we do not believe that further reductions in float will be counterproductive to our goal of causing PSH to trade at or
around intrinsic value.
Annual Report 2022
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Pershing Square Holdings, Ltd.
We continue to believe, and our experience to date has demonstrated, that even an aggressive share repurchase program
will not cause the discount to narrow. That said, if the above criteria are met, share buybacks can be a useful and value-
creating opportunistic tool for PSH.
We have not given up on addressing the wide discount at which our shares trade. We are continuing to consider potential
transformational transactions that would enable PSH to become part of a U.S. listed company (which would not necessarily
require that we give up our UK and Amsterdam listings and which would greatly increase the universe of investors who
can own PSH). We are unable at this stage to estimate the probability or timing of achieving such a transaction, but we are
considering a number of potential ideas at this time.
2022 In Review
2022 was characterized by a high degree of stock market volatility driven by aggressive global central bank interest rate
increases, the war in Ukraine, and broad-based declines in nearly every asset class. In that the value of financial assets
is based upon the present value of their future cash flows discounted back at an appropriate interest rate, broad based
increases in interest rates combined with greater global risk and uncertainty caused discount rates to increase substantially
and asset values to decline. In other words, higher required investment returns from investors lowered the price that
investors were prepared to pay for financial assets, causing stock prices to decline.
Our equity holdings responded accordingly. Despite significant business progress in 2022 at each of our portfolio
companies, the eect of higher discount rates for all but two of our companies overwhelmed their anticipated business
progress, leading to stock price declines and mark-to-market losses for Pershing Square. Restaurant Brands and Canadian
Pacific generated marginally positive total returns in 2022 as their business progress exceeded market expectations and
overcame the downward impact on valuations from the rise in rates.
15
Overall, our long-term equity portfolio generated a
negative total return (including dividends) of 16.1% in 2022.
16
In addition, PSH’s NAV declined by an additional 5.2% due
to Netflix and losses in connection with the liquidation of Pershing Square Tontine Holdings, Ltd.
17
Our losses on equities were oset somewhat by interest rate hedges, which contributed 14.3 percentage points of positive
performance in 2022.
18
These hedging gains, combined with our COVID-19 CDS hedges in February 2020, have been a
highly material contributor over the last three years as they have generated approximately $5.3 billion in total hedging
proceeds to date versus a cost of $446 million, the substantial majority of which have been redeployed in equities in a
timely manner, which in turn have, in nearly all cases, increased substantially in value, further amplifying the benefits of
our hedging gains.
19
Why Did We Not Sell Equities in Light of Our Views on Interest Rates?
In light of our views on interest rates and their impact on equity values, why, you might ask, did we not sell or reduce
our equity holdings in 2022? The answer is that our strategy is to maximize the growth in our long-term NAV per share
which requires us to endure some amount of short-term, mark-to-market trading losses. We do not typically sell our core
portfolio holdings even if we believe it is highly probable that they will decline in price in the short term, as long as our view
of their long-term potential remains largely unchanged. We limit our short-term trading for this reason as doing otherwise
will likely lead to lower long-term rates of return for Pershing Square due to several factors.
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Pershing Square Holdings, Ltd.
We are often one of the largest shareholders of our companies. Over time, we have built important, longstanding
relationships with their management teams and boards, which have enabled us to be an influential shareholder. We
believe our influence increases the probability of value-maximizing decisions being made by our portfolio companies while
reducing the risk of value-destroying errors. Were we to constantly trade around our positions, we would have a less
credible voice with management and other shareholders when advocating for strategic initiatives and corporate changes
which have long-term implications.
Furthermore, large frictional costs are often incurred when acquiring and disposing of large holdings. To be successful as
a short-term trader of large ownership stakes, we would have to successfully estimate how much a stock price will decline
based on macro events, and then accurately predict what price we would have pay to repurchase the position. While our
predictions about macro risks have been largely accurate, we cannot expect to always get it right. And even if we are
correct in our macro assessments, it is far less knowable how and for how long the stock market and individual stocks
might react to these events. A short-term trading program might enable us to avoid a small loss at the much larger cost
of missing substantial stock price increases thereafter. As a result, we do not trade around our long-term holdings and
generally only make adjustments in the size of positions to manage concentration risks in the portfolio.
Some have suggested that we should launch a macro fund so that investors who desire exposure to just our macro strategy
would be able to directly participate in what has been a very high-performing strategy. The problem, however, with this
approach is that we have only found macro investments that fit our requirements – namely a high degree of asymmetry
and a high confidence level in the predicted outcome – to be episodically available. While we made large profits hedging
the financial crisis in 2008, we made no material macro-related investments after the crisis until February 2020. While we
have continued to identify interesting asymmetric macro investments over the past three years, there is no certainty that
similar opportunities will present themselves in the future.
For the above reasons, we believe that our strategy of owning simple, predictable, free-cash-flow-generative, highly-
durable and well-capitalized growth companies combined with occasional, opportunistic, asymmetric hedges will generate
the highest, long-term rates of return for Pershing Square with the least amount of risk of a material permanent loss of
capital. Our approach also has the benefit of being a better fit with our temperament, is less stress inducing, and much
more time ecient. We therefore remain committed to this strategy that has served us well for nearly 20 years.
Market and Geopolitical Risks in 2023
We are operating in one of the most uncertain and risky environments in decades. As of the present moment, we are in
the midst of what may be the early stages of a U.S. banking crisis with the potential for it to spread globally with Credit
Suisse’s recent demise. Financial institutions are inextricably linked, and one large banking failure can ignite another and
so on. This remains true even though some of the enormous derivative risks that almost took down the financial system
during the crisis have been mitigated somewhat due to requirements for exchange trading of most derivatives. Banking is
confidence sensitive. A run on deposits at one large bank, most recently Silicon Valley Bank (SVB), the 16th largest U.S.
bank by assets, has the potential to spread to other financial institutions.
Until SVB failed, the vast majority of depositors did not concern themselves with the lack of deposit insurance for accounts
above the FDIC-insured limits of $250,000. In reality, uninsured depositors are unsecured creditors of a bank which are at
risk of loss in the event the bank were to fail. The events of the last few weeks made this manifestly clear as it was only a
last-minute and apparently reluctant decision for the government to step in and guarantee uninsured deposits at SVB.
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Pershing Square Holdings, Ltd.
Now that uninsured depositors understand that there remains a risk that they will lose access to and/or have their deposits
impaired, many businesses are rethinking their working capital management and investment strategies. This concern
is compounded by the large increase in short-term interest rates. Since the financial crisis, there was little if any return
oered on short-term funds, and depositors were therefore not particularly concerned about the yields, if any, they earned
on deposits. The recent large increase in short-term rates has caused CFOs and corporate treasurers at all companies
to become more disciplined about maximizing the yield they can earn on short-term cash. This will increase the cost of
deposits for most banks, as they will have to be more competitive with money market accounts, putting pressure on bank’s
net interest margins.
The U.S. economy relies on its large network of community and regional banks to provide access to debt capital, particularly
for small and medium-sized companies that do not have access to the public capital markets. These banks also are major
providers of real estate and construction loans as the large so-called systemically important banks have for the most part
exited these lending categories other than for large capitalization, usually investment grade, corporate borrowers.
About 70% of commercial real estate bank loans are made by regional and smaller banks. There is a logic to this approach
as real estate is inherently a local business, and a geographically proximate bank should be in a better position to assess
the risks of local borrowers and the likelihood of their projects’ and business’ success. Increases in the cost of capital for
regional banks will be passed along to their borrowers, and as a result fewer commercial real estate projects will be viable
due to the higher cost of this capital. This will be a drag on the U.S. economy and will make it more dicult for existing
real estate owners to refinance their debts when they come due, which will negatively impact real estate values further
impairing bank balance sheets.
Our Approach to Cash Management
We have always taken a conservative approach to managing our cash as we have always been long-term skeptics of even
highly-rated financial institutions, and on occasion, have profited from this skepticism. We therefore minimize the amount
of cash we keep in banks to only what we need for daily liquidity purposes and sweep the balance into U.S. Treasury money
market funds or into the direct purchase and ownership of short-term U.S. Treasurys. We are also highly selective as to
which banks we do business with, keeping cash only at global systemically-important banks that we trust.
Sharing Our Views
Over the last couple of weeks, I took to Twitter to make the case for the FDIC – which insures deposits at U.S. banks with
the proceeds of fees it charges to banks – to increase its current $250,000 per account limit. I recommended an immediate
but temporary guarantee of all uninsured deposits to give time for the FDIC to update its current deposit guarantee system.
I went public with my concerns and recommendations because I believe that the failure of Silvergate, SVB, and Signature
Bank – the latter two within three days of each other – and the substantial declines in stock prices of the regional banks
are putting our regional and community banking system at risk, which, as explained above, is a very important long-term
driver of our economy.
PSH has obvious reasons to want the U.S. economy to be strong, as nearly every business, including the ones we own,
is impacted by the deterioration of our economy. When we believe a mistake is being made by our government and/or
regulators that will negatively impact our portfolio and the country by greatly damaging our economy and capitalist system,
we believe it can be helpful to share our views.
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Pershing Square Holdings, Ltd.
While Twitter can be a maelstrom of negativity and criticism, it is a very ecient means to get the message out. Before
Twitter, we would generally use the media, including appearances on business television and public presentations at
conferences, to share our views about policy (Who’s Holding the Bag? was one of our most prescient).
We still, on occasion, use these more traditional forms of communication, but we like the ability to control our message
without it being excerpted in a manner which could create a misleading impression, something we have occasionally
experienced when relying on more traditional forms of media.
We have always been puzzled as to why market participants’ views are criticized by observers who claim that investors’ opinions
are inherently conflicted, and therefore should be ignored. When we are seeking to understand the economy and market
developments, we vastly prefer the opinion of thoughtful long-term investors over those of media commentators, academics,
and other so-called disinterested observers. We would rather hear from active market participants who have capital at risk that
coincide with their views, rather than ‘unconflicted’ pundits who suer no economic cost when they get it wrong.
When it comes to our sharing our views about policy, our biggest conflict, if one were to call it one, is that we are large
investors in businesses that benefit when the U.S. and global economies are strong. It is easier to profit as a long-term,
long-only investor when a rising tide is lifting all boats.
The Banking Crisis
Since sharing our views on Twitter during this banking crisis could be perceived as having an impact on the short-term
trading prices of bank securities, we elected to pass on any investment opportunities in banks, long or short, while sharing
our views on what we believed the government should do. In our view, the failure to protect SVB depositors would have
been a catastrophic policy error that would likely have led to massive runs on nearly every non-SIB bank by uninsured
and even some insured depositors, and caused enormous damage to our economy. It would also likely have harmed U.S.
competitiveness and our national defense in light of the tens of thousands of highly innovative technology companies that
held large amounts of uninsured deposits at SVB.
As of this writing, the government has not fully adopted our recommendations as it has left open the question about what
would happen to uninsured depositors at other institutions unless and until the regulators deem each future bank failure a
systemically important one. We continue to believe that this individualized, bank-by-bank deposit guarantee approach is
a policy mistake that will impair, potentially permanently, our network of regional banks by massively increasing their cost
of capital and reducing their access to low-cost deposits.
Banking is a confidence sensitive business. The failure of three regional banks in a few weeks, including SVB with more
than $200 billion of assets and $170 billion of deposits, and our regulators’ conflicting public statements, often from one
day to the next about its support, or lack thereof, for depositors, have reduced investor, business, and consumer confidence
in our banking system.
The uncertainty around how uninsured depositors will be treated is occurring at a time when the earnings power of
regional and community banks is under pressure because of the increasing cost of their liabilities, declines in their share
prices, and impairment in the value of their assets largely driven by the Federal Reserve’s increase in interest rates.
The rise in rates has caused a decline in the value of banks’ fixed-rate securities and fixed-rate loan portfolios, which
has occurred along with deterioration in their commercial real estate loan portfolios due to work-from-home’s and the
pandemic’s impact particularly on oce assets.
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Pershing Square Holdings, Ltd.
According to GAAP accounting, our banking system is nominally the best capitalized it has been in decades, but this
is in large part due to the fact that banks are permitted to value a large portion of their assets, namely their so-called
held to maturity (HTM) fixed-rate securities and loan portfolios, at amortized cost rather than market value, creating a
misleading perception of banks’ true financial strength. Despite the fact that our accounting and regulatory regimes allow
these assets to be carried at amortized cost, that does not make them more valuable than the price that would be realized if
these assets had to be sold in the market.
There are reportedly ~$620 billion of mark-to-market losses on banks’ security portfolios that are not currently reflected
on bank’s financial statements. If deposits continue to leave our regional banks and go to the larger systemically important
banks and money market funds, regional banks will need to continue to borrow from the Federal Reserve banks through
their “discount windows” and a newly created emergency program allowing banks to borrow against their HTM securities
portfolios valued at amortized cost rather than market value.
While these Federal Reserve lending programs can help address the short-term liquidity needs of banks from deposits
being withdrawn, they do so at a highly burdensome cost versus the near-zero interest rates that banks have been paying
on deposits. They are a stop-gap, temporary solution to address short-term liquidity issues, but they do not solve the
regional banks’ long-term funding needs and their cost of liabilities. We believe that uninsured deposits are likely to
continue to leave regional banks unless and until an updated, systemwide deposit guarantee is introduced, and the sooner
the better. Credit-related concerns of depositors are compounding deposit flight due to the substantially higher yields
oered on money market funds, which will not abate even if all uninsured deposits are guaranteed. It is dicult for banks
to get depositors to return once they have moved elsewhere and found acceptable, and likely higher-yielding, alternatives.
While we understand the concerns that some have raised about moral hazard risk due to government intervention, we
think these concerns are misplaced. The banks’ managements and boards, and the shareholders and bondholders who
mismanaged or failed to oversee the risks that led to their banks’ demise, have suered severe outcomes including the
complete destruction of shareholder and bondholder capital, the firing of management teams, the potential for significant
civil and criminal liability, and enormous reputational damage.
No bank board or management team who has witnessed recent events will be inclined to take on more risk in the future
simply because their depositors have not borne a loss. The opposite is much more likely to be true. Furthermore, a
banking system that requires uninsured depositors to constantly assess their bank’s creditworthiness is not a viable one.
We need a larger deposit guarantee regime, and we need it soon. The experience of the last three weeks of investing in
banks will be seared upon the memories of bank investors for a generation or more. The longer this uncertainty continues,
the higher their cost of capital and the less viable regional and smaller banks will be in the future to the detriment of our
economy over the long term.
Geopolitical Risk and Artificial Intelligence
While the banking crisis is our most recent immediate concern, geopolitical risk remains highly elevated, higher than
at any time perhaps in the last 50 years. North Korea continues to test ICBMs, China is building deeper ties to Russia
including potentially supplying drones and other military assets while remaining intent on taking control of Taiwan, the
war in Ukraine continues unabated without a foreseeable end, the U.S. is responding to attacks from Iran with ‘targeted’
responsive attacks, Israel is in the midst of a political crisis while being engaged in stopping Iran from obtaining nuclear
capabilities, and the U.S. political system remains highly divisive with the threat of a potential default on our Treasury
obligations looming, creating a highly uncertain and risky environment.
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Pershing Square Holdings, Ltd.
The recent launch of highly powerful Artificial Intelligence (AI) systems also creates considerable uncertainty about the
future. While AI may be an extremely positive force for good, in the wrong hands, it can be a global threat. AI is likely to
disrupt many businesses, including ones that until now seemed to have impenetrable moats. We are working diligently
to understand the impact of AI on our companies, including how AI can be used in our own business, so that we better
comprehend its short - and long-term implications.
While we have sought to hedge the potential economic risks from all of the above risks, there are no particularly good
hedges. Our best protection against geopolitical risk is to own businesses that can survive the test of time, ones that
are largely immune to the events that they or we cannot control. Since the beginning of the U.S. equity capital markets,
certain great businesses have survived world wars, pandemics, periods of high levels of inflation, massive technological
changes, the Great Depression, political divisiveness and civil unrest, and many thousands more have failed due to these
stresses. The key to our strategy is identifying which companies have the widest economic and geopolitical moats,
constantly stress testing these moats, and making sure our portfolio companies have fortress balance sheets that would
enable them to manage through the inevitable risks of the modern world. Investment selection is our most important risk
mitigation strategy in an uncertain world.
Pershing Square SPARC Holdings, Ltd. (SPARC)
On March 24th, we filed another, hopefully near-final, amendment to SPARC’s registration statement that we hope
should address the minimal remaining comments that we have received from the SEC. To review, SPARC is an acquisition
company, but without the drawbacks of conventional SPACs. Among other beneficial features, investors in SPARC do not
need to invest any capital until we have identified a transaction, completed our due diligence, entered into a definitive
agreement, had the transaction’s registration statement declared eective by the SEC, and obtained other required
regulatory approvals. Once the transaction is ready to close, SPARC rights (SPARs) holders have 20 business days to
decide whether to exercise their rights or sell them in the market.
The SPARs have a minimum exercise price of $10. We have the ability to increase the exercise price to the extent a
transaction requires more capital. This will allow us to raise more capital if needed and greatly expand the universe of
potential targets from ones that require $1.5 billion of capital (the amount raised at the $10 minimum SPAR exercise price
and with the Sponsor’s minimum committed Forward Purchase Amount, assuming the exercise of all SPARs) to eectively
unlimited amounts of capital. The Pershing Square funds will be investing a minimum of $250 million in SPARC’s
transaction, and potentially substantially more depending upon the nature of the target, the terms of the transaction, and
other factors.
The structure of SPARC eectively eliminates the time pressure on the Sponsor, as the SPARs have a 10-year term. Since
we are not raising upfront capital, but rather are distributing SPARs to former Pershing Square Tontine Holdings, Ltd.
shareholders and warrant holders, SPARC will have no underwriting fees, nor any shareholder warrants. The only dilutive
security in SPARC’s structure is a 20% out-of-the-money warrant on 5.104% (4.95% for the Sponsor and 0.154% for
advisory board members) of the newly merged company’s shares outstanding on a fully diluted basis, with the balance of
the shares comprised entirely of common stock. At the launch of SPARC, these Sponsor Warrants will be purchased by PSH
and the two Pershing Square private funds for their fair market value as determined by us in consultation with a nationally-
recognized valuation firm, capital that will be used to fund the search for a target and to pay SPARC’s operating expenses.
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Pershing Square Holdings, Ltd.
In today’s extremely challenging equity capital markets environment, where few if any IPOs can be completed, SPARC’s
ability to oer substantial transaction certainty, including a fixed transaction price and a guaranteed minimum amount
of capital (the amount committed by the Sponsor) raised in a public oering, will make SPARC a highly attractive
counterparty for private companies seeking to raise capital and go public. We expect the phone will start ringing shortly
after our registration statement becomes eective and the SPARs are distributed to former Tontine investors.
We believe that a successful initial SPARC transaction will facilitate opportunities for future SPARCs. As such, we are
hopeful that SPARC will play an important role in expanding our investment universe to include the acquisition of stakes in
private companies on favorable terms.
2022 was a challenging year to be an investor in the capital markets. We have managed successfully through challenging
periods like 2022 because Pershing Square was designed and built to be able to navigate the most extreme economic,
investment, and geopolitical environments. This is largely due to the strength of our team. We are incredibly fortunate to
come into work every day (we are not fans of work from home) alongside an extremely high functioning team in a beautiful
and productive work environment. Our human assets represent substantially all of our productive capacity. We are an
asset-light business where the talent walks out the door every day, so our success is largely a function of the culture we
have built over nearly 20 years.
We have had minimal turnover at Pershing Square in the last five years since we made our strategic pivot. Limited
turnover is highly unusual for an investment firm. The long-duration nature of the team is partially due to the fact that
we do not have an “up or out” individualized culture. Pershing Square succeeds on the basis of the strength of the overall
team, not because of one or two standalone superstars. We also value learning as much from our mistakes as from our
successes. We carefully study our mistakes, both errors of commission and omission, and we share them publicly to keep
you informed and to imprint them even deeper in our minds.
We have also learned to choose well when selecting new members of the team. Risk is greatly reduced when you work with
colleagues with whom you have had the opportunity to build mutual trust over many years.
While it is dicult to predict the future in an uncertain world, we believe we are well positioned to generate high rates of
return over the long term. Our confidence in our future prospects is based on the durability of our capital structure, the
strength and well-aligned incentives of the team, our experience in identifying and helping to steward some of the best and
most highly durable growth companies in the world, and our ability to continuously improve and learn from our mistakes.
None of the above would be possible without your support and long-term commitment for which we are extraordinarily
grateful. There are few investment managers in the world that have been oered such an opportunity, and we will continue
to work diligently to deliver the long-term results that such a commitment from our shareholders deserves.
Sincerely,
William A. Ackman
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PORTFOLIO UPDATE
(20)
Performance Attribution
Below are the contributors and detractors to gross performance of the portfolio of the Company for 2022 and year-to-date 2023.
(21)
January 1, 2022 – December 31, 2022
Interest Rate Swaptions %
Restaurant Brands International Inc. %
Share Buyback Accretion %
Energy Options %
Canadian Pacific Railway Limited %
Currency Options ()%
Bond Interest Expense ()%
Pershing Square Tontine Holdings, Ltd. ()%
The Howard Hughes Corporation ()%
Hilton Worldwide Holdings Inc. ()%
Universal Music Group N.V. ()%
Domino's Pizza Inc. ()%
Chipotle Mexican Grill, Inc. ()%
Netflix, Inc. ()%
Lowe's Companies Inc. ()%
All Other Positions and Other Income/Expense ()%
Contributors Less Detractors (Gross Return) ()%
January 1, 2023 – March 21, 2023
Chipotle Mexican Grill, Inc. %
Hilton Worldwide Holdings Inc. %
Undisclosed Position %
Share Buyback Accretion %
Bond Interest Expense ()%
Energy Options ()%
Interest Rate Swaptions ()%
All Other Positions and Other Income/Expense ()%
Contributors Less Detractors (Gross Return) %
Contributors or detractors to performance of 50 basis points or more are listed above separately, while contributors or detractors to performance of less
than 50 basis points are aggregated, except for bond interest expense and share buyback accretion. Past performance is not a guarantee of future results. All
investments involve risk, including the loss of principal. Please see accompanying endnotes and important disclaimers on pages 116-119.
Portfolio Update:
Universal Music Group (“UMG”)
Universal Music Group is the world’s leading music entertainment company and a high-quality, capital-light business that can
be best thought of as a rapidly growing royalty on greater global consumption and monetization of music.
UMG has a decades-long runway for growth driven by increasing streaming penetration combined with the development of
new services, platforms, and business models. At its inaugural Capital Markets Day in 2021, the company unveiled mid-term
targets of high-single-digit revenue growth and mid-20s% EBITDA margins. Because of the rapid growth of streaming and
the resurgence of vinyl (records) and merchandising, the company has vastly outperformed its own guidance with its revenue
growth averaging 14% since its public oering in 2021. In 2022, UMG’s organic revenues and Adjusted EBITDA grew 12% as
reported margins modestly declined due to lower-margin businesses returning to pre-COVID-19 levels.
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We believe that the long-term outlook for UMG is excellent and that the company will continue to outperform its mid-term
guidance. Music remains one of the lowest-cost, highest-value forms of entertainment. Since the launch of streaming services
more than a decade ago, the monthly cost of a subscription plan had been flat at $10 until last year. In recent months, a
number of the DSPs (digital service providers or streaming platforms) including Apple, Amazon and Deezer increased prices
for their individual subscription plans in developed markets by 10% to $10.99 and by an even higher percentage for family and
student plans. We believe that breaking the $10 barrier is a watershed moment, as other platforms will likely follow suit, and
regular price increases will become the norm in the audio streaming industry as they are in the video streaming industry. At
$10.99/month today (and less for a family plan on a per-person basis), one can listen to virtually any song ever recorded on
any device, anywhere, anytime, at a value price.
While streaming helped revive the industry by convincing consumers to pay for music again, it also has its shortcomings.
Many DSPs have become inundated with more than 100,000 tracks per day, many of which are low-quality, fraudulent, and/or
31-second tracks meant to game the system and divert royalties away from artists and songwriters. While more than 9 million
artists have uploaded songs to Spotify, based on data shared by Spotify, only 2% of these artists have uploaded more than 10
songs and have more than 10,000 monthly users.
UMG is working directly with the DSPs to improve streaming’s economic model towards an “artist-centric” approach that
gives more value to the artists that drive subscriber growth, engagement, and retention. While these changes may take time
to be fully implemented, we believe that UMG will benefit from a greater share of streaming royalties due to its enormous
breadth and depth in its artist roster. Similarly, while streaming led to broad adoption among consumers, a single price
point for all consumers does not allow for customer segmentation. According to the BPI (an industry trade group), 15% of
consumers account for 35% of all music spend, implying a significant opportunity for platforms and labels to better segment
their customers and monetize superfans through targeted oerings.
At its current valuation, UMG’s attractive business characteristics and its long-term sustainable and robust earnings
growth remain substantially undervalued. We believe that UMG also has further opportunities to improve its governance,
investor relations and capital allocation as it builds experience as a public company, which should contribute to shareholder
value creation.
Lowe’s (“LOW”)
Lowe’s is a high-quality business with significant long-term earnings growth potential underpinned by a superb management
team that has been successfully executing a multi-faceted business transformation.
2022 presented a challenging macroeconomic backdrop which required Lowe’s to navigate commodity and retail price
inflation along with the post-COVID-19 normalization of consumer purchase patterns. These challenges were further
complicated by a shift in Lowe’s selling channels, with Do-It-Yourself (“DIY”) categories generating relatively weak results,
oset by continued strength for projects requiring professional installation (the “Pro” business), a critical focus area for the
company. Despite these headwinds, Lowe’s delivered strong financial results including nearly flat same-store-sales growth,
revenue growth of 1%, operating profit growth of 5% (and an improved now 13.0% operating margin), and 15% growth in
earnings-per-share, aided by a large share buyback program.
At present, the macroeconomic picture continues to create uncertainty about the short-term prospects of the home improvement
business. The rapid rise of mortgage rates in 2022 combined with elevated home prices has meaningfully pressured homebuyer
aordability. As a result, existing home sales have declined sharply in recent months. These factors have caused many market
participants to become concerned that the home improvement sector is at risk of revenue and profit deterioration.
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We are more constructive on the sector as its demand drivers tend to more closely correlate with home price appreciation, the
age of the country’s housing stock, and consumers’ disposable income, all of which are predictive of future growth in demand.
In addition, the national housing shortage, a lack of new builder inventory, continued post-COVID-19 hybrid work, high levels
of home equity (vs. pre-COVID-19 levels), and continued strong Pro project backlogs should also continue to underpin home
improvement market growth over the medium term. Furthermore, nearly two-thirds of Lowe’s revenue comes from non-
deferrable repair and maintenance activity, which should be relatively unaected by the macroeconomic environment.
In December, Lowe’s held its semiannual Analyst Day at which the company updated its medium-term targets to $520
sales per square foot (a low-teens percentage uplift from current levels), an operating margin target of 14.5%, with “line of
sight” to 15% thereafter, and a targeted return on invested capital of 45%. If Lowe’s were to achieve these targets over the
next several years, the company’s earnings would increase to more than $20 of earnings-per-share, or approximately 50%
above current levels. In other words, the continued successful execution of Lowe’s business transformation should allow the
company to generate accelerated earnings growth for the foreseeable future.
Notwithstanding our views on Lowe’s attractive long-term earnings outlook, Lowe’s currently trades at only 13.5 times
forward earnings, a low valuation for a business of this quality, and a substantial discount to its direct competitor, Home
Depot which trades at a price-earnings multiple of 18 times. We believe that Lowe’s current valuation reflects investors
negative sentiment regarding the US housing market and incorporates the possibility of a greater than expected revenue
decline. We are confident in management’s ability to execute and expect that Lowe’s will continue to generate high rates of
return for shareholders as it continues its successful transformation.
Chipotle (“CMG”)
Chipotle delivered another year of impressive results in 2022, expanding same-store sales and restaurant-level margins
despite facing one of the highest inflationary environments on record.
During 2022, Chipotle grew same-store sales by 8%, or 31% from 2019 levels. While 2022 growth was driven by price increases
to oset cost inflation, trac is still up materially from 2019 levels as the company’s strong value proposition and menu
innovations continue to resonate with customers. Chipotle oers high-quality and aordable food with a chicken entrée priced
below $9 on average. This pricing remains a meaningful discount to alternatives from fast-casual competitors and represents
tremendous value given Chipotle’s unrivaled use of wholesome ingredients, fresh preparation, customization, and convenience.
Chipotle’s attractive unit economic model remains firmly intact despite the inflationary environment. The company was one
of the few businesses in the restaurant industry to expand margins in 2022, with restaurant-level margins up 130 basis points
(bps) to 23.9%. Management has also highlighted the opportunity to further increase same-store sales and profitability by
improving throughput in the near term.
The company’s growth runway remains robust. In North America, management estimates its potential to more than double
its restaurant count to 7,000 over time by adding small-town locations and focusing on the high-performing Chipotlane
digital drive-thru format, which represents over 80% of new store openings and is currently only 18% of the store base.
In addition to new restaurants in North America, Chipotle’s many growth opportunities include menu innovation such as
the recently launched chicken al pastor, loyalty program enhancements, and eventually international store growth and a
breakfast oering.
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Restaurant Brands (“QSR”)
QSR’s franchised business model is a high-quality, capital-light, growing annuity that generates high-margin brand royalty
fees from its four leading concepts: Burger King, Tim Hortons, Popeyes, and Firehouse Subs.
In November, Patrick Doyle, the legendary CEO who led Domino’s Pizza’s turnaround, joined as Executive Chairman. Under
his tenure, Domino’s became the #1 pizza company by doubling systemwide sales and franchisee profitability driving a 23-
fold increase in its share price over eight years. We believe that Patrick can accelerate growth at QSR and help the company
achieve its full potential. He has purchased $30 million of QSR shares in the open market and has accepted a compensation
arrangement that is entirely tied to QSR’s share price. QSR also recently promoted Josh Kobza to CEO, who will help execute
on Patrick’s strategic vision in his new role.
QSR is continuing to make progress in positioning each of its brands for sustainable, long-term growth. To reinvigorate growth
at Burger King in the U.S., the company launched a $400 million program to “reclaim the flame,” which includes $150 million
in advertising and digital investments and $250 million in modernizing its restaurants. While the program was only recently
launched, Burger King U.S.’s performance has started to improve, with the most recent quarter’s same-store sales 4% above
pre-COVID-19 levels. Tim Hortons Canada has also improved to 9% same-store sales above pre-COVID-19 levels, despite
Canada’s reopening significantly trailing the U.S. Meanwhile, Burger King International, Popeyes and Firehouse continue to
generate strong same-store sales relative to pre-COVID-19 levels, with results that are in-line or above their peers.
We believe that QSR’s franchised-based royalty model is particularly attractive in today’s inflationary environment as the
company’s revenues benefit as its franchisees increase prices, while the company’s cost structure is generally not subject to the
same degree of inflationary pressures. QSR can continue to grow its business with minimal capital required as its franchisees
open new units. Despite idiosyncratic issues in certain countries, QSR’s unit growth has returned to its historic mid-single-
digit growth rate and is poised for an acceleration this year. As a result of its improving same-store sales coupled with strong
unit growth, QSR’s earnings are now greater than prior to COVID-19 and are increasing at an attractive rate.
Despite improved brand performance and continued strong unit growth, QSR still trades at a wide discount to both its
intrinsic value and its peers, which have lower long-term growth potential. As each of its brands return to sustainable growth,
QSR’s share price should more accurately reflect our views of its business fundamentals over time. In light of higher interest
rates and to increase its financial flexibility, the company is currently reducing leverage rather than share repurchases. We
expect the company to return to repurchasing shares once it has reached its leverage target.
Hilton (“HLT”)
Hilton is a high-quality, asset-light, high-margin business with significant long-term growth potential. Over the past three
years, management has done a remarkable job of navigating through the COVID-19 pandemic. In the third quarter of 2022,
HLT’s revenue per room (“RevPAR”), the industry metric for same-store sales, surpassed 2019 levels for the first time. 2022
benefited from the strength of domestic leisure travel occasions – as consumers’ post-COVID-19 spending shifted from goods
to services – and the continued recovery of business transient and group travel.
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Pershing Square Holdings, Ltd.
Hilton’s RevPAR has now surpassed 2019 even though occupancy has not yet fully recovered. RevPAR growth has been
supported by an increase in average daily rate (“ADR”), resulting from strong consumer demand, a positive mix-shift from
large corporations to small and medium-sized businesses, and broad inflationary pressures throughout 2022. Average daily
rates have stabilized 10% to 15% above 2019 levels (representing 3-4% compound annual growth) while occupancy continues
to improve as business travel occasions normalize, which should support current RevPAR levels. These factors, combined
with an easy comparison from first-half 2022, position Hilton for a year of above-trend RevPAR growth in 2023.
Over the medium-term, Hilton will benefit from continued strong growth from non-RevPAR fee earnings (e.g., Hilton
Grand Vacations royalty fees, Hilton Honors American Express card program) and the acceleration of net unit growth back
to Hilton’s historical 6% to 7% growth algorithm, aided in part by organic new brand development (notably, the recently
announced Spark by Hilton). Strong revenue growth combined with Hilton’s excellent cost control, high incremental margins,
and its substantial capital return program should drive robust earnings growth for the foreseeable future.
Despite Hilton’s unique business model and attractive long-term earnings algorithm, the stock remains attractively priced at
approximately 24 times forward earnings. We find Hilton’s valuation to be compelling given its industry-leading competitive
position, superb management team, attractive long-term net unit growth algorithm, and best-in-class capital return policy.
The Howard Hughes Corporation (“HHC”)
HHC’s uniquely advantaged business model of owning master planned communities (“MPCs”) drove robust performance in
2022 amidst a challenging macroeconomic backdrop.
As mortgage rates rose throughout the year, the relative aordability of HHC’s MPCs remained highly attractive to
prospective homebuyers. HHC’s MPCs are well-located in low cost-of-living, low-tax states like Texas and Nevada, which
continue to benefit from significant in-migration. Despite a slowdown in the broader housing market, HHC’s land sales were
supported by strong pricing growth and resilient volume. Average land sale price per acre increased 32% in 2022, reflecting
supply-demand imbalances and historically low homebuilder lot inventories in HHC’s MPC metro-areas (Houston, Las Vegas,
and Phoenix).
In its income-producing operating assets, NOI grew 6% in 2022 driven by an increase in rental rates and a steady recovery in
leasing back to pre-pandemic levels. In Ward Village, the company’s condo development in Hawaii, the company continues
to experience strong condo sales. HHC’s tenth and latest luxury condo tower is already 73% pre-sold despite having launched
sales in September. During 2022, HHC repurchased approximately 8% of its shares funded by robust cash flow generation and
proceeds from non-core asset sales.
HHC remains well insulated from the impact of rising interest rates and volatility in the capital markets. As of Q4 2022,
substantially all of the company’s debt is either fixed rate or hedged and approximately 87% of debt is due in 2026 or later.
HHC recently completed $1 billion in financings, extending its weighted-average debt maturity to six years. Additionally, the
company’s ability to self-fund future development with cash flow generated internally from land sales and operating assets
mitigates its reliance on external financing.
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Pershing Square Holdings, Ltd.
Pershing Square has owned HHC since its spino from General Growth Properties in 2010. In 2022, we purchased an
additional 2.3 million shares of the company at an average price of $72 per share, which we view as a significant discount to
the company’s intrinsic value. The recent purchases increase Pershing Square’s ownership of the company to 32%. HHC’s
portfolio of well-located land and high-quality operating assets should deliver resilient long-term value creation throughout
various market cycles.
Canadian Pacific Railway (“CP”)
CP is a highly attractive, inflation-protected business led by a best-in-class management team that operates in an oligopolistic
industry with significant barriers to entry. Together with Kansas City Southern (“KCS”), CP is starting the next chapter of its
unique growth story.
On March 15, 2023, CP received regulatory approval from the Surface Transportation Board for its acquisition of KCS. This
transformational merger creates the only single-line railroad connecting Canada, the United States, and Mexico, leading to
many new transportation options for shippers and greatly enhancing CP-KCS’ competitiveness.
As the world moves towards de-globalization, we expect CP-KCS will be a key beneficiary of increased North American
nearshoring and USMCA investment. The combined company will also foster a more environmentally friendly and safer North
American supply chain by shifting approximately 64,000 trucks annually from the road to rail and expanding CP’s industry-
leading safety practices. As a result of the many benefits, we believe the KCS acquisition will generate meaningful revenue and
cost synergies and drive double-digit earnings growth.
Despite CP’s acquisition of KCS and favorable outlook, CP continues to trade at a discount to its intrinsic value and its closest
peer, Canadian National. We believe that the successful integration of KCS will be an important catalyst for share price
appreciation in the years to come.
Fannie Mae (“FNMA” or “Fannie”) and Freddie Mac (“FMCC or “Freddie”)
Fannie Mae and Freddie Mac remain valuable perpetual options on the companies’ exit from conservatorship. Adverse court
rulings have eectively ended shareholder litigation. The Supreme Court denied certiorari in their Court of Federal Claims
litigation (the “Takings Cases”) on January 9th, 2023, which follows the June 2021 Supreme Court ruling in the Collins
litigation that found the Third Amendment to the PSPAs to be authorized under the HERA statute. On March 1, 2023,
Pershing Square dropped its remaining claims in the Takings Cases as we did not see a viable path forward.
We continue to believe that the economic and political rationale for Fannie and Freddie’s independence remains intact.
Both entities continue to build capital through retained earnings which has increased their combined capital to $97 billion
approaching a fortress-level of capital. We believe that it is simply a matter of when, not if, that Fannie and Freddie will be
released from conservatorship.
Exited Positions:
As discussed in detail in the 2022 Semiannual Financial Statements, we exited our investments in Netflix, Dominos, and
Pershing Square Tontine Holdings.
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Pershing Square Holdings, Ltd.
PUBLIC COMPANY ENGAGEMENT SINCE INCEPTION
(22)
Long Positions
®
Short Positions*
2004 2004
2004
2005 2005
2006
2006
2013
2013
2014
20132013
2007
2010
2007 2007 2007 2012
2011
2010
2011
20102010
2005
2004
2008 2008 2008
2009
2010
2018 2018
2019
20182018
20172016201520152015
2014
2012
* Short Positions includes options, credit default swaps and other instruments that provide short economic exposure. Pershing Square has no current intention to initiate a public
equity short position.
The companies on this page reflect all of the portfolio companies, long and short, as of March 21, 2023, in respect of which (a) Pershing Square or any Pershing Square Fund, as
applicable, has designated a representative to the board, filed Schedule 13D, Form 4 or a similar non-US filing or has made a Hart-Scott Rodino filing; or (b) Pershing Square has publicly
recommended changes to the company’s strategy in an investment-specific white paper, letter or presentation.
Past performance is not a guarantee of future results. All investments involve risk, including the loss of principal. Please see accompanying endnotes and disclaimers on pages 116-119.
2004
2004
Justice
Holdings Ltd.
2020
2020 2020
2021
2021
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Pershing Square Holdings, Ltd.
Principal Risks and Uncertainties
The Board has ultimate responsibility for the Company’s
risk management. The Board recognizes that identifying the
inherent risks related to the business and operations of the
Company and developing an eective strategy to manage
and mitigate these risks is crucial to the ongoing viability
and success of the Company.
In order to identify these risks, the Board reviews the
management of investment risk and the operations of the
Investment Manager at each quarterly Board meeting.
In addition, the Board has established a Risk Committee,
which at least annually carries out a robust assessment
of the existing and emerging risks facing the Company,
including those that could threaten its business model,
future performance, solvency or liquidity.
The Risk Committee’s assessment identified 44 existing
risks relevant to the Company’s business in 2022, including
risks arising from the Company’s investment activities,
structure and operations as well as risks relating to
shareholder engagement and regulatory compliance. The
Risk Committee has considered the cause of each risk, the
likelihood of the risk occurring, and the severity of the
impact on the Company if the risk occurs, both before and
after taking into account the controls in place to mitigate it.
Based on this assessment, the Risk Committee has identified
the subset of risks set out below as the principal risks faced
by the Company. The discussion of each principal risk below
also includes the eect of any applicable emerging risks
identified by the Committee.
Risk Description Mitigating Factors
Investment Risk The Company’s investments are exposed
to the risk of the loss of capital. There is
no assurance that the Company’s portfolio
investments will increase in value and
shareholders may lose all, or substantially all,
of their investment in the Company.
Failure to appropriately integrate risks into
investment decisions or to manage risks
to which the Company’s investments are
exposed, including ESG risks such as climate
change, may have a material negative impact
on the Company’s performance.
The Investment Manager is an experienced investor and makes
investment decisions in accordance with its investment principles as
described in the Company’s Investment Policy.
The most important criterion in the Investment Manager’s investment
selection process is its view of the long-term quality of a business,
which is informed by, among other things, the Investment Manager’s
assessment of the potential impact of risks to the business, including
ESG risks, and how these risks are managed by its board and
management. The Investment Manager assesses risks to the long-
term success of the Company’s investments by performing extensive
research prior to making an investment decision and by ongoing
monitoring to deeply understand each business and the industry
in which it operates. The Investment Manager’s approach to the
management of ESG risks as a component of investment risk is further
described in its ESG Statement available on the Company’s website.
The Board receives quarterly updates on the performance of the
Company’s portfolio positions.
The long-term interests of the Investment Manager are aligned with
the Company’s shareholders as a result of the substantial investment
made by the Investment Manager’s personnel in the Company.
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Pershing Square Holdings, Ltd.
Risk Description Mitigating Factors
Investment
Manager’s Authority
The Investment Manager has broad
investment authority in executing the
Company’s strategy and may use whatever
investment techniques it believes are suitable
for the Company, including novel or untested
approaches.
In addition, the Company’s strategy depends
on the ability of the Investment Manager to
successfully identify attractive investment
opportunities.
Performance fees may incentivize the
Investment Manager to take on excessive risk
within the portfolio.
The Board receives a report from the Investment Manager at each
quarterly Board meeting, or as necessary, on developments and risks
relating to portfolio positions, financial instruments, and the portfolio
composition as a whole.
The Investment Manager engages in a thorough diligence process for
novel investment structures and is an experienced investor.
The long-term interests of the Investment Manager are aligned with
the Company’s shareholders as a result of the substantial investment
made by the Investment Manager’s personnel in the Company.
Portfolio
Concentration
The Investment Manager may invest a
significant proportion of the Company’s
capital in a limited number of investments,
including asymmetric hedges, subject to the
Company’s Investment Policy. Because the
Company’s portfolio is highly concentrated,
it is sensitive to general market fluctuations
and its investment results may be volatile. A
concentrated portfolio also exacerbates the
risk that a loss in any one position could have
a material adverse impact on the Company’s
assets.
The Investment Manager performs extensive research prior to making
new investments, along with ongoing monitoring of positions held in
the Company’s portfolio. The Investment Manager is mindful of sector
and industry exposures and other correlations between businesses in
which the Company invests.
The Board reviews portfolio concentrations and receives a detailed
overview of the portfolio positions no less than quarterly, and more
frequently as necessary.
The Investment Policy prohibits investments by the Company in, or
giving exposure to, the securities of any one issuer representing more
than 25% of the Company’s gross assets (assets on the statement of
financial position prior to deduction of liabilities) measured at the time
of making the investment.
Engaged Investor The Investment Manager is an engaged
investor and may advocate for managerial,
operating and governance changes, which may
involve the substantial use of time, resources
and capital and litigation by or in opposition to
the target company’s management, board or
shareholders.
The Investment Manager has significant experience engaging
constructively with the management of portfolio companies, and
management has been supportive of its role in the substantial majority
of such engagements. The Investment Manager takes an active role
where it believes the commitment of time, energy, and capital is
justified in light of the potential reward.
The Investment Manager does not currently intend to initiate public
equity short positions.
The Board is kept informed of and reviews the Investment Managers
active engagements with portfolio companies.
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Pershing Square Holdings, Ltd.
Risk Description Mitigating Factors
Portfolio Liquidity
Risk
The Company may be restricted from trading
in certain securities in its portfolio for
which the Investment Manager has board
representation or for contractual, regulatory
or other reasons.
Stressful market conditions may prevent the
Company from having sucient liquidity to
meet its liabilities when due.
The timing of the Company’s significant liquidity events (e.g. bond
coupon payments, bond maturities, dividends, etc.) is known well in
advance by the Investment Manager.
The Investment Manager actively monitors positions with trading
restrictions to manage its future liquidity needs. The Investment
Manager may sell securities subject to restrictions through block sales,
during open trading windows or pursuant to automatic trading plans.
When joining the board of an issuer, the Investment Manager typically
seeks to receive registration rights to facilitate future sales.
The Company invests primarily in large-capitalization securities which
are highly liquid under normal market conditions. The Investment
Manager actively manages the Company’s cash and cash equivalents
to ensure, as much as possible, that the Company will have sucient
liquidity under both normal and stressed market conditions.
NAV Discount The Public Shares of the Company have in the
past, currently and may in the future trade
at a significant discount to NAV, which may
aect demand for the Public Shares.
For a summary of actions the Company has taken to address the
discount, please see “Discount to NAV” in the Report of the Directors.
The Board monitors the trading activity of the shares on a regular
basis and reviews the discount to NAV at its quarterly meetings.
The Company has also retained advisers to engage with existing and
potential shareholders and to assist in its consideration of potential
measures to reduce the discount of share price to NAV.
Regulatory Risk Regulatory risk can negatively impact the
Company in a number of ways. For example,
changes in laws or regulations could have a
detrimental impact on the Company’s ability
to freely acquire and dispose of certain
securities or deploy certain investment
techniques. In addition, failure to comply with
laws or regulations can subject the Company
to reputational damage and prosecutions.
Prior to initiating an investment, the Investment Manager considers
the possible legal and regulatory issues that could impact its ability
to achieve its objective with respect to such position. The Investment
Manager’s legal and compliance team (supported by professional
external advisers) monitors regulatory changes on an ongoing basis
and informs the Board of emerging risks.
The Board and the Investment Manager maintain policies and
procedures designed to prevent violations of applicable laws and
regulations. The Board is provided with the Investment Manager’s
compliance manual and periodic updates thereto.
The Board is apprised of any regulatory inquiries or material
regulatory developments and receives quarterly updates from the
Investment Manager’s Chief Legal and Compliance Ocer.
Key Man Risk The Investment Manager relies on William
Ackman to provide its investment advisory
services to the Company as he has ultimate
discretion with respect to all investment
decisions.
The Investment Manager appointed Ryan Israel, the longest-tenured
member of the investment team, as Chief Investment Ocer in
August 2022. The investment team and other senior personnel of
the Investment Manager are experienced, longstanding employees.
Each member of the investment team plays a material role in the
construction and management of the portfolio.
Sound corporate governance principles and segregation of duties are
well established and eectively practiced.
The Investment Manager maintains a contingency plan to facilitate
an orderly transition in the management of the Company’s aairs and
communications to shareholders upon the occurrence of Mr Ackman’s
death or permanent disability.
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Pershing Square Holdings, Ltd.
Risk Description Mitigating Factors
Tax Risk The Company may conduct its aairs in a way
that places its tax status at risk. Changes to
the tax laws of, or practice in a tax jurisdiction
aecting the Company could adversely aect
the value of the Company’s investments and
decrease the post-tax returns to shareholders.
Investments in the Company may not be
tax ecient for certain shareholders. The
Investment Manager may make an investment
or trading decision which takes into account
tax consequences for some investors and/
or is tax ecient for some shareholders, but
which may result in adverse tax or economic
consequences for other shareholders.
The Company aims to avoid adverse tax consequences and engages
experienced tax advisors as appropriate.
Market Risk Adverse changes aecting the global financial
markets and economy as a whole may have a
material negative impact on the performance
of the Company’s investments or may
cause the prices of financial and derivative
instruments in which the Company invests to
be highly volatile.
The Board and the Investment Manager
identified rising interest rates and geopolitical
concerns as emerging risks for 2022.
The Investment Manager monitors emerging risks to global markets
that may impact the Company’s portfolio. While the Company is not
committed to maintaining market hedges at any time, the Investment
Manager may seek to opportunistically invest in hedges to protect
the Company’s portfolio against specific macroeconomic risks and
capitalize on market volatility. In order to mitigate market-related
downside risk, the Company may acquire put options, short market
indices or baskets of securities and/or purchase index or single-name
credit default swaps, interest rate or currency hedges, or engage in
other hedging strategies.
The Investment Manager mitigated the emerging risks to the
Company’s portfolio by initiating new hedges related to long-term
interest rates, currencies and energy and by monetizing certain
positions to generate liquidity for future investment opportunities.
Cybersecurity An information security breach results in
the disclosure of the Company’s sensitive
information and/or access to core systems
being disrupted or denied.
The Company’s sensitive information is primarily maintained by the
Investment Manager and the Administrator, which have implemented
robust information security controls, frequent testing, periodic
assessments and advanced monitoring of cybersecurity threats.
The Investment Manager reviews the information security controls
of service providers with access to sensitive Company information
to ensure appropriate protections are in place. All core operating
systems are regularly backed up. The Investment Manager is mindful
of the heightened risk of ransomware attacks and has implemented
additional monitoring of network trac and user activity as well as
phishing tests.
The Cybersecurity Committee of the Investment Manager meets
quarterly or more frequently as needed to evaluate cybersecurity risks
and to review the eectiveness of Investment Manager’s cybersecurity
controls.
The Board receives quarterly updates on cybersecurity and an annual
overview of the Investment Manager’s cybersecurity program.
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27
Pershing Square Holdings, Ltd.
Risk Description Mitigating Factors
Service Providers Key service providers perform inadequately or
expose the Company to risk.
The Investment Manager has adopted a vendor supervision policy and
performs due diligence on service providers, including information
security and business continuity reviews, in accordance with its
assessment of their risk to the Company.
The Investment Manager monitors key service providers through
frequent contact and reports to the Board as needed.
The Board advises on the engagement of service providers as
appropriate and the Management Engagement Committee reviews key
service providers at least annually.
Insurance The Company is liable for claims due to
the failure of an insurance underwriter or
inadequate insurance coverage.
The Company and the Investment Manager maintain insurance policies
with reputable insurance underwriters.
Insurance arrangements and limits are reviewed annually by the Board
to ensure they remain appropriate.
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28
Pershing Square Holdings, Ltd.
ANNE FARLOW
Independent Director
Chairman of the Board
Chairman of the Nomination and
Management Engagement Committees
Ms Farlow, a Hong Kong resident, has been an independent
Director of the Company since October 2014 and is an
experienced private equity investment professional and
non-executive director. She is a non-executive director of
BlueRiver Acquisition Corp., listed on the New York Stock
Exchange, and Caledonia Investments plc, listed on the
London Stock Exchange. She has been an active investor in
and non-executive director of various unlisted companies
since 2005.
From 2000 to 2005, she was a director of Providence
Equity Partners in London, and was one of the partners
responsible for investing a $2.8 billion fund in telecom and
media companies in Europe.
From 1992 to 2000, she was a director of Electra Partners,
and was based in London from 1992 to 1996 and Hong
Kong from 1996 to 2000. Prior to working in private
equity, Ms Farlow worked as a banker for Morgan Stanley
in New York, and as a management consultant for Bain and
Company in London, Sydney and Jakarta.
Ms Farlow graduated from Cambridge University with
a MA in engineering in 1986 and a MEng in chemical
engineering in 1987. She obtained an MBA from Harvard
Business School in 1991.
NICHOLAS BOTTA
Mr Botta, a U.S. resident, has been a Director of the
Company since March 2012. He is also a director
of Pershing Square International, Ltd. Until March
1, 2017, when Mr Botta became President of the
Investment Manager, he was the Investment Manager’s
Chief Financial Ocer.
He also worked as controller and then as Chief Financial
Ocer of Gotham Partners from 2000 to 2003. From
1997 to 2000, Mr Botta was a senior auditor at Deloitte
& Touche in its securities group. He was also a senior
accountant from 1995 to 1997 for Richard A. Eisner &
Co., LLP.
Mr Botta received his Bachelor of Accounting from
Bernard Baruch College in 1996. Mr Botta is a certified
public accountant.
Directors
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29
Pershing Square Holdings, Ltd.
ANDREW HENTON
Independent Director
Chairman of the Audit and Risk Committees
Mr Henton, a Guernsey resident, has been an
independent director of the Company since September
2020. Mr Henton has wide board experience of both
regulated and non-regulated businesses (including
listed funds) in both executive and non-executive
capacities. He currently serves on the boards of several
private entities. He is chair of the board of Butterfield
Bank Jersey Limited and SW7 Holdings Limited and
is a board member and audit chair of Butterfield Bank
Guernsey Limited. He serves as a member of the board
of TaDaweb S.A., Longview Partners (Guernsey)
Limited and Close Brothers Asset Management
(Guernsey) Limited. He also previously served as the
chair of the board of Boussard & Gavaudan Holding
Limited, a listed closed-ended investment company.
Between 2002 and 2011, Mr Henton held various
positions at Close Brothers Group plc, latterly acting
as Head of Oshore Businesses. During this time, he
led the creation of Close Private Bank, which provided
asset management, banking, and administration
services to high net worth and institutional clients. Mr
Henton previously spent four years working in HSBC’s
Corporate Finance division and three years as a Fund
Manager with Baring Private Equity Partners.
He graduated from Oxford University in 1991 and
subsequently qualified as a Chartered Accountant with
PricewaterhouseCoopers in London.
BRONWYN CURTIS, OBE
Senior Independent Director
Chairman of the Remuneration Committee
Ms Curtis, a UK resident, has been an independent
Director of the Company since April 2018. Ms Curtis
is a global financial economist who has held senior
executive positions in both the financial and media
sectors. She currently serves as a non-executive
director of a number of institutions including the UK
Oce for Budget Responsibility, BH Macro, Mercator
Media, TwentyFour Income Fund, and Scottish
American Investment Co.
She has also been a Governor at the London School
of Economics. Ms Curtis held several senior positions
at HSBC from 2008 to 2012 where she managed the
global research operations and portfolio including the
economic, fixed income, foreign exchange and equity
products. From 1999 to 2006, Ms Curtis was the Head
of European Broadcast at Bloomberg LP.
Prior to joining Bloomberg, she held positions at
Nomura International and Deutsche Bank and
worked as a consultant for the World Bank and the
UN. Ms Curtis has an honours degree in Economics
from LaTrobe University, Australia and a Masters in
Economics from the London School of Economics.
Directors
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Pershing Square Holdings, Ltd.
RUPERT MORLEY
Independent Director
Mr Morley, a UK resident, has been an independent
Director of the Company since April 2021. Mr Morley
is the chairman of the board of Bremont Watch
Company and a trustee of Comic Relief and chair of
its investment advisory group. Mr Morley previously
served as CEO of Sterling Relocation, Hamptons
estate agency and Propertyfinder.co.uk and
managing director of Swan Hellenic Cruises. He also
previously served as operations director of Brierley
Investments Limited, a non-executive director of
Thistle Hotels, English Welsh & Scottish Railways
and Graham-Field Health Products and president
of the Fédération Internationale des Déménageurs
Internationaux (FIDI).
He has a degree in economics from Cambridge
University and an MBA from Harvard Business
School where he was a Kennedy Scholar.
Directors
TOPE LAWANI
Independent Director
Mr Lawani, a Nigerian national, has been an independent
Director of the Company since April 2021. Mr Lawani is
a co-founder and managing partner of Helios Investment
Partners and co-CEO and a director of Helios Fairfax
Partners Corp. Prior to forming Helios, he was a principal
in the San Francisco and London oces of TPG Capital. He
began his career as a mergers & acquisitions and corporate
development analyst at the Walt Disney Company.
Mr Lawani serves as a non-executive director of
Helios Towers plc, Vivo Energy plc, Thunes, Axxela
Ltd. Mr Lawani is a member of the MIT Corporation
(Massachusetts Institute of Technology’s board of
trustees), the MIT School of Engineering dean’s advisory
council, the Harvard Law School dean’s advisory board
and the international board of The END Fund. He
previously served as a non-executive director of Equity
Group Holdings Plc, Emerging Markets Private Equity
Association (EMPEA), First City Monument Bank
Plc, Bayport Management and Millicom International
Cellular. Mr Lawani also previously served as a board
observer of the board of directors of J. Crew, Inc.
and Burger King Corp, and on the overseers’ visiting
committee of the Harvard Business School.
Mr Lawani received a B.S. in chemical engineering with a
minor in economics from the Massachusetts Institute of
Technology, a juris doctorate from Harvard Law School
and an MBA from Harvard Business School. He is fluent
in Yoruba, a widely spoken West African language.
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Pershing Square Holdings, Ltd.
Directors
TRACY PALANDJIAN
Independent Director
Ms Palandjian, a U.S. resident, has been an
independent Director of the Company since April 2021.
Ms Palandjian is co-founder and CEO of Social Finance,
Inc., a non-profit organization focused on developing
and managing investments that generate social impact
and financial return. Prior to Social Finance, Ms
Palandjian was a managing director for eleven years
at The Parthenon Group, a global strategy consulting
firm, where she established and led the Nonprofit
Practice. She also worked at Wellington Management
Co. and McKinsey & Co.
Ms Palandjian is a fellow of the Harvard Corporation
and a member of the American Academy of Arts and
Sciences. She is co-author of “Investing for Impact:
Case Studies Across Asset Classes,” and serves as vice
chair of the U.S. Impact Investing Alliance and vice
chair of the Global Steering Group on Impact Investing.
She is an independent director of the Aliated
Managers Group where she is on the compensation and
nominating & governance committees, a trustee at the
Surdna Foundation where she chairs the investment
committee, and a director at the Boston Foundation.
Previously, Ms Palandjian served as board chair of
Facing History and Ourselves, co-chair of Robert F.
Kennedy Human Rights, and trustee of Mass General
Brigham and Milton Academy. Ms Palandjian is a
2019 recipient of the Harvard Business School Alumni
Achievement Award, the school’s highest honor.
A native of Hong Kong, Ms Palandjian is fluent in
Cantonese and Mandarin. She graduated from Harvard
College with a B.A. magna cum laude in economics and
holds an M.B.A. with high distinction from Harvard
Business School, where she was a Baker Scholar.
Annual Report 2022
32
Pershing Square Holdings, Ltd.
Report of the Directors
We present the Annual Report and Financial Statements of
the Company for the year ended December 31, 2022.
PRINCIPAL ACTIVITY
The Company was incorporated in Guernsey, Channel
Islands on February 2, 2012. It became a registered open-
ended investment scheme under Guernsey law on June
27, 2012, and commenced operations on December 31,
2012. On October 1, 2014, the Guernsey Financial Services
Commission (“GFSC”) approved the conversion of the
Company into a registered closed-ended investment scheme.
Please refer to Note 11 for further information on the various
classes of shares (any reference to “Note” herein shall refer
to the Notes to the Financial Statements).
INVESTMENT POLICY
The Company’s investment objective is to preserve capital
and seek maximum, long-term capital appreciation
commensurate with reasonable risk. For these purposes,
risk is defined as the probability of permanent loss of
capital, rather than price volatility.
In its value approach to investing, the Company seeks
to invest in long (and occasionally short) investment
opportunities that the Investment Manager believes exhibit
significant valuation discrepancies between current trading
prices and intrinsic business (or net asset) value, often with
a catalyst for value recognition.
The Investment Manager may also seek short sale
investments that oer absolute return opportunities. In
addition, the Investment Manager may short individual
securities to hedge or reduce long exposures.
The Company will not make an initial investment in the
equity of companies whose securities are not publicly traded
(i.e., private equity) but may invest in privately placed
securities of public issuers and publicly traded securities of
private issuers. Notwithstanding the foregoing, it is possible
that, in limited circumstances, public companies in which
the Company has invested may later be taken private, and
we may make additional investments in the equity or debt
of such companies. The Company may make investments in
the debt securities of a private company, provided that there
is an observable market price for such debt securities.
The Company may invest in long and short positions
in equity or debt securities of U.S. and non-U.S. issuers
(including securities convertible into equity or debt
securities); distressed securities, rights, options and
warrants; bonds, notes and equity and debt indices;
swaps (including equity, foreign exchange, interest rate,
commodity and credit default swaps), swaptions, and other
derivatives; instruments such as futures contracts, foreign
currency, forward contracts on stock indices and structured
equity or fixed-income products (including without
limitation, asset-backed securities, mortgage-backed
securities, mezzanine loans, commercial loans, mortgages
and bank debt); exchange traded funds and any other
financial instruments the Investment Manager believes will
achieve the Company’s investment objective. The Company
may invest in securities sold pursuant to initial public
oerings. Investments in options on financial indices may
be used to establish or increase long or short positions or
to hedge the Company’s investments. In order to mitigate
market-related downside risk, the Company may acquire
put options, short market indices, baskets of securities and/
or purchase credit default swaps, but is not committed to
maintaining market hedges at any time.
A substantial majority of the Company’s portfolio is typically
allocated to 8 to 12 core holdings usually comprised of liquid,
listed mid-to-large capitalization North American companies.
So long as the Company relies on certain exemptions from
investment company status under the U.S. Investment
Company Act of 1940, as amended, the Company will
not purchase more than 3% of the outstanding voting
securities of any SEC-registered investment company. The
Company will not invest more than 10%, in aggregate, of
its total assets in other UK-listed closed-ended investment
funds, unless such other closed-ended investment funds
themselves have published investment policies to invest
no more than 15% of their total assets in other UK-listed
closed-ended investment funds. In addition, investments by
the Company in, or giving exposure to, the securities of any
Annual Report 2022
33
Pershing Square Holdings, Ltd.
investment, while potentially enhancing the returns on the
capital invested in that investment.
The Company may also use derivatives, such as equity and
credit derivatives and put options, to achieve a synthetic
short position in a company without exposing the Company
to some of the typical risks of short selling, which include
the possibility of unlimited losses and the risks associated
with maintaining a stock borrow. The Company generally
does not use total return swaps to obtain leverage, but
rather to manage regulatory, tax, legal or other issues.
Material changes to the Company’s Investment Policy
require approval by a special resolution of the holders of
Public Shares.
RESULTS AND NAV
The Company had a loss attributable to all shareholders
for the year ended December 31, 2022 of $1.17 billion
(2021: gain of $2.44 billion). The net assets attributable to
all shareholders at December 31, 2022 were $9.88 billion
(2021: $11.41 billion). For the Company’s performance
returns, please see the Company Performance and Financial
Highlights sections on pages 2 and 112, respectively.
The Company announces the weekly and monthly NAV
and investment performance of its Public Shares to the
Euronext Amsterdam and LSE exchanges and publishes this
information on the Company’s website
(www.pershingsquareholdings.com). In addition,
transparency reports created by the Administrator are
published on the Company’s website.
The Company released semi-annual financial statements
on August 19, 2022 relating to the first half of 2022.
The Company intends to release semi-annual financial
statements for the first half of 2023 in the third quarter.
DISCOUNT TO NAV
The Board monitors the discount to NAV at which
the Company’s Public Shares trade closely and seeks
opportunities to narrow it. Despite annualized net returns of
25.1% over the past five years, the discount widened by 4.9%
one issuer may not, in the aggregate, represent more than
25% of the Company’s gross assets, measured at the time
the investment is made.
The Company generally implements substantially similar
investment objectives, policies and strategies as the other
investment funds managed by the Investment Manager and
its aliates. Allocation of investment opportunities and
rebalancing or internal “cross” transactions are typically
made on a pro-rata basis. However, the Investment
Manager may abstain from eecting a cross transaction
or only eect a partial cross transaction if it determines,
in its sole discretion, that a cross transaction, or a portion
thereof, is not in the best interests of a fund (for example,
because a security or financial instrument is held by such
fund in the appropriate ratio relative to its adjusted net
asset value, or because a security or financial instrument
should be divested, in whole or in part, by the other funds)
or as a result of tax, regulatory, risk or other considerations.
The Company may hold its assets in cash, cash equivalents
and/or U.S. Treasurys pending the identification of new
investment opportunities by the Investment Manager. There
is no limit on the amount of the Company’s assets that may
be held in cash or cash equivalent investments at any time.
The Board has adopted a policy pursuant to which the
borrowing ratio of the Company, defined for this purpose as
the ratio of the aggregate principal amount of all borrowed
money (including margin loans) to total assets (pursuant
to the latest annual or semi-annual Financial Statements
of the Company), shall in no event exceed 50% at the time
of incurrence of any borrowing or its drawdown (e.g. a
borrowing under a line of credit). The Board may amend the
Company’s borrowing policy from time to time, although
the Board may not increase or decrease the Company’s
maximum borrowing ratio without the prior consent of the
Investment Manager. This borrowing policy does not apply
to and does not limit the leverage inherent in the use of
derivative instruments.
The Company may use derivatives, including equity options,
in order to obtain security-specific, non-recourse leverage
in an eort to reduce the capital commitment to a specific
Annual Report 2022
34
Pershing Square Holdings, Ltd.
over the course of 2022 from 28.3% at the beginning of the
year to 33.2% as of December 31, 2022. The Board continues
to believe that the Public Shares are undervalued and that by
increasing investor awareness of the Company’s long-term
investment performance, the associated incremental demand
for Public Shares should narrow the discount over time.
The Company has taken a variety of actions to better
position the Public Shares as an attractive investment
opportunity to potential investors in the UK and
internationally, including adding a listing on the Main
Market of the LSE (2017), adding a U.S. Dollar denominated
LSE quotation (2018), and initiating a quarterly dividend
(2019). As a result of these actions, and the Company’s
admission to the FTSE 100 in December 2020, the
visibility of the Company has continued to grow over time.
The Company engaged Frostrow in March 2021 to drive
further growth by providing strategic marketing advice
and shareholder insights and deepening the Company’s
engagement with UK-based wealth managers, retail/adviser
platforms and institutional investors.
In January 2022, the Company moved to the North
American investment sector of the Association of
Investment Companies from the Hedge Fund sector, which
more accurately reflects the Company’s investment focus.
The Company also increased its quarterly dividend for the
second, third and fourth quarters of 2022, and amended
its dividend policy such that dividends in future years
will increase with the Company’s NAV. The Company’s
2023 quarterly dividend increased to $0.1307 per Public
Share under the new policy. Further details regarding the
Company’s dividend policy are in “Dividends” on page 35.
The Board also evaluates whether the discount provides
opportunities for accretive share repurchases. After
examining a number of factors with the Investment
Manager (including the Company’s available unencumbered
cash and the likelihood of its deployment into a new
investment, the price of portfolio holdings relative to their
intrinsic values, the Company’s leverage, the discount to
NAV at which the shares would be repurchased and the
impact further reductions would have on the Company’s free
float) the Company announced share buyback programs
in May and July of 2022 (the “2022 Share Buyback
Programs”) of $100 million or for up to 10 million of the
Company’s outstanding Public Shares and $200 million or
for up to 20 million of the Company’s outstanding Public
Shares, respectively. As of December 31, 2022, 8,262,440
Public shares had been repurchased for $263.9 million at
an average discount of 32.9%, representing 88.0% of the
2022 Share Buyback Programs. Since the Company’s first
buyback program in May 2017, including the Company’s
May 2018 tender oer, the Company has repurchased a total
of 59,096,679 Public Shares for $1.1 billion at an average
discount of 28.1% through December 31, 2022.
The Company intends to propose that shareholders renew the
Company’s general share buyback authority at the Company’s
2023 Annual General Meeting to allow the Company to
engage in share buybacks up to a maximum of 14.99% of
the Public Shares outstanding. If approved by shareholders,
the Board may decide to utilize the share buyback authority
to make further acquisitions of Public Shares in the market
depending on the factors described above.
The Board continues to be satisfied that the interests
of PSH shareholders and the Investment Manager are
closely aligned. Aliates of the Investment Manager
beneficially owned approximately 26% of the Company at
December 31, 2022 (December 31, 2021: 25%). The Board
believes the investment in the Company by the Investment
Manager’s team has created an even stronger incentive for
the Investment Manager to generate positive investment
performance, which the Board believes will increase the
Company’s share price and reduce the discount to NAV over
the long term.
BONDS IN ISSUE
On July 25, 2019, the Company closed on a fully committed
private placement of $400 million Senior Notes with a
coupon rate of 4.95%, maturing on July 15, 2039 (the “2039
Bonds”).
On August 26, 2020, the Company closed on a fully
committed private placement of $200 million of Senior
Notes with a coupon rate of 3.00%, maturing on July 15,
2032 (the “2032 Bonds”).
Annual Report 2022
35
Pershing Square Holdings, Ltd.
On November 2, 2020, the Company issued $500 million of
Senior Notes maturing on November 15, 2030 (the “2030
Bonds”). The 2030 Bonds were issued at par with a coupon
rate of 3.25% per annum.
On October 1, 2021, the Company issued $700 million
of Senior Notes maturing on October 1, 2031 (the “2031
Bonds”). The 2031 Bonds were issued at 99.670% of par
with a coupon rate of 3.25% per annum.
On October 1, 2021, the Company issued €500 million
of Senior Notes maturing on October 1, 2027 (the “2027
Bonds” and together with the 2039 Bonds, 2032 Bonds,
2030 Bonds and 2031 Bonds, the “Outstanding Bonds”).
The 2027 Bonds were issued at 99.869% of par with a
coupon rate of 1.375% per annum.
The Outstanding Bonds rank equally in right of payment
and contain substantially the same covenants. The
Outstanding Bonds’ coupons are paid semi-annually, with
the exception of the 2027 Bonds, which are paid annually.
The Outstanding Bonds are listed on Euronext Dublin with a
symbol of PSHNA.
On June 26, 2015, the Company closed on the oering of
$1 billion Senior Notes that matured on July 15, 2022 (the
“2022 Bonds” and together with the Outstanding Bonds,
the “Bonds”). On June 15, 2022, the Company redeemed
all outstanding 2022 Bonds. Following the redemption, the
2022 Bonds were retired.
DIVIDENDS
On March 28, 2022, the Company announced that it had
increased its quarterly dividend for the second, third and
fourth quarters of 2022 by 25% to $0.125 per Public Share
(previously $0.10 per Public Share). In 2023 and future
years, the Company’s intended policy is to pay quarterly
dividends in an amount determined by multiplying the
Company’s average NAV per Public Share for all trading
days in December of the prior year by 0.25%, subject to a
cap on the total dividends paid for the year of 125% of the
average of the total dividends paid in each of the previous
three years. Once the dividend is set for a specific year, the
Company does not intend to decrease the dividend in future
years, even if the NAV per Public Share were to decline.
On January 31, 2023, the Company announced a quarterly
dividend of $0.1307 per Public Share for 2023.
The Special Voting Share (see Note 11) receives a
proportionate quarterly dividend based on its respective
net asset value per share, which is contributed to charity.
Dividends will be paid in U.S. Dollars unless a shareholder
elects to be paid in GBP. Shareholders may also elect to
reinvest cash dividends into Public Shares through a dividend
reinvestment program (“DRIP”) administered by an aliate
of Link Market Services Limited (“Link”), the Company’s
registrar. Further information regarding the dividend,
including the anticipated 2023 dividend payment schedule
and how to make these elections, is available at
www.pershingsquareholdings.com/psh-dividend-information.
Each dividend is subject to a determination that, after
the payment of the dividend, the Company will meet
solvency requirements under Guernsey law, and that, in
accordance with the indentures governing the Bonds, the
Company’s total indebtedness will be less than one third of
the Company’s total capital. The Board may determine to
modify or cease paying the dividend in the future.
In the year ended December 31, 2022, the Company paid
dividends of $93,271,012, a net increase of $13,620,116
from the amount it paid in 2021 due to the increase in the
dividend per share beginning in the second quarter of 2022.
DIRECTORS
The present members of the Board, all of whom are non-
executive Directors, are listed on pages 28-31. Further
information regarding the Board is provided in the
Corporate Governance Report.
The Company maintains directors’ and ocers’ liability
insurance in relation to the actions of the Directors on
behalf of the Company. Information regarding Directors’
remuneration and ownership in the Company is set out in
the Directors’ Remuneration Report on pages 42-43.
Annual Report 2022
36
Pershing Square Holdings, Ltd.
MATERIAL CONTRACTS
The Company’s material contracts are with:
• PSCM, the Investment Manager to the Company. PSCM
receives a quarterly management fee and may receive a
performance fee from the Company as described more
fully in Note 15.
• Northern Trust International Fund Administration
Services (Guernsey) Limited (“Northern Trust”), the
Company’s Administrator and Company Secretary. The
Administrator provides the Company with administration
services, including, among other things, the computation
of the Company’s NAV and the maintenance of the
Company’s accounting and statutory records.
• Link, the Company’s registrar. The Company has also
engaged an aliate of Link to administer the Company’s
DRIP.
• Goldman Sachs & Co. LLC and UBS Securities LLC, the
Company's Prime Brokers and custodians.
• Jeeries International Limited (“Jeeries”), the
Company’s corporate broker and buyback agent. Jeeries
also previously served as the adviser for the Company’s
share tender oer and was the Company’s sponsor in
connection with its LSE listing.
• Frostrow Capital LLC (“Frostrow”), the Company’s UK
investor relations advisor.
Although the Investment Manager is authorized to engage
service providers on behalf of the Company, the Board is
advised of and given the opportunity to review and execute
material contracts.
The Board and, where appropriate, the Investment Manager
monitor the performance of these service providers
throughout the year, and the Management Engagement
Committee conducts a formal review annually. For further
details of the review conducted by the Management
Engagement Committee of these and other service providers
to the Company, please see “Management Engagement
Committee” in the Corporate Governance Report.
The Board has reviewed the recommendations of the
Management Engagement Committee with respect to
the engagement of the Investment Manager and the
Company’s other material service providers listed above,
and agrees with the Committee’s conclusion that their
continued appointment is in the interests of the Company’s
shareholders as a whole. The Board will continue to monitor
their performance closely.
ENVIRONMENTAL, EMPLOYEE, SOCIAL
AND COMMUNITY ISSUES
As an investment company without employees or physical
operations, the Company does not directly engage in
activities that impact the environment or the community.
Although the Board has delegated the responsibility for
making individual investment decisions to the Investment
Manager, the Board has encouraged the Investment
Manager to consider ESG best practices, including the risks
and impact of climate change, within its own organization,
and to actively engage on these issues with its portfolio
companies when appropriate.
As further described in the Investment Manager’s ESG
Statement, available on the Company’s website
(www.pershingsquareholdings.com), the Investment
Manager has integrated ESG into its investment selection,
risk management and stewardship processes, and has
embedded ESG considerations into its operations as a
firm. The Investment Manager analyzes the exposure of a
business to ESG risks and its approach to ESG at the time of
its initial investment and as part of its ongoing stewardship
by performing extensive diligence on the business, the
industry sector and the context in which the business
operates. A business that has not addressed material ESG
risks or that has unsustainable business practices will
generally not meet the Investment Manager’s investment
criteria unless the Investment Manager’s intent is to use its
influence to actively address these issues.
The Investment Manager provides a detailed portfolio
review to the Board at each quarterly Board meeting and
discusses any material ESG issues at each portfolio company
Annual Report 2022
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Pershing Square Holdings, Ltd.
as part of its report. In addition, the Investment Manager’s
Portfolio Update on pages 16-21 incorporates material
ESG-related developments as appropriate. The Board has
been pleased to note that all of the Company’s portfolio
companies have addressed ESG issues and sustainability
as part of their strategic planning, including by adopting
ambitious environmental stewardship programs, personnel
initiatives, public advocacy and by measuring their progress
toward sustainability targets. Links to the ESG practices
of each portfolio company are available in the Investment
Manager’s ESG Statement. The Board will continue to
monitor the Investment Manager’s integration of ESG issues
into investment decisions to ensure its approach promotes
the long-term success of the Company.
The Investment Manager has implemented environmentally
sustainable practices throughout its oce space, reducing
oce-related carbon emissions by 13% in 2022, and purchased
carbon credits for the emissions it was unable to eliminate.
In addition, the Investment Manager continues to add
diverse personnel to its team and, under the direction of its
Diversity and Inclusion Committee, seeks meaningful ways
to contribute to charitable and community projects.
MODERN SLAVERY ACT 2015
Although the Company does not fall within the scope
of the UK Modern Slavery Act 2015, it has assessed its
supply chains for potential sources of modern slavery or
human tracking. The Company has minimal contact
with countries and sectors most likely to have a risk of
modern slavery or human tracking. The Company’s major
suppliers are providers of professional services, including
the Investment Manager, Administrator, auditor and
other legal and financial advisors described in “Material
Contracts.” These suppliers operate in the United States,
United Kingdom, Europe, and other countries that are
generally regarded as low risk. Prior to engaging a supplier
with higher-risk attributes, the Company will perform
additional due diligence on the supplier’s employment
practices to ensure that it is not engaged in modern slavery
or human tracking.
SECTION 172(1) STATEMENT
The Directors have acted in the way they consider, in good
faith, would be most likely to promote the success of the
Company for the benefit of its members as a whole, having
regard to its stakeholders and matters set out in s172(1)(a-
f) of the Companies Act 2006, in the decisions taken during
the year ended December 31, 2022 as described in this
Report of the Directors.
The following are some examples of how the Directors have
discharged their section 172 duties during the year:
• The Board has identified shareholders as key stakeholders
and actively sought to engage with them. As a closed-
ended investment company, PSH has no employees or
operations, and its shareholders are both customers and
investors. The Board’s approach to engagement with
its stakeholders is discussed further in “Shareholder
Engagement.”
• The Board has maintained close relationships with its
major suppliers of services – the Investment Manager,
Administrator, auditor, and its other professional service
providers.
• The 2022 Share Buyback Programs authorized by the
Board permitted the Company to repurchase 8,262,440
Public Shares in 2022 at an average discount of 32.9% for
the benefit of shareholders.
• The Board adopted a progressive dividend policy, tying
dividends for 2023 and future years to increases in the
Company’s NAV. The Company’s new dividend policy is
described in “Dividends” on page 35.
• The Company redeemed the outstanding portion of
its 5.500% Senior Notes due July 2022 and the Board
continued to seek opportunities to responsibly manage
and ladder the maturities of the Company’s debt
obligations at attractive interest rates.
• The Board carefully monitored the Investment Manager’s
succession planning and is confident that the Investment
Annual Report 2022
38
Pershing Square Holdings, Ltd.
Manager’s appointment of Ryan Israel as Chief
Investment Ocer in August 2022 will contribute to the
Company’s long-term success.
• The Board continues to monitor the Investment
Manager’s approach to ESG issues to ensure that the
Company’s investment activities are consistent with the
long-term success of the Company and for the benefit of
the Company’s stakeholders.
Further details regarding the processes by which the Board
has considered the requirements of 172(1) in its decision-
making are included in “The Board’s Processes” in the
Corporate Governance Report.
SHAREHOLDER ENGAGEMENT
As the Company’s shareholders are also its customers, the
Board recognizes the importance of soliciting shareholder
feedback to understand shareholders’ issues and to address
their concerns regarding the Company. The Company’s
return to an in-person format for the 2023 investor event
provided the Chairman and Directors an opportunity
to meet shareholders. The Chairman also met with
shareholders in May and September 2022. The Chairman
and other Directors intend to continue meeting with
shareholders as their schedules permit.
The Board regularly assesses the nature and quality
of its and the Investment Manager’s engagement with
shareholders. To ensure the Board remains apprised of
shareholder requests and feedback, the Board and the
Investment Manager have adopted procedures governing
interactions with shareholders. In addition, Company
announcements, other than routine or portfolio-related
announcements, are approved by the Chairman and the
Senior Independent Director prior to their release. The
Board receives quarterly updates from the Investment
Manager regarding investor contact during the quarter,
which include, among other items, a summary of common
discussion topics, selected meeting highlights, and metrics
regarding the number, type, location and investment
timeframe of shareholders contacted.
To understand the views of the Company’s key stakeholders,
and to assist the Board’s consideration of shareholder
interests, the Investment Manager maintains regular
contact with shareholders via quarterly communications,
including semi-annual investor calls and letters to
shareholders, the annual investor presentation, the
publication of weekly and monthly NAV estimates, and on
an ad-hoc basis when queries from shareholders arise. In
addition, a representative of the investor relations team is
present for the substantial majority of board discussions
regarding key decisions to be made by the Board.
The Board notes that during the course of 2022, in addition
to the resumption of in-person meetings, the Investment
Manager took advantage of the eciency and environmental
sustainability of connecting with shareholders virtually.
This allowed the Investment Manager to conduct hundreds
of shareholder calls and meetings, thereby speaking with
holders of a majority of the Company’s Public Shares,
including several of the Company’s largest shareholders,
representing a variety of regions, types, and investment
strategies.
Jeeries continued to act as corporate broker to the
Company during 2022 to support communications with
shareholders and advise the Company on shareholder
sentiment. Since March 2021, the Company has also
engaged Frostrow to provide investor relations advisory
services that are focused on raising the Company’s UK
profile and cultivating demand from UK-based wealth
managers, retail/adviser platforms and institutional
investors. Frostrow’s activities have included advising on
the Company’s marketing strategy, identifying and liaising
with the target market, organizing regular one-to-one
investor meetings around the UK, sharing shareholder
insights, and maintaining contact with investment company
analysts and data providers. Subsequent to the engagement
of Frostrow, the Company has seen increases in holdings
across wealth management, retail/adviser platform and
institutional categories. Investor feedback from meetings
conducted by Jeeries and Frostrow is reported to the Board
on a regular basis.
Annual Report 2022
39
Pershing Square Holdings, Ltd.
The Company’s 2023 annual investor event was held in-
person and webcast simultaneously on February 9, 2023,
providing greater accessibility to shareholders unable to
attend in person and eliminating the cost of travel. As a
result, shareholders representing approximately 55% of
NAV (excluding aliate ownership) were able to attend. On
a more formal basis, the Directors reported to shareholders
throughout the year with the publication of the annual and
semi-annual reports.
Shareholders may contact the Directors in writing at the
Company’s registered oce or by email at
PSHDirectors@ntrs.com.
GOING CONCERN
Risks associated with the Company’s investment activities,
together with existing and emerging risks likely to aect its
future development, performance and position are set out
in Principal Risks and Uncertainties on pages 23-27 and in
Note 13.
The Board has considered the financial prospects of the
Company through April 30, 2024 and made an assessment
of the Company’s ability to continue as a going concern.
In assessing the going concern status of the Company, the
Directors have considered:
• The Company’s net assets attributable to all shareholders
at December 31, 2022 of $9,879,933,721;
• The liquidity of the Company’s assets (at December 31,
2022, 88.6% of its assets comprised of cash and cash
equivalents and Level 1 assets);
• The Company’s total indebtedness to total capital ratio of
19.4% at December 31, 2022;
• The liquidity of the Company’s assets relative to the future
interest and redemption obligations of the Outstanding
Bonds; and
• The low level of fixed operating expenses relative to net
assets, such expenses approximating 2.7% for the year
ended December 31, 2022.
After making reasonable enquiries, and assessing all
data relating to the Company’s liquidity, particularly its
cash holdings and Level 1 assets, the Directors and the
Investment Manager believe the Company is well placed
to manage its business risks. Furthermore, the Directors
confirm they have a reasonable expectation that the
Company will continue to operate and meet its liabilities as
they fall due for the foreseeable future and do not consider
there to be any threat to the going concern status of the
Company. For these reasons, the Directors have adopted the
going concern basis in preparing the Financial Statements.
VIABILITY STATEMENT
In accordance with Principle 33 of the Association of
Investment Companies (“AIC”) Code, the Board has
carefully considered the existing and emerging risks set out
in Principal Risks and Uncertainties alongside the measures
in place to mitigate those risks — both at the Investment
Manager level and the Company level. It has determined
that those controls are sucient such that the risks will
not likely impair the long-term viability of the business.
The Board has made this assessment with respect to the
upcoming three-year period ending December 31, 2025.
The Board has also evaluated the sustainability of the
Company’s business model, taking into account its
investment objectives, sources of capital and strategy. The
Board believes the Company’s closed-ended structure and
Investment Policy position it to invest over the long-term,
and provide the Company with the flexibility to meet its
investment objective in a variety of market conditions. In
particular, the Board notes the Investment Manager’s use
of interest rate swaptions as a hedge against inflation and
rising interest rates, which partially oset declines in the
Company’s equity portfolio.
The Board has also evaluated quantitative data as of
December 31, 2022 including net assets attributable to
shareholders, the liquidity of the Company’s assets, and the
Company’s total liabilities. It has also considered projections
of expected net cash outflows for the next three years. The
Board believes a three-year timeframe is appropriate given
Annual Report 2022
40
Pershing Square Holdings, Ltd.
the general business conditions aecting the Company’s
portfolio positions, the typical duration of equity positions
taken by the Company and the regulatory environment in
which the Company operates, which is undergoing constant
change. The Board is confident these projections can be
relied upon to form a conclusion as to the viability of the
Company with a reasonable degree of accuracy over the
three-year timeframe.
On the basis of these projections and the considerations
described above, the Board has determined that the
Company will remain viable for the upcoming three-year
period. This assessment is conducted annually by the Board.
KEY INFORMATION DOCUMENT
The Company has prepared a standardized Key Information
Document (“KID”) conforming to the requirements of
the EU Packaged Retail and Insurance-Based Investment
Products Regulation. The KID is updated at least annually
and is available on the Company’s website
(www.pershingsquareholdings.com/company-documents).
STATEMENT OF DIRECTORS’
RESPONSIBILITIES IN RESPECT OF THE
FINANCIAL STATEMENTS
The Directors are responsible for preparing the Report of
the Directors and the Financial Statements in accordance
with applicable laws and regulations. The Companies
(Guernsey) Law, 2008 requires the Directors to prepare
Financial Statements for each financial year, which give a
true and fair view of the state of aairs of the Company as
at the end of the financial year, and of the profit or loss of
the Company for that year. In preparing those Financial
Statements, the Directors are required to:
• Select suitable accounting policies and then apply them
consistently;
• Make judgements and estimates that are reasonable and
prudent;
• State whether applicable accounting standards have been
followed, subject to any material departures disclosed and
explained in the Financial Statements; and
• Prepare the Financial Statements on a going concern basis
unless it is inappropriate to presume that the Company
will continue in business.
The Directors are responsible for keeping proper accounting
records which disclose with reasonable accuracy at any time
the financial position of the Company, and to enable them
to ensure that the Financial Statements comply with the
Companies (Guernsey) Law, 2008, Protection of Investors
(Bailiwick of Guernsey) Law, 2020, the listing requirements
of Euronext Amsterdam and the UK Listing Authority, the
Company’s governing documents and applicable regulations
under English and Dutch law. They are also responsible
for safeguarding the assets of the Company and for taking
reasonable steps for the prevention and detection of fraud
and other irregularities.
Each of the Directors confirms to the best of her or his
knowledge and belief that:
• the Financial Statements, prepared in accordance with
the International Financial Reporting Standards (“IFRS”)
as issued by the International Accounting Standards
Board, give a true and fair view of the assets, liabilities,
financial position and profit or loss of the Company; and
• the Annual Report includes a fair review of the
development and performance of the business and the
position of the Company, together with a description of
the principal risks and uncertainties faced.
Annual Report 2022
41
Pershing Square Holdings, Ltd.
The Directors further confirm that they have complied with
the above requirements, and that this Annual Report and
Financial Statements, taken as a whole, is fair, balanced
and understandable and provides the information necessary
for shareholders to assess the Company’s position and
performance, business model and strategy.
DISCLOSURE OF INFORMATION TO THE
AUDITOR
So far as each of the Directors is aware, there is no
information relevant to the audit of which the Company’s
auditor is unaware, and each has taken all steps he or she
ought to have taken as a Director to make himself or herself
aware of any relevant audit information and to establish that
the Company’s auditor is aware of that information.
By order of the Board.
/s/ Andrew Henton
Andrew Henton
Chairman of the Audit
Committee
March 28, 2023
/s/ Anne Farlow
Anne Farlow
Chairman of the Board
March 28, 2023
Annual Report 2022
42
Pershing Square Holdings, Ltd.
Directors’ Remuneration Report
The Board aims to compensate the Directors in a manner
that promotes the strategy and long-term success of the
Company, and has formed a Remuneration Committee to
ensure that the Company maintains fair and appropriate
remuneration policies and controls. The Remuneration
Committee has been delegated responsibility for
determining the remuneration of the Chairman and
recommending remuneration for the non-executive
Directors of the Company.
The Remuneration Committee consists of Ms Curtis, Mr
Morley and Ms Palandjian. Ms Curtis is the Chairman of the
Remuneration Committee. The Committee is encouraged
to exercise independent judgment when considering the
remuneration of each Director.
The Directors, other than Mr Botta, are all independent
non-executive Directors. The Directors are the only ocers
of the Company. Each Director has executed an appointment
letter setting forth his or her responsibilities. Copies of the
Directors’ letters of appointment are available upon request
from the Company Secretary, and will be available for
inspection at the Annual General Meeting.
DIRECTOR REMUNERATION POLICY
The Directors shall be paid such remuneration for their
services as determined by the Board, save that, unless
otherwise approved by ordinary resolution, each Director’s
remuneration shall not exceed £150,000 per annum, the
limit set in the Company’s Articles of Incorporation. All
Directors are entitled to be reimbursed for all reasonable
expenses properly incurred by them in attending general
meetings, board or committee meetings or otherwise in
connection with the performance of their duties. At the
recommendation of the Remuneration Committee, the
Board has adopted a travel and expense policy to ensure
business expenditures are appropriate and cost-eective.
The Committee, in making its recommendations, will
take into account the Company’s and each Director’s
performance, the time commitments and responsibilities
of the Directors, the level of skill and experience of each
Director, overall market conditions, remuneration paid
by companies of similar size and complexity, and any
other factors the Committee determines are relevant. The
Committee may recommend that additional remuneration
be paid, from time to time, on a time spent basis to any one
or more Directors in the event such Director or Directors are
requested by the Board to perform extra or special services
on behalf of the Company. The Committee’s review may not
result in any changes to previous recommendations to the
Board.
Only Directors unaliated with the Investment Manager
will receive fees for their services. Directors are not eligible
for bonuses, share options, long-term incentive schemes
or other performance-related benefits. No Director will be
involved in deciding their own remuneration.
The Company has undertaken, subject to certain
limitations, to indemnify each Director out of the assets
and profits of the Company against all actions, proceedings,
costs, charges, expenses, losses, damages or liabilities
arising out of any claims made against them in connection
with the performance of their duties as a Director of the
Company.
All Directors are required to submit themselves to re-
election by shareholders at each annual general meeting
in accordance with the Articles of Incorporation of the
Company. On termination of the appointment, Directors
are entitled to fees accrued through the date of termination,
together with reimbursement of expenses incurred prior to
that date. The Company does not pay any remuneration to
the Directors for loss of oce.
Annual Report 2022
43
Pershing Square Holdings, Ltd.
ANNUAL REPORT ON REMUNERATION
Service Contracts Obligations and Payment on
Loss of Office
No Director has a service contract with the Company and,
as such, no Director is entitled to compensation payments
upon termination of their appointment or loss of oce.
Total Remuneration Paid to Each Director
The total remuneration of the Directors for the year ended
December 31, 2022 was:
The Directors will receive the following remuneration for 2023:
The Chairman of the Board, the Chairman of the Audit
Committee and the Senior Independent Director receive
higher fees to reflect the additional responsibilities required
of these roles. Members of the Audit Committee receive an
additional £5,000 for their oversight of the audit process. Mr
Botta does not receive a fee for his services as a Director.
The Remuneration Committee reviewed the Director’s
remuneration in November 2022. The Committee determined
that the fees paid to the Directors in 2022 were within the
range of the fees received by non-executive directors of other
LSE-listed investment companies and appropriately reflected
the complexity of the Board’s work. No changes to the
Directors’ 2023 fees were proposed.
All of the above remuneration relates to fixed annual fees.
There are no pension arrangements in place for the Directors
of the Company. Accordingly, there were no other items in the
nature of remuneration, pension entitlements or incentive
scheme arrangements which were paid or accrued to the
Directors during the year.
Directors’ Shareholdings in the Company
Directors are not required under the Company’s Articles of
Incorporation or letters of appointment to hold shares in the
Company. At December 31, 2022, the Directors’ interests in
the Company were as follows:
There have been no changes in the interests of the Directors
between December 31, 2022 and the date of signing of this
report.
Class of Shares Held Number of Shares
Anne Farlow Public Shares
Nicholas Botta Public Shares
Bronwyn Curtis Public Shares
Andrew Henton Public Shares
Tope Lawani N/A –
Rupert Morley N/A –
Tracy Palandjian Public Shares
Chairman of the Board
Chairman of the Audit Committee
Senior Independent Director
Non-Executive Directors
2022 2021
Anne Farlow
Richard Battey
1
–
Nicholas Botta – –
Bronwyn Curtis
Andrew Henton
Tope Lawani
2
Rupert Morley
2
Tracy Palandjian
2
Richard Wohanka
1
–
1 Retired April 28, 2021
2 Elected April 28, 2021
Annual Report 2022
44
Pershing Square Holdings, Ltd.
Corporate Governance Report
The Company is a member of the AIC and reports against
the AIC Code of Corporate Governance published in
February 2019 (the “AIC Code”). The AIC Code provides
a framework of corporate governance best practices for
investment companies.
As an entity authorized and regulated by the Guernsey
Financial Services Commission (the “GFSC”), the
Company is subject to the GFSC’s “Finance Sector Code of
Corporate Governance” (the “Guernsey Code”). By reason
of the premium listing of the Public Shares on the LSE,
the Company is also required by the Listing Rules of the
Financial Conduct Authority to report on how it has applied
the UK Corporate Governance Code (the “UK Code”).
The Company is deemed to meet its reporting obligations
under the Guernsey Code and the UK Code by reporting
against the AIC Code. The AIC Code addresses all of the
principles set out in the Guernsey Code and closely reflects
the UK Code. In addition, the AIC Code contains additional
principles and recommendations on issues that are of
specific relevance to investment companies. Accordingly,
the Board believes that applying the AIC Code provides
the appropriate corporate governance framework for the
Company and reporting for its shareholders.
The AIC Code is available on the AIC’s website,
www.theaic.co.uk. The UK Code is available on the UK
Financial Reporting Council’s website, www.frc.org.uk.
The Company’s compliance with the AIC Code is explained
in this Corporate Governance Report, the Report of the
Directors, the Directors’ Remuneration Report and the
Report of the Audit Committee. As set forth in these
reports, the Company has complied with the principles
and recommendations of the AIC Code and the relevant
provisions of the UK Code.
The Board strongly believes that its focus on maintaining
high standards of corporate governance contributes to the
Company’s success, as described throughout this report and
the reports of its committees.
THE BOARD COMPOSITION AND
DELEGATION OF FUNCTIONS AND
ACTIVITIES
The Board consists of seven non-executive Directors, six
of whom are independent. Mr Botta, as President of the
Investment Manager, is deemed not to be an independent
Director of the Company. Ms Farlow, Ms Curtis and Mr
Henton serve as Chairman of the Board, Senior Independent
Director and Chairman of the Audit Committee, respectively.
The Company has no executive directors or employees,
and has engaged external parties to undertake the daily
management, operational and administrative activities of
the Company. In particular, the Directors have delegated
the function of managing the assets comprising the
Company’s portfolio to the Investment Manager, which is
not required to, and generally will not, submit individual
investment decisions for the approval of the Board. In each
case where the Board has delegated certain functions to an
external party, the delegation has been clearly documented
in contractual arrangements between the Company and
the external party. The Board retains accountability for
the various functions it delegates. Further information is
provided in the Report of the Audit Committee.
COMPANY CULTURE
While the Company does not have employees, the Board
and the Investment Manager believe that it is important
to the Company’s success to promote a culture of high
ethical and professional values, engage in prudent risk
management and utilize eective control processes and
systems. The Company has adopted an investment policy,
which describes the Company’s investment objective, the
instruments in which the Company may invest and the
types of opportunities the Investment Manager seeks on the
Company’s behalf. Risk management is integrated into the
Investment Manager’s investment process and operations.
The Investment Manager creates strong operational
systems by maintaining a robust compliance function,
Annual Report 2022
45
Pershing Square Holdings, Ltd.
continually seeking to enhance its infrastructure and
controls, and incentivizing personnel to collaborate and act
with professional integrity.
The Board periodically receives reports on the Investment
Manager’s culture and is exposed to that culture through its
close contact with the Investment Manager’s management
team and support personnel. The Board continues to
believe that the Investment Manager’s experienced, high-
performance team and its lean, investment-centric business
model have contributed to the success of the Company.
DIVERSITY
The Directors recognize that the diversity of the Board
and its committees contribute to the success of the
Company by enhancing the Board’s eectiveness through
good corporate governance. In accordance with the AIC
Code, the Board regards its own diversity as an important
mechanism by which to balance the necessary mix of
skills, experience, independence, opinions and knowledge
appropriate for the Company.
The Board is committed to appointing the best possible
applicant for any open Board positions, taking into account
the composition and needs of the Board at the time of the
appointment. Subject to the foregoing, it is the intention of
the Board that Board members include Directors of dierent
backgrounds, races and genders with dierent skills,
knowledge, and experience. It is the goal of the Board that
the composition of Board committees reflects the overall
diversity of the Board.
The Nomination Committee is responsible for
recommending the appointment of new Directors to the
Board. When evaluating candidates, the Nomination
Committee will give full consideration to the skills,
experience, knowledge, background, gender, and race
of each candidate in the context of the composition of
the current Board (including the benefits of gender and
ethnic diversity), the challenges and opportunities facing
the Company and the balance of skills, knowledge, and
experience needed for the Board to be eective in the
future. All candidates are considered on their merits. Where
appropriate, the Nomination Committee may retain external
search consultants to assist in securing a diverse pool of
candidates for open board positions.
The Board currently comprises three female and four male
directors (43% female), including one female director
and one male director from ethnic minority backgrounds
(29% ethnic minority). Both the Chairman and the Senior
Independent Director are women. This composition exceeds
the targets regarding board diversity set by Listing Rule
9.8.6R (9)(a). As the Company is externally managed by
the Investment Manager, it does not have the roles of CEO
or CFO.
The Board intends to maintain or exceed the targets for board
diversity in the Listing Rules, consistent with its aim that
the Board reflects the balance of skills, experience, length of
service and knowledge appropriate for the Company.
The Investment Manager continues to implement the
recommendations made by its Diversity & Inclusion
Committee. In 2022, the Investment Manager added
ethnic minority representation to its leadership with the
appointment of Ryan Israel as Chief Investment Ocer and
added female and minority hires to its operational teams.
BOARD TENURE AND
SUCCESSION PLANNING
All Directors are required to submit themselves to re-
election by shareholders at each annual general meeting,
and any Director appointed in accordance with the Articles
of Incorporation will hold oce only until the next following
annual general meeting and will then stand for re-election.
In accordance with the AIC Code, if and when any Director,
including the Chairman, has been in oce (or upon re-
Annual Report 2022
46
Pershing Square Holdings, Ltd.
election would at the end of that term, be in oce) for more
than nine years, the Board will consider whether there is a
risk that such Director might reasonably be deemed to have
lost independence through long service. The Board believes
that this policy will provide for its regular refreshment while
allowing it the flexibility to maintain the proper balance of
skills, experience and independence that will contribute to
the Company’s success.
Ms Farlow joined the Board in October 2014 and will, at the
2023 Annual General Meeting, have served as a Director
of the Company for more than eight years. Given that four
of the other five independent non-executive directors will
have only served for two years, the Board concluded that it
would be in the best interests of the Company for Ms Farlow
to continue to chair the Company until the 2024 Annual
General Meeting, when she will not submit herself for re-
election by shareholders. As Ms Farlow is the chairman of
the Nomination Committee, the full Board will undertake
a thorough search process for her successor, which will
commence in October 2023.
Further details regarding the succession planning
undertaken by the Nomination Committee are provided
under “Nomination Committee” on pages 48-49.
THE BOARD’S PROCESSES
The content and culture of board meetings are a critical
means by which the Board’s governance contributes to the
Company’s success. The Board meets regularly throughout the
year, at least on a quarterly basis. Board meetings prioritize
open discussion and debate. The Board’s decision-making
actively considers the likely consequences of any decision in
the long term, reputational risks to the Company and the need
to consider the interests of shareholders’ as a whole.
The Chairman maintains regular contact with the
Investment Manager to identify information that should be
provided to the Directors, and invites Director comments on
meeting agendas. At the beginning of every Board meeting,
Directors disclose their potential conflicts, including
ownership in the Company, personal interests in the business
to be transacted at the meeting, and potential appointments
to other public companies. The Chairman is actively involved
in all aspects of Board decision making, seeks input from
other Directors, and encourages their participation in
matters involving their expertise. Minutes of meetings
reflect any Director’s concerns voiced at Board meetings.
At each quarterly Board meeting, the Board receives
updates regarding the Investment Manager’s operations
and investor relations activities during the quarter. The
Board also reviews the Company’s investments, share
price performance, and the premium/discount to NAV
at which the Company’s Public Shares are trading, and
receives an update on litigation and regulatory matters. The
Board conducts a comprehensive review of the Company’s
expenses semi-annually or more frequently, as needed.
In order to perform these reviews in an informed and
eective manner, the Board receives formal reports from
the Investment Manager at each quarterly Board meeting.
The Board may also request focused reports to review the
Investment Manager’s controls in certain operational areas
such as information security, regulatory compliance or
media relations, and may request enhanced operational
controls as appropriate. In between meetings, the Board
maintains regular contact with the Investment Manager, the
Company Secretary and the Administrator, and is informed
in a timely manner of investments and other matters
relevant to the operation of the Company that would be
expected to be brought to the Board’s attention.
An induction program, including training and information
about the Company and the Investment Manager, is
provided to Directors upon their election or appointment
to the Board. Each Director is encouraged to consider their
own training needs on an ongoing basis, and the Chairman
also assesses the individual training requirements for each
Director. Directors, where necessary in the furtherance of
their duties, also have access to independent professional
advice at the Company’s expense.
Annual Report 2022
47
Pershing Square Holdings, Ltd.
Remuneration Committee
The Remuneration Committee consists of Ms Curtis, Mr
Morley and Ms Palandjian. Ms Curtis is the Chairman of the
Remuneration Committee. The Remuneration Committee
reviews the remuneration of the Company’s Chairman and
non-executive Directors and seeks to ensure that the Company
maintains fair and appropriate remuneration policies and
controls. Further details regarding the Directors’ remuneration
are provided in the Directors’ Remuneration Report.
Below is a summary of Director attendance at Remuneration
Committee meetings in the year ended December 31, 2022:
The written terms of reference of the Remuneration
Committee are available on the Company’s website or, on
request, from the Company Secretary.
Management Engagement Committee
The Management Engagement Committee consists of the
independent Directors of the Company who are not aliated
with the Investment Manager. Ms Farlow is the Chairman of
the Management Engagement Committee. The Management
Engagement Committee reviews the performance of the
Investment Manager in the management of the Company’s
aairs and the terms of engagement and performance of the
Company’s other key service providers, and then reports and
makes recommendations to the full Board.
BOARD ATTENDANCE
All Board members are expected to attend each Board
meeting and to arrange their schedules accordingly,
although non-attendance may be unavoidable in certain
circumstances. The following table details the number of
Board meetings attended by each Director in the year ended
December 31, 2022:
The Board meets formally four times a year. Ad-hoc Board
meetings may be convened at short notice to discuss time-
sensitive matters arising in between scheduled meetings and
require a quorum of two Directors.
COMMITTEES OF THE BOARD
The Board has established an Audit Committee, a
Remuneration Committee, a Management Engagement
Committee, a Nomination Committee and a Risk Committee.
Committee membership is further described in the report of
each Committee.
Audit Committee
Further details as to the composition and role of the
Audit Committee are provided in the Report of the Audit
Committee.
Scheduled Quarterly
Board Meetings
(attended/eligible)
Ad-hoc Board and
Subcommittee Meetings
(attended/eligible)
Nicholas Botta
1
4/4 4/4
Bronwyn Curtis 4/4 4/4
Anne Farlow 4/4 4/4
Andrew Henton 4/4 5/5
Tope Lawani 3/4 5/5
Rupert Morley 4/4 5/5
Tracy Palandjian 3/4 3/4
1 Mr Botta does not attend meetings as a Director where such attendance may conflict
with his interests as President and a partner in the Investment Manager.
Remuneration Committee
Meetings (attended/eligible)
Bronwyn Curtis 1/1
Rupert Morley 1/1
Tracy Palandjian 0/1
Annual Report 2022
48
Pershing Square Holdings, Ltd.
The Management Engagement Committee confirmed that
the fees earned by the Investment Manager were calculated
in accordance with the terms of the IMA. The Committee
notes that the significant investment in the Company by
the Investment Manager’s team has closely aligned its
interests with those of the Company. Furthermore, the
Committee believes that competitive remuneration is critical
to the Investment Manager’s ability to recruit and retain
the personnel who contribute to the long-term success of
the Company. The Committee notes that the Investment
Manager has also implemented a long-term equity program,
to retain key personnel.
Nomination Committee
The Nomination Committee consists of Mr Botta, Ms
Farlow and Mr Lawani. Ms Farlow is the Chairman of the
Nomination Committee. The Nomination Committee is
responsible for reviewing the structure, size and composition
of the Board, succession planning for Director departures
and identifying and nominating suitable candidates to
fill vacancies, taking into account the challenges and
opportunities facing the Company and the skills, knowledge
and experience needed on the Board. The Committee reports
its recommendations to the full Board. It is the policy of
the Board that if the Chairman of the Board is a member of
the Nomination Committee, the full Board will consider the
matter of the succession to the chairmanship of the Board.
The Nomination Committee also reviews the commitments
of the Directors to confirm that they continue to have
sucient time to meet their responsibilities to the Company
and that their other commitments do not create any
conflicts of interest. To ensure that Directors continue
to have sucient time to be eective contributors to the
Company, Directors are limited in the number and type of
directorship appointments they may hold in accordance
with overboarding guidelines, and seek the approval of the
Below is a summary of Director attendance at Management
Engagement Committee meetings in the year ended
December 31, 2022:
The written terms of reference of the Management
Engagement Committee are available on the Company’s
website or, on request, from the Company Secretary.
The Management Engagement Committee reviewed the
performance of and fees paid to the Company’s key service
providers for 2021 and the first quarter of 2022, including
the Investment Manager, in May 2022. The review also
included the Investment Manager’s risk assessment of
each service provider and a summary of the diligence the
Investment Manager performs. The Committee made
certain recommendations to the Board and the Investment
Manager based on its assessment of each service provider’s
performance.
The Committee’s review of the Investment Manager’s
performance noted with approval that the Investment
Manager had delivered consistently strong NAV performance
over the prior three years, with NAV returns of 26.9%,
70.2% and 58.1% in 2021, 2020 and 2019, respectively. The
Company’s share price also grew at a similar rate over these
periods and shareholder sentiment about the Company’s
returns was positive. For these reasons, the Committee
found PSCM’s engagement to be in the long-term best
interest of the Company and recommended that the Board
continue to engage PSCM as the Investment Manager.
Management Engagement Committee
Meetings (attended/eligible)
Bronwyn Curtis 1/1
Anne Farlow 1/1
Andrew Henton 1/1
Rupert Morley 1/1
Tope Lawani 1/1
Tracy Palandjian 1/1
Annual Report 2022
49
Pershing Square Holdings, Ltd.
Board an annual assessment of the material risks applicable
to the Company’s business; and making recommendations to
the Board regarding risk mitigation.
The written terms of reference of the Risk Committee are
available on the Company’s website or, on request, from the
Company Secretary.
Below is a summary of Director attendance at Risk
Committee meetings in the year ended December 31, 2022:
The Risk Committee identified 44 risks relevant to the
Company’s business in 2022. These risks consist of risks
arising from the Company’s investment activities, structure
and operations as well as risks relating to shareholder
engagement and regulatory compliance.
The Risk Committee has considered the cause of each risk
and has assigned each risk a rating based on the likelihood
of the risk occurring and the severity of the impact on the
Company if the risk occurs, both before and after considering
the controls in place to mitigate them. Risks with the highest
residual risk have been included in “Principal Risks and
Uncertainties”.
The Risk Committee considered rising interest rates and
geopolitical concerns to be emerging risks to the Company’s
portfolio in 2022. The Committee took comfort in the
Investment Manager’s hedging strategy, which proactively
managed its positions in interest rate swaptions and initiated
new currency and energy hedges to oset equity declines in
the Company’s portfolio.
Board prior to accepting new appointments. In considering
whether to grant approval, the Board will assess any impact
the appointment may have on the time the Director is able
to devote to the Company, any impact on the Director’s
independence, and relevant guidelines on overboarding.
Various appointments were approved by the Board in 2022 in
accordance with these considerations.
Below is a summary of Director attendance at Nomination
Committee meetings in the year ended December 31, 2022:
The written terms of reference of the Nomination Committee
are available on the Company’s website or, on request, from
the Company Secretary.
In anticipation of the retirement of Ms Farlow at the 2024
Annual General Meeting, the full Board will participate in
the search process for her replacement. The Board is mindful
of the targets on board diversity applicable to the Company
under the Listing Rules for accounting periods after April 1,
2022 and will consider a diverse range of candidates that will
permit the Company to meet those targets, consistent with
the balance of skills, knowledge and experience needed for
the Board to be eective in the future.
Risk Committee
The Risk Committee consists of all of the Directors of
the Company. Mr Henton is the Chairman of the Risk
Committee. The Risk Committee is responsible for
reviewing the Company’s risk profile, as described in the
Company’s Investment Policy, borrowing policy and other
risk disclosures; identifying, evaluating and reporting to the
Board any emerging risks to the Company; ensuring that
appropriate controls and reporting are in place to allow for
the identification, monitoring and management of key risks
to the Company’s business; conducting and submitting to the
Nomination Committee Meetings
(attended/eligible)
Anne Farlow 1/1
Nicholas Botta 1/1
Tope Lawani 1/1
Risk Committee Meetings
(attended/eligible)
Nicholas Botta 2/2
Bronwyn Curtis 1/2
Anne Farlow 2/2
Andrew Henton 2/2
Tope Lawani 2/2
Rupert Morley 2/2
Tracy Palandjian 2/2
Annual Report 2022
50
Pershing Square Holdings, Ltd.
/s/ Anne Farlow
Anne Farlow
Chairman of the Board
March 28, 2023
COMMITTEES OF THE INVESTMENT
MANAGER
The Investment Manager has a Conflicts Committee, which
meets no less frequently than annually and on an as-needed
basis; a Best Execution Committee, which meet no less
frequently than quarterly and on an as-needed basis; and
Cybersecurity, Valuation and Disclosure Committees,
which meet no less frequently than semi-annually, and
on an as-needed basis. The minutes from the Disclosure,
Valuation and Conflicts Committee meetings are presented
to the Board at the quarterly Board meetings, or sooner if
necessary.
BOARD PERFORMANCE
The performance of the Board and that of each individual
Director is evaluated annually.
The Board engaged SCT Consultants as an independent
external adviser to facilitate the evaluation of its 2022
performance. The external adviser assessed the eectiveness
of the Board on key indicators of performance, including
the Board’s composition and diversity, understanding
of its role and Company strategy, risk management,
succession planning, stakeholder engagement and culture.
The assessment was conducted by a review of key Board
documents, a series of interviews with Board members, the
Company Secretary and Investment Manager personnel, a
questionnaire survey of Board members and the Company
Secretary and an observation of a quarterly Board meeting.
The Chairman discussed matters related to individual
performance with each Director. The Senior Independent
Director conducted a review of the Chairman’s performance
with the other non-executive Directors.
The Board evaluation demonstrated that the Board
continues to perform highly and is well run. The assessment
noted that the Board had incorporated the findings of
the previous evaluation and added important skills and
experience with the addition of several new members. It
was observed that the Directors worked constructively as a
team and with the Investment Manager and demonstrated
a strong understanding of their role and the Company’s
strategy. No material weaknesses in performance were
identified in the assessment, and the Board has concluded
that it operated eectively in 2022.
Annual Report 2022
51
Pershing Square Holdings, Ltd.
The Audit Committee consists of Ms Curtis, Mr Henton
and Mr Morley. Mr Henton is the Chairman of the Audit
Committee. In consideration of Mr Henton’s professional
qualifications and service on the audit committees of other
investment companies, and the experience of the other
Audit Committee members in the financial sector, the Board
has determined that the Audit Committee has the relevant
experience to successfully perform its duties.
Below is a summary of Director attendance at Audit
Committee meetings in the year ended December 31, 2022:
The Audit Committee has written terms of reference with
formally delegated duties and responsibilities. The terms
of reference of the Audit Committee are available on the
Company’s website or, on request, from the Company
Secretary.
The Audit Committee considers the appointment,
independence and remuneration of the auditor and reviews
the annual accounts and semi-annual reports. Where non-
audit services are to be provided by the auditor, the Audit
Committee reviews the scope and terms of the engagement
and considers the financial and other implications on the
independence of the auditor.
The principal duties of the Audit Committee are to
monitor the integrity of the Financial Statements of the
Company, including its annual and semi-annual reports
and formal announcements relating to the Company’s
financial performance, and reviewing and reporting to
the Board on significant financial reporting issues and
judgements communicated to the Committee by the auditor.
In particular, the Audit Committee reviews and assesses,
where necessary:
Audit Committee Meetings
(attended/eligible)
Bronwyn Curtis 4/4
Andrew Henton 4/4
Rupert Morley 4/4
Report of the Audit Committee
• The consistency of, and any changes to, significant
accounting policies both on a year-on-year basis and
across the Company;
• The methods used to account for significant or unusual
transactions where dierent approaches are possible;
• Whether the Company has followed appropriate
accounting standards and made appropriate estimates
and judgements, taking into account the views of the
external auditor;
• The clarity of disclosure in the Company’s financial
reports and the context in which statements are made;
• All material information presented with the Financial
Report such as the Chairman’s Statement, Investment
Manager’s Report, Principal Risks and Uncertainties,
Report of the Directors, Directors’ Remuneration Report
and the Corporate Governance Report; and
•
The content of the Annual Report and Financial
Statements, and advises the Board on whether, taken as a
whole, it is fair, balanced and understandable and provides
the information necessary for shareholders to assess the
Company’s performance, business model and strategy.
PREPARATION OF FINANCIAL STATEMENTS
The Audit Committee takes an active role in the planning
and preparation for the audit. The Audit Committee’s
November 2022 meeting was devoted to discussing
the audit plan and timelines, including the extensive
coordination undertaken by the Investment Manager and
the Administrator to ensure an ecient audit process.
In addition to meetings of the Audit Committee during
the audit, the Chairman of the Board and the Chairman
of the Audit Committee were in regular contact with
the Investment Manager, Administrator and auditor
throughout the audit process. From this contact, the
Audit Committee was able to consider the processes of the
Investment Manager and the Administrator in relation to
Annual Report 2022
52
Pershing Square Holdings, Ltd.
the production of the Financial Statements and determine
that their processes were appropriate.
The Audit Committee used its own experience with
the Company and the Investment Manager’s and
Administrator’s knowledge to determine the overall
fairness, balance and understandability of the Annual
Report and Financial Statements, and carefully reviewed
their content prior to final approval by the Board. This
allowed the Audit Committee and the Board to be satisfied
that the Annual Report and Financial Statements taken as a
whole is fair, balanced and understandable.
SIGNIFICANT REPORTING MATTERS
As part of the year-end audit, the Audit Committee
reviewed and discussed the most relevant issues for the
Company. In discharging its responsibilities, the Audit
Committee made the following assessments during the year:
The Audit Committee has confirmed that where the
Investment Manager has fair valued Level 2 or Level 3
assets, the Investment Manager has obtained pricing from
an independent service or valuation agent, or otherwise
uses a valuation methodology that has been reviewed by the
auditor and found to be appropriate for the investment, free
of management bias and consistent with the requirements
of IFRS.
The Audit Committee reviewed the completeness and
accuracy of the disclosures in the Annual Report and
Financial Statements, and satisfied itself that the
disclosures appropriately reflected the risks facing the
Company and its financial results.
The Audit Committee reviewed the report of the Risk
Committee and the Board’s procedures regarding the
identification, management, and monitoring of risks that
could aect the Company. The Audit Committee is satisfied
that the Risk Committee and the Board are engaged on an
ongoing basis in the process of identifying, evaluating and
managing (where possible) the principal and emerging risks
facing the Company as described in Principal Risks and
Uncertainties on pages 23-27. The Audit Committee also has
access to personnel of the Investment Manager responsible
for implementing and maintaining controls to address these
risks.
The Audit Committee confirms that the Board and
Investment Manager have monitored the Company’s
compliance with applicable regulations, listing requirements
and corporate governance standards.
After considering the audit process and various discussions
with the auditor, Investment Manager and Administrator, the
Audit Committee is satisfied that the audit was undertaken in
an eective manner and addressed the main risks.
INTERNAL CONTROLS
The Audit Committee has examined the eectiveness of the
Company’s internal control systems at managing the risks
to which the Company is exposed and has not identified any
material weaknesses.
The Board is ultimately responsible for the Company’s
system of internal controls, and for assessing its
eectiveness at managing the operational risks to which
the Company is exposed. The internal control systems
are designed to manage, rather than eliminate, the
operational risk of failure to achieve business objectives,
and by their nature can only provide reasonable and not
absolute assurance against misstatement and loss. The
Board confirms there is an ongoing process for identifying,
evaluating and managing the significant operational risks
faced by the Company, and that this process was in place
for the year ended December 31, 2022, and has been in
place up to the date of the approval of the Annual Report
and Financial Statements. This is done in accordance with
relevant best practices detailed in the Financial Reporting
Council’s guidance on Risk Management, Internal Control
and Related Financial and Business Reporting.
Annual Report 2022
53
Pershing Square Holdings, Ltd.
The Risk Committee, at the direction of the Board, conducts
an annual risk assessment to identify the material risks
applicable to the Company’s business, the likelihood of a risk
occurring, and the severity of the impact on the Company,
and reviews the controls and reporting in place to monitor
and mitigate these risks. Deficiencies and recommendations
are provided to the Board. The Investment Manager’s
operational controls are reviewed by the Board as part of an
operational update provided by the Investment Manager at
each quarterly Board meeting.
Neither the Company nor the Investment Manager have
an internal audit department. All of the Company’s
management functions are delegated to independent third
parties, and the Board therefore believes that an internal
audit function for the Company is not necessary or required.
The Board, and where appropriate the Investment Manager,
has familiarized itself with the internal control systems of
its material service providers, which report regularly to the
Board. The Board is satisfied that the controls employed by
these service providers adequately manage the operational
risks to which the Company is exposed.
AUDITOR
It is the duty of the Audit Committee, among other things, to:
• Consider and make recommendations to the Board in
respect of the Company’s external auditor that are to be
approved by shareholders at the Annual General Meeting;
• Discuss and agree with the external auditor the nature
and scope of the audit;
• Keep under review the scope, results and cost
eectiveness of the audit and the independence and
objectivity of the auditor; and
• Review the external auditor’s letter of engagement, audit
plan and management letter.
Ernst & Young LLP (“EY”) has acted as the Company’s
auditor since it was appointed to audit the Company’s first
Financial Statements, for the period ended December 31,
2012. The audit partner rotated from Jersey to Guernsey for
the 2022 audit year.
Although not formally required by applicable regulations, the
Audit Committee noted the auditor’s long tenure and chose
to undertake a formal audit tender process in 2022 to assess
the quality and eectiveness of the auditor with those of other
audit firms. The tender process took into consideration best
practices in line with the 2018 UK Corporate Governance Code
and 2019 AIC Code of Corporate Governance. The Committee
solicited proposals from four firms in the Channel Islands,
one of which was a “challenger” audit firm as defined by the
Department for Business, Energy and Industrial Strategy
(“BEIS”) in the UK. Detailed responses to a formal request
for proposal were subsequently received from EY and another
well-respected accounting firm. Audit Committee members
and senior personnel of the Investment Manager met with
representatives of each firm and evaluated their proposals
against a set of agreed criteria. Based on their review of the
written proposals, presentations and in the case of EY, prior
relevant experience, the Audit Committee and the Investment
Manager determined to recommend that EY continue to serve
as the Company’s auditor. The Audit Committee believes that
the auditor has successfully maintained its independence,
not least by virtue of its separate operations in Jersey and
Guernsey, and is able to continue so doing by periodic partner
rotation. Given that EY has consistently delivered high-
quality audit services for the Company, in the absence of
demonstrable benefit from a change it was concluded that
shareholder interests would best be served by retaining the
services of that firm as auditor.
The Audit Committee also reviewed the scope of the audit
and the fee proposal set out by the auditor in its audit
planning report and discussed these with the auditor at the
Audit Committee meeting held on November 3, 2022. The
Annual Report 2022
54
Pershing Square Holdings, Ltd.
Company regularly undertakes market surveys of auditors’
fees and has found its auditor’s fees to be in line with the
market. The Audit Committee recommended to the Board
that it accept the auditor’s proposed fee of $202,900 (2021
Actual: $217,300) for the audit of the Annual Report and
Financial Statements. During the year ended December 31,
2022, the Company also paid $69,500 (2021: $91,700) for
fees related to the semi-annual review.
The Audit Committee understands the importance of
auditor independence. Each year, the Audit Committee
reviews the scope and results of the audit, its cost
eectiveness, and the independence and objectivity of
the external auditor. As part of this review, the Audit
Committee receives a report from the external auditor
confirming its independence and the controls it has in place
to ensure its independence is not compromised.
The table below summarizes the amounts expensed and/
or capitalized for tax services and other services during the
years ended December 31, 2022 and December 31, 2021.
Any engagement of the auditor to provide non-audit
services to the Company must also receive the prior
approval of the Audit Committee. In considering whether to
approve such engagement, the Audit Committee assesses
(i) the nature of the non-audit service and whether the
auditor is the most appropriate party to provide such
service; (ii) the proposed fee for the service and whether it is
reasonable; and (iii) whether the engagement will constitute
a threat to the objectivity and independence of the conduct
Year Ended 2022 Year Ended 2021
Tax Services $
Other Services
1,2
Total Non-Audit Fees $
1 In 2022, EY was engaged to provide a comfort letter relating to the financial
information of the Company in the oering memorandum for a potential debt oering.
2
In 2021, EY was engaged to provide a comfort letter relating to the financial
information of the Company in the oering memorandum for the 2027 and 2031 Bonds.
of the audit. The Audit Committee may take into account
the expertise of the auditor, the potential time and cost
savings to the Company, and any other factors it believes
relevant to its determination.
During 2022, the auditor was engaged to provide non-audit
services to the Company in connection with a potential
debt oering. Prior to approving the engagement, the
Audit Committee confirmed that no firm other than the
auditor could provide the services in the expedited timetable
required for the oering. Furthermore, because of the
auditor’s audit of the Company’s financial statements,
comfort letters issued in respect of prior financial
statements and expertise in the matters for which it was
engaged, the auditor was able to perform the non-audit
services more eciently than another accounting firm,
resulting in substantial cost savings to the Company.
The Audit Committee has reviewed the fees paid for the
non-audit services. The Audit Committee does not consider
the fees to be excessive or a threat to the objectivity and
independence of the conduct of the audit and considers EY
to be independent of the Company.
Notwithstanding the auditor tender process, to fulfill its
responsibility regarding the independence of the external
auditor, the Audit Committee considers:
• discussions with or reports from the external auditor
describing its arrangements to identify, report and
manage any conflicts of interest; and
• the nature of non-audit services provided by the external
auditor.
To assess the eectiveness of the external auditor, the Audit
Committee reviews:
• the external auditor’s fulfillment of the agreed audit plan
and variations from it;
Annual Report 2022
55
Pershing Square Holdings, Ltd.
• discussions or reports highlighting the major issues that
arose during the course of the audit; and
• feedback from other service providers evaluating the
performance of the audit team.
The Audit Committee is satisfied with EY’s eectiveness
and independence as external auditor having considered
the degree of diligence and professional skepticism
demonstrated by them and has also considered the Financial
Reporting Council’s Audit Quality Review of EY’s previous
audit work.
Having carried out the tender process described above
and satisfied itself that the external auditor remains
independent and eective, the Audit Committee has
recommended to the Board that EY be reappointed as
external auditor for the year ending December 31, 2023.
/s/ Andrew Henton
Andrew Henton
Chairman of the Audit
Committee
March 28, 2023
A resolution to re-appoint EY as auditor will be proposed at
the 2023 Annual General Meeting.
Shareholders should note that the primary framework for
the Company’s audit is International Standards on Auditing
(UK); the auditor’s report thereunder is set out on pages
56-62. The Annual Report also includes on pages 63-64 a
report from the auditor to the Directors in accordance with
U.S. Generally Accepted Auditing Standards in order to
satisfy various U.S. regulatory requirements.
Annual Report 2022
56
Pershing Square Holdings, Ltd.
INDEPENDENT AUDITOR’S REPORT TO
THE MEMBERS OF PERSHING SQUARE
HOLDINGS, LTD.
Opinion
We have audited the Financial Statements of Pershing
Square Holdings, Ltd. (the “Company”) for the year ended 31
December 2022 which comprise the Statement of Financial
Position, the Statement of Comprehensive Income, the
Statement of Changes in Equity, the Statement of Cash
Flows and the related Notes 1 to 20, including a summary
of significant accounting policies. The financial reporting
framework that has been applied in their preparation
is applicable law and International Financial Reporting
Standards as issued by the International Accounting
Standards Board (“IFRS”).
In our opinion, the Financial Statements:
• give a true and fair view of the state of the Company’s
aairs as at 31 December 2022 and of its loss for the year
then ended;
• have been properly prepared in accordance with IFRS; and
•
have been properly prepared in accordance with the
requirements of the Companies (Guernsey) Law, 2008.
Basis for Opinion
We conducted our audit in accordance with International
Standards on Auditing (UK) (ISAs (UK)) and applicable
law. Our responsibilities under those standards are further
described in the Auditor’s responsibilities for the audit of
the Financial Statements section of our report. We believe
that the audit evidence we have obtained is sucient and
appropriate to provide a basis for our opinion.
Independence
We are independent of the Company in accordance with
the ethical requirements that are relevant to our audit of
the Financial Statements, including the UK FRC’s Ethical
Standard as applied to listed public interest entities, and we
have fulfilled our other ethical responsibilities in accordance
with these requirements.
The non-audit services prohibited by the FRC’s Ethical
Standard were not provided to the Company and we remain
independent of the Company in conducting the audit.
Conclusions Relating to Going Concern
In auditing the Financial Statements, we have concluded that
the Directors’ use of the going concern basis of accounting in
the preparation of the Financial Statements is appropriate.
Our evaluation of the Directors’ assessment of the Company’s
ability to continue to adopt the going concern basis of
accounting included;
• Confirming our understanding of the Directors’ going
concern assessment process for the Company by engaging
with the Directors and Investment Manager early in the
audit process to ensure all key factors were considered in its
assessment;
• Obtaining the Investment Manager's going concern
assessment for the Company which comprised a
cashflow forecast and bond covenant reverse stress test,
acknowledging the liquidity of the investment portfolio, the
significant net asset position and cash balances which are
significantly in excess of current liabilities, and testing for
arithmetical accuracy;
• We challenged the appropriateness of the Investment
Manager's forecasts by applying downside sensitivity
analysis and applying further sensitivities to understand
the impact on the liquidity of the Company;
• Holding discussions with the Investment Manager and
the Board on whether events or conditions exist that,
individually or collectively, may cast significant doubt on
the Company's ability to continue as a going concern;
• Assessing the assumptions used in the going concern
assessment prepared by the Investment Manager and
considering whether the methods utilised were appropriate
for the Company; and
Report of Independent Auditor
Annual Report 2022
57
Pershing Square Holdings, Ltd.
• Reading the going concern disclosures included in the
Annual Report and Financial Statements in order to assess
that the disclosures were appropriate and in conformity
with the reporting standards.
Based on the work we have performed, we have not identified
any material uncertainties relating to events or conditions
that, individually or collectively, may cast significant doubt
on the Company’s ability to continue as a going concern up to
30 April 2024.
In relation to the Company's reporting on how they have
applied the UK Corporate Governance Code, we have
nothing material to add or draw attention to in relation to
the Directors' statement in the Financial Statements about
whether the Directors considered it appropriate to adopt the
going concern basis of accounting.
Our responsibilities and the responsibilities of the Directors with
respect to going concern are described in the relevant sections of
this report. However, because not all future events or conditions
can be predicted, this statement is not a guarantee as to the
Company’s ability to continue as a going concern.
Overview of Our Audit Approach
An Overview of the Scope of our Audit
Tailoring The Scope
Our assessment of audit risk, our evaluation of materiality
and our allocation of performance materiality determine
our audit scope for the Company. This enables us to form an
opinion on the Financial Statements. We take into account
size, risk profile, the organisation of the Company and
eectiveness of controls, including controls and changes in
the business environment and the potential impact of climate
change when assessing the level of work to be performed.
Climate Change
The Company has explained climate-related risks in the
‘Environmental, Employee, Social And Community Issues’
section of the Report of the Directors and form part of the
“Other information”, rather than the audited Financial
Statements. Our procedures on these disclosures therefore
consisted solely of considering whether they are materially
inconsistent with the Financial Statements, or our knowledge
obtained in the course of the audit, or otherwise appear to be
materially misstated.
Our audit eort in considering climate change was focused on
the adequacy of the Company’s disclosures in the Financial
Statements as set out in Note 7 and the conclusion that
there was no further impact of climate change to be taken
into account as the investments are valued based on market
pricing as required by IFRS.
Key Audit Matters
Key audit matters are those matters that, in our professional
judgement, were of most significance in our audit of the
Financial Statements of the current period and include the
most significant assessed risks of material misstatement
(whether or not due to fraud) that we identified. These
matters included those which had the greatest eect on: the
overall audit strategy, the allocation of resources in the audit;
and directing the eorts of the engagement team. These
matters were addressed in the context of our audit of the
Financial Statements as a whole, and in our opinion thereon,
and we do not provide a separate opinion on these matters.
Key audit matters Misstatement of the valuation of the Company’s
investments
Materiality Overall materiality of $98.8m which represents
1% of Total Equity.
Annual Report 2022
58
Pershing Square Holdings, Ltd.
Risk Our response to the risk
Key observations communicated
to the Audit Committee
Misstatement of the valuation of the Company’s
investments (2022 – assets: $11,283.7 million
and liabilities: $10.2 million; 2021 – assets:
$13,871.9 million and liabilities: $38.8 million)
Refer to the Report of the Audit Committee
(pages 51-55); Accounting policies (pages
71-76); and Note 7 of the Financial Statements
(pages 81-85)
The fair value of the investment portfolio
may be misstated due to the application of
inappropriate methodologies or inputs to the
valuations.
The valuation of the Company’s investments is a
key driver of the Company’s net asset value and
total return. Investment valuation could have a
significant impact on the net asset value of the
Company and the total return generated for
shareholders.
There has been no change in this risk from the
previous year.
Updated our understanding of the investment valuation
process through a review of the SOC 1 report of the
Company’s Administrator, performed a walkthrough and
evaluated the design of controls in this area.
For level 1 investments we obtained values for all quoted
equities from independent sources and agreed these to
management’s proposed values.
For level 2 derivatives instruments, we instructed our
internal valuation specialists to assist the audit team by
independently valuing a sample of positions. We compared
their values to the Company’s valuations, assessing
dierences with reference to our Reporting Threshold.
For the level 2 Investment in Aliated Entity we have
confirmed the Net Asset Value (“NAV”) at the reporting
date with the independent administrator of PS VII Master
and compared the value to the Company’s valuation. We
confirmed the major components (99.9% by value) of the
NAV by obtaining independent confirmation of title of PS
VII Master’s quoted equities and obtaining the values of
those investments from independent sources.
Assessed whether the valuation determined is in
accordance with IFRS by comparing the valuation
methodology to the requirements of IFRS 13.
We confirmed that there were
no material instances of use
of inappropriate policies or
methodologies and that the
valuation of the investments was
not materially misstated.
We also confirmed that there were
no material matters arising from
our audit work on the valuation
of financial instruments, in
accordance with IFRS, that we
wanted to bring to the attention of
the Audit Committee.
Annual Report 2022
59
Pershing Square Holdings, Ltd.
Our Application of Materiality
We apply the concept of materiality in planning and
performing the audit, in evaluating the eect of identified
misstatements on the audit and in forming our audit opinion.
Materiality
The magnitude of an omission or misstatement that,
individually or in the aggregate, could reasonably be
expected to influence the economic decisions of the users of
the Financial Statements. Materiality provides a basis for
determining the nature and extent of our audit procedures.
We determined materiality for the Company to be $98.8
million (2021: $114.1 million), which is 1% (2021: 1%) of
Total Equity. We believe that Total Equity provides us with
the best measure of materiality as the Company’s primary
performance measures for internal and external reporting
are based on Total Equity.
During the course of our audit, we reassessed initial
materiality and updated its calculation to align with the
year-end Total Equity figure.
Performance Materiality
The application of materiality at the individual account
or balance level. It is set at an amount to reduce to an
appropriately low level the probability that the aggregate of
uncorrected and undetected misstatements exceeds materiality.
On the basis of our risk assessments, together with our
assessment of the Company’s overall control environment,
our judgement was that performance materiality was 75%
(2021: 75%) of our planning materiality, namely $74.1
million (2021: $85.6 million). We have set performance
materiality at this percentage due to our past experience
of the audit that indicates a lower risk of misstatements,
both corrected and uncorrected. Our objective in adopting
this approach was to ensure that total uncorrected and
undetected audit dierences in the Financial Statements did
not exceed our materiality level.
Reporting Threshold
An amount below which identified misstatements are
considered as being clearly trivial.
We agreed with the Audit Committee that we would report
to them all uncorrected audit dierences in excess of $4.9
million (2021: $5.7 million), which is set at 5% (2021:
5%) of planning materiality, as well as dierences below
that threshold that, in our view, warranted reporting on
qualitative grounds.
We evaluate any uncorrected misstatements against both
the quantitative measures of materiality discussed above
and in light of other relevant qualitative considerations in
forming our opinion.
Other Information
The other information comprises the information included
in the Annual Report, other than the Financial Statements
and our auditor’s report thereon. The Directors are
responsible for the other information contained within the
Annual Report.
Our opinion on the Financial Statements does not cover
the other information and, except to the extent otherwise
explicitly stated in this report, we do not express any form
of assurance conclusion thereon.
Our responsibility is to read the other information and,
in doing so, consider whether the other information is
materially inconsistent with the Financial Statements
or our knowledge obtained in the course of the audit
or otherwise appears to be materially misstated. If
we identify such material inconsistencies or apparent
material misstatements, we are required to determine
whether this gives rise to a material misstatement in the
Financial Statements themselves. If, based on the work
we have performed, we conclude that there is a material
misstatement of the other information, we are required to
report that fact.
We have nothing to report in this regard.
Annual Report 2022
60
Pershing Square Holdings, Ltd.
• The section of the Annual Report that describes the
review of eectiveness of risk management and internal
control systems, set out on pages 52-53; and
• The section describing the work of the Audit Committee,
set out on pages 51-55.
European Single Electronic Format (ESEF)
The Company has prepared its Annual Report and Financial
Statements in ESEF. The requirements for this are set out
in the Delegated Regulation (EU) 2019/815 with regard to
regulatory technical standards on the specification of a single
electronic reporting format (hereinafter: the RTS on ESEF).
In our opinion the Annual Report and Financial Statements
prepared in XHTML-format complies in all material
respects with the RTS on ESEF.
Management is responsible for preparing the Annual Report
and Financial Statements in accordance with the RTS on ESEF.
Our responsibility is to obtain reasonable assurance for
our opinion whether the Annual Report and Financial
Statements complies with the RTS on ESEF.
We performed our procedures having regard for Dutch
Standard 3950N ’Assurance engagements relating to
compliance with criteria for digital reporting’. Our
procedures included amongst others:
• obtaining an understanding of the entity's financial
reporting process, including the preparation of the
Annual Report and Financial Statements in XHTML-
format; and
• identifying and assessing the risks that the Annual
Report and Financial Statements does not comply in all
material respects with the RTS on ESEF and designing
and performing further assurance procedures responsive
to those risks to provide a basis for our opinion, including
obtaining the Annual Report and Financial Statements in
XHTML format and performing validations to determine
whether the Annual Report and Financial Statements
complies with the RTS on ESEF.
Matters on Which We Are Required to Report by Exception
We have nothing to report in respect of the following
matters in relation to which the Companies (Guernsey) Law,
2008 requires us to report to you if, in our opinion:
• proper accounting records have not been kept by the
Company; or
• the Financial Statements are not in agreement with the
Company’s accounting records and returns; or
• we have not received all the information and explanations
we require for our audit.
Corporate Governance Statement
We have reviewed the Directors’ statement in relation to going
concern, longer-term viability and that part of the Corporate
Governance Report relating to the Company’s compliance
with the provisions of the UK Corporate Governance Code
specified for our review by the Listing Rules.
Based on the work undertaken as part of our audit, we
have concluded that each of the following elements of the
Corporate Governance Report is materially consistent with
the Financial Statements or our knowledge obtained during
the audit:
• Directors’ statement with regards to the appropriateness
of adopting the going concern basis of accounting and any
material uncertainties identified, set out on page 39;
• Directors’ explanation as to its assessment of the
Company's prospects, the period this assessment covers
and why the period is appropriate, set out on page 39;
• Directors’ statement on fair, balanced and understandable
Financial Statements, set out on page 41;
• Director’s statement on whether it has a reasonable
expectation that the Company will be able to continue in
operation and meets its liabilities, set out on page 39;
• Board’s confirmation that it has carried out a robust
assessment of the emerging and principal risks, set out on
page 49;
Annual Report 2022
61
Pershing Square Holdings, Ltd.
Responsibilities of Directors
As explained more fully in the Directors’ responsibilities
statement set out on pages 40-41, the Directors are
responsible for the preparation of the Financial Statements,
and for being satisfied that they give a true and fair view,
and for such internal controls as the Directors determine is
necessary to enable the preparation of Financial Statements
that are free from material misstatement, whether due to
fraud or error.
In preparing the Financial Statements, the Directors are
responsible for assessing the Company’s ability to continue
as a going concern, disclosing, as applicable, matters
related to going concern and using the going concern basis
of accounting unless the Directors either intend to liquidate
the Company or to cease operations, or have no realistic
alternative but to do so.
Auditor’s Responsibilities for the Audit of the
Financial Statements
Our objectives are to obtain reasonable assurance about
whether the Financial Statements as a whole are free from
material misstatement, whether due to fraud or error, and to
issue an auditor’s report that includes our opinion. Reasonable
assurance is a high level of assurance, but is not a guarantee
that an audit conducted in accordance with ISAs (UK)
will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered
material if, individually or in the aggregate, they could
reasonably be expected to influence the economic decisions of
users taken on the basis of these Financial Statements.
Explanation as to what extent the audit was considered
capable of detecting irregularities, including fraud
Irregularities, including fraud, are instances of non-
compliance with laws and regulations. We design procedures
in line with our responsibilities, outlined above, to detect
irregularities, including fraud. The risk of not detecting a
material misstatement due to fraud is higher than the risk
of not detecting one resulting from error, as fraud may
involve deliberate concealment by, for example, forgery or
intentional misrepresentations, or through collusion. The
extent to which our procedures are capable of detecting
irregularities, including fraud is detailed below.
However, the primary responsibility for the prevention
and detection of fraud rests with both those charged with
governance of the Company and Investment Manager.
• We obtained an understanding of the legal and regulatory
frameworks that are applicable to the Company and
determined that the most significant are the Companies
(Guernsey) Law, 2008, the 2018 UK Corporate Governance
Code, AIC Code of Corporate Governance published in
February 2019, the listing requirements of Euronext
Amsterdam and the UK Listing Authority and the
Protection of Investors (Bailiwick of Guernsey) Law, 2020;
• We understood how the Company is complying with
those frameworks by making enquiries of the Investment
Manager and those charged with governance regarding:
• their knowledge of any non-compliance or potential
non-compliance with laws and regulations that could
aect the Financial Statements;
• the Company's methods of enforcing and monitoring
non-compliance with such policies;
• management's process for identifying and responding
to fraud risks, including programs and controls the
Company has established to address risks identified by
the entity, or that otherwise prevent, deter and detect
fraud; and
• how management monitors those programs and
controls.
•
Administration and maintenance of the Company’s books
and records is performed by Northern Trust International
Fund Administration Services (Guernsey) Limited whom
are a regulated firm, independent of the Investment
Manager. We corroborated our enquiries through our
review of Board minutes and any correspondence received
from regulatory bodies. We also obtained their SOC 1
Annual Report 2022
62
Pershing Square Holdings, Ltd.
A further description of our responsibilities for the audit
of the Financial Statements is located on the Financial
Reporting Council’s website at
www.frc.org.uk/auditorsresponsibilities. This description
forms part of our auditor’s report.
Other matters we are required to address
• Following the recommendation from the Audit
Committee, we were appointed by the Company on 5 April
2013 to audit the Financial Statements for the year ended
31 December 2012 and subsequent financial periods.
• The period of total uninterrupted engagement including
previous renewals and reappointments is 11 years,
covering the years ended 31 December 2012 to 31
December 2022.
• The audit opinion is consistent with the additional report
to the Audit Committee.
Use of Report
This report is made solely to the Company’s members, as
a body, in accordance with Section 262 of The Companies
(Guernsey) Law, 2008. Our audit work has been undertaken
so that we might state to the Company’s members those
matters we are required to state to them in an auditor’s
report and for no other purpose. To the fullest extent
permitted by law, we do not accept or assume responsibility
to anyone other than the Company and the Company’s
members as a body, for our audit work, for this report, or for
the opinions we have formed.
(1) The maintenance and integrity of the Pershing Square Holdings, Ltd. website is
the responsibility of the Directors; the work carried out by the auditor does not
involve consideration of these matters and, accordingly, the auditor accepts no
responsibility for any changes that may have occurred to the Financial Statements
since they were initially presented on the website.
(2) Legislation in Guernsey governing the preparation and dissemination of Financial
Statements may differ from legislation in other jurisdictions.
/s/ Richard Georey Le Tissier
Richard Georey Le Tissier
For and on behalf of Ernst & Young LLP Guernsey
March 29, 2023
controls report and reviewed it for findings relevant to the
Company and evaluated the design of relevant controls. We
noted no contradictory evidence during these procedures.
• We assessed the susceptibility of the Company's Financial
Statements to material misstatement, including how
fraud might occur by:
• obtaining an understanding of entity-level controls and
considering the influence of the control environment;
• obtaining management's assessment of fraud risks
including an understanding of the nature, extent
and frequency of such assessment documented in the
Board's risk matrix;
• making inquiries with those charged with governance
as to how they exercise oversight of management's
processes for identifying and responding to fraud risks
and the controls established by management to mitigate
specifically those risks the entity has identified, or that
otherwise help to prevent, deter and detect fraud;
• making inquiries with management and those charged
with governance regarding how they identify related
parties including circumstances related to the existence
of a related party with dominant influence; and
• Based on this understanding, we designed our audit
procedures to identify non-compliance with such laws and
regulations. Our procedures involved a review of Board
minutes and inquiries of the Investment Manager and
those charged with governance including:
• through discussion, gaining an understanding of how
those charged with governance, the Investment Manager
and Administrator identify instances of non-compliance
by the Company with relevant laws and regulations;
• inspecting the relevant policies, processes and
procedures to further our understanding;
• reviewing Board minutes and internal compliance
reporting;
• inspecting correspondence with regulators; and
• obtaining relevant written representations from the
Board of Directors.
Annual Report 2022
63
Pershing Square Holdings, Ltd.
INDEPENDENT AUDITOR’S REPORT
TO THE DIRECTORS OF PERSHING
SQUARE HOLDINGS, LTD.
Opinion
We have audited the accompanying financial statements of
the Company, which comprise the Statement of Financial
Position as of December 31, 2022 and 2021, and the related
Statement of Comprehensive Income, Statement of Changes
in Equity and Statement of Cash Flows for the years then
ended, and the related notes to the Financial Statements
(collectively referred to as the “Financial Statements”).
In our opinion, the accompanying Financial Statements
present fairly, in all material respects, the financial position
of the Company at December 31, 2022 and 2021, and the
results of its operations, changes in equity, and its cash flows
for the years then ended, in accordance with International
Financial Reporting Standards as promulgated by the
International Accounting Standards Board.
Basis for Opinion
We conducted our audit in accordance with auditing
standards generally accepted in the United States of
America (GAAS). Our responsibilities under those
standards are further described in the Auditor’s
Responsibilities for the Audit of the Financial Statements
section of our report. We are required to be independent of
the Company and to meet our other ethical responsibilities
in accordance with the relevant ethical requirements
relating to our audit. We believe that the audit evidence we
have obtained is sucient and appropriate to provide a basis
for our audit opinion.
Director’s Responsibility for the Financial Statements
The Directors are responsible for the preparation and fair
presentation of the Financial Statements in accordance with
International Financial Reporting Standards promulgated
by the International Accounting Standards Board and for
the design, implementation, and maintenance of internal
control relevant to the preparation and fair presentation
of Financial Statements that are free of material
misstatement, whether due to fraud or error.
In preparing the Financial Statements, the Directors are
responsible for assessing the Company’s ability to continue
as a going concern, disclosing, as applicable, matters related
to going concern and using the going concern basis of
accounting unless management either intends to liquidate
the Company or to cease operations, or has no realistic
alternative but to do so.
Auditor’s Responsibilities for the Audit of the
Financial Statements
Our objectives are to obtain reasonable assurance about
whether the Financial Statements as a whole are free of
material misstatement, whether due to fraud or error,
and to issue an auditor’s report that includes our opinion.
Reasonable assurance is a high level of assurance but is not
absolute assurance and therefore is not a guarantee that
an audit conducted in accordance with GAAS will always
detect a material misstatement when it exists. The risk
of not detecting a material misstatement resulting from
fraud is higher than for one resulting from error, as fraud
may involve collusion, forgery, intentional omissions,
misrepresentations, or the override of internal control.
Misstatements are considered material if there is a
substantial likelihood that, individually or in the aggregate,
they would influence the judgment made by a reasonable
user based on the Financial Statements.
Annual Report 2022
64
Pershing Square Holdings, Ltd.
In performing an audit in accordance with GAAS, we:
• Exercise professional judgment and maintain professional
scepticism throughout the audit.
• Identify and assess the risks of material misstatement of
the Financial Statements, whether due to fraud or error,
and design and perform audit procedures responsive to
those risks. Such procedures include examining, on a test
basis, evidence regarding the amounts and disclosures in
the Financial Statements.
• Obtain an understanding of internal control relevant to
the audit in order to design audit procedures that are
appropriate in the circumstances, but not for the purpose
of expressing an opinion on the eectiveness of the
Company's internal control. Accordingly, no such opinion
is expressed.
• Evaluate the appropriateness of accounting policies
used and the reasonableness of significant accounting
estimates made by management, as well as evaluate the
overall presentation of the Financial Statements.
• Conclude whether, in our judgment, there are conditions
or events, considered in the aggregate, that raise
substantial doubt about the Company's ability to continue
as a going concern for a reasonable period of time.
We are required to communicate with those charged with
governance regarding, among other matters, the planned
scope and timing of the audit, significant audit findings, and
certain internal control-related matters that we identified
during the audit.
Supplementary Information
Our audit was conducted for the purpose of forming an
opinion on the Financial Statements as a whole. The
accompanying Condensed Schedule of Investments,
Financial Highlights and Certain Regulatory Disclosures are
presented for purposes of additional analysis and are not a
required part of the financial statements. Such information
is the responsibility of management and was derived from
and relates directly to the underlying accounting and other
records used to prepare the Financial Statements. The
information has been subjected to the auditing procedures
applied in the audit of the Financial Statements and certain
additional procedures, including comparing and reconciling
such information directly to the underlying accounting and
other records used to prepare the Financial Statements or to
the Financial Statements themselves, and other additional
procedures in accordance with auditing standards generally
accepted in the United States of America. In our opinion,
the information is fairly stated, in all material respects, in
relation to the Financial Statements as a whole.
Other Information
The Directors are responsible for the other information.
The other information comprises the information included
in the Annual Report set out on pages 1 to 55 and pages
113 to 119 but does not include the Financial Statements,
Supplementary Information and our auditor’s report
thereon. Our opinion on the Financial Statements does
not cover the other information, and we do not express an
opinion or any form of assurance thereon.
In connection with our audit of the Financial Statements, our
responsibility is to read the other information and consider
whether a material inconsistency exists between the other
information and the Financial Statements, or the other
information otherwise appears to be materially misstated.
If, based on the work performed, we conclude that an
uncorrected material misstatement of the other information
exists, we are required to describe it in our report.
/s/ Ernst & Young LLP
Ernst & Young LLP
Guernsey, Channel Islands
March 29, 2023
Annual Report 2022
65
Pershing Square Holdings, Ltd.
Audited Financial Statements
STATEMENT OF FINANCIAL POSITION
As of December 31, 2022 and December 31, 2021
(Stated in United States Dollars)
Notes 2022 2021
Assets
Cash and cash equivalents 10 1,147,443,227
Due from brokers 13
Trade and other receivables 9
Financial assets at fair value through profit or loss
Investments in securities 6
Derivative financial instruments 6, 8
Total Assets
Liabilities
Due to brokers 13
Trade and other payables 9
Deferred tax expense payable 19
Financial liabilities at fair value through profit or loss
Derivative financial instruments 6, 8
Bonds 18
Total Liabilities
Equity
Share capital 11
Treasury shares 11 () ()
Retained earnings
Total Equity
Total Liabilities and Equity
Net assets attributable to Public Shares
Public Shares outstanding
Net assets per Public Share
Net assets attributable to Special Voting Share
Special Voting Share outstanding
Net assets per Special Voting Share
The accompanying notes form an integral part of these Financial Statements.
Annual Report 2022
66
Pershing Square Holdings, Ltd.
These Financial Statements on pages 65-109 were approved
by the Board of Directors on March 28, 2023, and were signed
on its behalf by
/s/ Andrew Henton
Andrew Henton
Chairman of the Audit
Committee
March 28, 2023
/s/ Anne Farlow
Anne Farlow
Chairman of the Board
March 28, 2023
Annual Report 2022
67
Pershing Square Holdings, Ltd.
STATEMENT OF COMPREHENSIVE INCOME
For the years ended December 31, 2022 and December 31, 2021
(Stated in United States Dollars)
Notes 2022 2021
Investment gains and losses
Net gain/(loss) on financial assets and liabilities at fair value through profit or loss ()
Net realized gain/(loss) on commodity interests (net of brokerage commissions
and other related fees of (2022: nil, 2021: $652,636)) ()
Net change in unrealized gain/(loss) on commodity interests (net of brokerage
commissions and other related fees of (2022: nil, 2021: nil)) ()
()
Income
Dividend income
Interest income
Other income –
Expenses
Management fees () ()
Interest expense () ()
Professional fees () ()
Other expenses () ()
Performance fees – ()
Bond extinguishment expense – ()
() ()
Net gain/(loss) on currency translation of the Bonds
Profit/(loss) before tax attributable to equity shareholders ()
Withholding tax (dividends) () ()
Deferred tax expense ()
Profit/(loss) attributable to equity shareholders ()
Earnings per share (basic & diluted)
(1)
Public Shares ()
Special Voting Share ()
All the items in the above statement are derived from continuing operations. There is no other comprehensive income for the years ended 2022 and 2021.
(1) EPS is calculated using the profit/(loss) for the year attributable to equity shareholders divided by the weighted average shares outstanding over the full years of 2022 and
2021 as required under IFRS. See Note 17 for further details.
The accompanying notes form an integral part of these Financial Statements.
Annual Report 2022
68
Pershing Square Holdings, Ltd.
Share
Capital
Treasury
Shares
Retained
Earnings
Total
Equity
As of December 31, 2021 $ () $
Total profit/(loss) attributable to equity shareholders – – () ()
Share buybacks
(1)
– () – ()
Dividend distribution to equity shareholders – – () ()
As of December 31, 2022 $ () $
As of December 31, 2020 $ () $
Total profit/(loss) attributable to equity shareholders – –
Dividend distribution to equity shareholders – – () ()
As of December 31, 2021 $ () $
(1) Since May 10, 2022, the Company has repurchased Public Shares as part of a series of share buyback programs. This amount includes the accretion relating to the
repurchases that was allocated to the Public Shares and the Special Voting Share. Any repurchased Public Shares were subsequently held in Treasury. As of December 31,
2022 and December 31, 2021, 20,098,308 and 11,835,868 Public Shares were held in Treasury, respectively. See Note 11 for further details.
The accompanying notes form an integral part of these Financial Statements.
STATEMENT OF CHANGES IN EQUITY
For the years ended December 31, 2022 and December 31, 2021
(Stated in United States Dollars)
Annual Report 2022
69
Pershing Square Holdings, Ltd.
Notes 2022 2021
Cash flows from operating activities
Profit/(loss) for the year attributable to equity shareholders ()
Adjustments to reconcile changes in profit/(loss) for the year to net cash flows:
Bond interest expense
Bond interest paid
(1)
() ()
Bond extinguishment expense –
Net gain/(loss) on currency translation of the Bonds () ()
(Increase)/decrease in operating assets:
Due from brokers ()
Trade and other receivables () ()
Investments in securities ()
Derivative financial instruments ()
Increase/(decrease) in operating liabilities:
Due to brokers ()
Trade and other payables () ()
Deferred tax expense payable ()
Derivative financial instruments () ()
Net cash provided by/(used in) operating activities ()
Cash flows from financing activities
Purchase of Public Shares
(2)
() ()
Dividend distributions () ()
Bond cancellation/retirement () ()
Bond extinguishment expense – ()
Proceeds from issuance of Bonds –
Expenses relating to issuance of Bonds () ()
Net cash provided by/(used in) financing activities ()
Net change in cash and cash equivalents () ()
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Supplemental disclosure of cash flow information and non-cash activities
Cash paid during the year for interest
Cash received during the year for interest
Cash received during the year for dividends
Cash deducted during the year for withholding taxes
Equity securities (with appreciation of $510,548,632) received in-kind for
proceeds from the distribution from PS VII Master, L.P. –
(1) In accordance with the amendments to IAS 7, the Company’s changes in liabilities arising from financing activities related to the Bonds is further detailed in Note 18.
(2) Includes cash paid for fractional shares related to conversions for the year ended 2021.
The accompanying notes form an integral part of these Financial Statements.
STATEMENT OF CASH FLOWS
For the years ended December 31, 2022 and December 31, 2021
(Stated in United States Dollars)
Annual Report 2022
70
Pershing Square Holdings, Ltd.
Notes to Financial Statements
1. CORPORATE INFORMATION
Organization
The Company was incorporated with limited liability under
the laws of the Bailiwick of Guernsey on February 2, 2012. It
became a registered open-ended investment scheme under
Guernsey law on June 27, 2012 and commenced operations
on December 31, 2012. On October 1, 2014, the GFSC
approved the conversion of the Company into a registered
closed-ended investment scheme.
The Company’s registered oce is at Trafalgar Court, Les
Banques, St. Peter Port, Guernsey GY1 3QL, Channel Islands.
A copy of the Prospectus of the Company is available from
the Company’s registered oce and on the Company’s
website (pershingsquareholdings.com).
The latest traded price of the Public Shares is available on
Reuters, Bloomberg, Euronext Amsterdam and the LSE.
Investment Policy
Please refer to “Investment Policy” in the Report of the
Directors for the Investment Policy of the Company.
Bonds
Current Offerings
On July 25, 2019, the Company closed on a fully committed
private placement of $400 million Senior Notes with a
coupon rate of 4.95%, maturing on July 15, 2039 (the “2039
Bonds”).
On August 26, 2020, the Company closed on a fully
committed private placement of $200 million Senior Notes
with a coupon rate of 3.00%, maturing on July 15, 2032 (the
“2032 Bonds”).
On November 2, 2020, the Company issued $500 million of
Senior Notes maturing on November 15, 2030 (the “2030
Bonds”). The 2030 Bonds were issued at par with a coupon
rate of 3.25% per annum.
On October 1, 2021, the Company issued $700 million
of Senior Notes maturing on October 1, 2031 (the “2031
Bonds”). The 2031 Bonds were issued at 99.670% of par
with a coupon rate of 3.25% per annum. On October 1,
2021, the Company also issued €500 million of Senior
Notes maturing on October 1, 2027 (the “2027 Bonds” and
together with the 2030 Bonds, 2031 Bonds, 2032 Bonds and
2039 Bonds, “the Outstanding Bonds”). The 2027 Bonds
were issued at 99.869% of par with a coupon rate of 1.375%
per annum.
The Outstanding Bonds rank equally in right of payment
and contain substantially the same covenants. The
Outstanding Bonds’ coupons are paid semi-annually, with
the exception of the 2027 Bonds, which are paid annually.
The Outstanding Bonds are listed on Euronext Dublin under
the symbol of PSHNA.
Redeemed Offering
On June 26, 2015, the Company closed on the oering of
$1 billion Senior Notes that matured on July 15, 2022 (the
“2022 Bonds” and together with the Outstanding Bonds,
the “Bonds”). The 2022 Bonds were issued at par with a
coupon rate of 5.50% per annum, which was paid semi-
annually. The 2022 Bonds were retired on June 15, 2022.
On September 22, 2021, the Company commenced a cash
tender oer for the 2022 Bonds. Bonds in the amount of
$369,377,000 were tendered and cancelled on October 4,
2021. Bond holders participating in the tender received
consideration from the Company of $1,032.82 per $1,000 of
principal plus accrued and unpaid interest through October
3, 2021, equating to a total payment of $385,958,128.
Annual Report 2022
71
Pershing Square Holdings, Ltd.
The consideration paid in excess of principal resulted in
a one-time extinguishment expense of $12,122,953 to
the Company. Following the cancellation, the aggregate
principal amount of the 2022 Bonds outstanding was
$630,623,000.
On June 15, 2022, the Company redeemed all outstanding
2022 Bonds at a redemption price equal to 100% of the
principal amount of $630,623,000, plus accrued and unpaid
interest through June 14, 2022 of $14,451,777. Following the
redemption, the 2022 Bonds were retired.
Investment Manager
The Company has appointed PSCM as its investment
manager pursuant to the IMA. The Investment Manager has
responsibility, subject to the overall supervision of the Board
of Directors, for the investment of the Company’s assets in
accordance with the Investment Policy of the Company. The
Company delegates certain administrative functions relating
to the management of the Company to PSCM. William A.
Ackman is the managing member of PS Management GP,
LLC, the general partner of PSCM.
Board of Directors
The Company’s Board of Directors is comprised of Nicholas
Botta, President and a partner of the Investment Manager,
Bronwyn Curtis, Anne Farlow, Andrew Henton, Tope
Lawani, Rupert Morley and Tracy Palandjian, all of whom
are non-executive Directors. All Directors other than Mr.
Botta are considered independent. Anne Farlow is the
Chairman of the Board.
Committees of the Board
The Board has established an Audit Committee, a
Management Engagement Committee, a Remuneration
Committee, a Risk Committee and a Nomination
Committee. Mr. Botta is a member of the Risk and
Nomination Committees. The other committees are
comprised solely of independent Directors of the Company
who are not aliated with the Investment Manager.
Further details as to the composition and role of the
Audit Committee are provided in the Report of the Audit
Committee; further details as to the composition and role
of the Management Engagement, Remuneration, Risk and
Nomination Committees are provided in the Corporate
Governance Report.
Prime Brokers
Goldman Sachs & Co. LLC and UBS Securities LLC (the
“Prime Brokers”) both serve as custodians and primary
clearing brokers for the Company.
Administrator
Northern Trust International Fund Administration
Services (Guernsey) Limited (the “Administrator”) is the
administrator and Company Secretary.
The Administrator provides certain administrative and
accounting services, including the maintenance of the
Company’s accounting and statutory records, and receives
customary fees, plus out of pocket expenses, based on the
nature and extent of services provided.
Exchange Listings
The Company’s Public Shares trade on the Premium
Segment of the Main Market of the LSE and on Euronext
Amsterdam. Shares are quoted and traded in USD in
Amsterdam and in USD and Sterling in London.
2. SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Basis of Preparation
The Financial Statements of the Company have been prepared
in accordance with IFRS as issued by the International
Accounting Standards Board (“IASB”). The Financial
Annual Report 2022
72
Pershing Square Holdings, Ltd.
Statements have been prepared on a historical-cost basis,
except for financial assets and financial liabilities at fair value
through profit or loss that have been measured at fair value.
The Company presents its statement of financial position with
assets and liabilities listed in order of liquidity. An analysis
regarding settlement within 12 months after the reporting
date (current) and more than 12 months after the reporting
date (non-current) is presented in Note 13.
After making reasonable inquiries and assessing all data
relating to the Company’s liquidity, particularly its holding
of cash and Level 1 assets in relation to its liabilities, the
Investment Manager and the Board of Directors believe that
the Company is well placed to manage its business risks,
has adequate resources to continue in operational existence
through April 30, 2024 and do not consider there to be any
threat to the going concern status of the Company. For these
reasons, the Company has adopted the going concern basis in
preparing the Financial Statements.
Financial Instruments
Financial Assets and Financial Liabilities at Fair Value
Through Profit or Loss and Commodity Interests
Classification
In accordance with IFRS 9, the Company classifies its
financial assets and financial liabilities at initial recognition
into the categories of financial assets and financial
liabilities. A financial asset or financial liability is measured
at fair value through profit or loss if it meets the definition of
held for trading.
In applying that classification, a financial asset or financial
liability is considered to be held for trading if: (a) it is
acquired or incurred principally for the purpose of selling or
repurchasing it in the near term or (b) on initial recognition,
it is part of a portfolio of identified financial instruments that
are managed together and for which, there is evidence of a
recent actual pattern of short-term profit-taking or (c) it is a
derivative (except for a derivative that is a financial guarantee
contract or a designated and eective hedging instrument).
Financial Assets
The Company classifies its financial assets as subsequently
measured at fair value through profit or loss or measured at
amortized cost based on the Company’s business model for
managing the financial assets and the contractual cash flow
characteristics of the financial asset.
Financial assets measured at fair value through profit
or loss (“FVPL”)
A financial asset is measured at fair value through profit or
loss if: (a) its contractual terms do not give rise to cash flows
on specified dates that are Solely Payments of Principal and
Interest (“SPPI”) on the principal amount outstanding or (b)
it is not held within a business model whose objective is either
to collect contractual cash flows, or to both collect contractual
cash flows and sell or (c) at initial recognition, it is irrevocably
designated as measured at FVPL when doing so eliminates
or significantly reduces a measurement or recognition
inconsistency that would otherwise arise from measuring
assets or liabilities or recognizing the gains and losses on
them on dierent bases. The Company includes in this
category investments in securities and derivative financial
instruments.
Financial assets measured at amortized cost
A debt instrument is measured at amortized cost if it is held
within a business model whose objective is to hold financial
assets in order to collect contractual cash flows, and its
contractual terms give rise on specified dates to cash flows
that are SPPI on the principal amount outstanding. The
Company includes in this category short-term non-financing
receivables including cash collateral posted on derivative
contracts and other receivables.
Annual Report 2022
73
Pershing Square Holdings, Ltd.
(iii) Initial Measurement
Bonds are measured initially at their par values minus the
original issue discount, if any, and any transaction costs
directly attributable to their issuance.
(iv) Subsequent Measurement
After initial measurement, the Company measures the
Bonds at amortized cost using the eective interest method.
Interest expense relating to the Bonds is calculated using the
eective interest method allocated over the relevant period
and is recognized in the statement of comprehensive income
accordingly. The interest expense relating to the Bonds
includes the amortization of coupon interest, the original
issue discount, if any, and the transaction costs attributable to
their issuance.
(v) Derecognition
The Company will derecognize its liability associated with
each of the Bonds upon maturity, tender, or in the event that
the Company exercises its prepayment option for all or some
of the Bonds, in which case all or some of the liability would be
derecognized at the settlement date.
Fair Value Measurement
The Company measures its investments in financial
instruments, such as equities, options and other derivatives,
at fair value at each reporting date. Fair value is the price that
would be received to sell an asset or paid to transfer a liability
in an orderly transaction between market participants at the
measurement date.
The Company values equity securities listed on a securities
exchange at the ocial closing price reported by the exchange
on which the securities are primarily traded on the date of
determination. In the event that the date of determination
is not a day on which the relevant exchange is open for
business, such securities are valued at the ocial closing price
Derecognition of financial assets
A financial asset (or, where applicable, a part of a financial
asset or a part of a group of similar financial assets) is
derecognized when the rights to receive cash flows from the
asset have expired.
Financial Liabilities
Financial liabilities measured at fair value through
profit or loss
A financial liability is measured at fair value through profit or
loss if it meets the definition of held for trading. This category
would include derivative contracts in a liability position and
equity instruments sold short since they are classified as held
for trading.
Financial liabilities measured at amortized cost
This category includes all financial liabilities, other than
those measured at fair value through profit or loss. The
Company includes in this category its Bonds and other
short-term payables.
Derecognition of financial liabilities
The Company will derecognize a financial liability when the
obligation under the liability is discharged, canceled or expired.
Bonds at Amortized Cost
(i) Classification
The Company classifies its Bonds, as discussed in Note 1 and
Note 18, at initial recognition at amortized cost.
(ii) Recognition
The Company recognizes its Bonds upon the date of issuance
of the Bonds.
Annual Report 2022
74
Pershing Square Holdings, Ltd.
reported by the exchange on the most recent business day
prior to the date of determination. Exchange-traded options
and securities listed on a securities exchange for which the
exchange does not report an ocial closing price on the date
of determination (other than because the relevant exchange
was closed on such date) are valued at the average of the most
recent “bid” and “ask” prices.
Securities that are not listed on an exchange (both equity and
debt) but for which external pricing sources (such as dealer
quotes or other independent pricing services) may be available
are valued by the Investment Manager after considering,
among other factors, such external pricing sources, recent
trading activity or other information that, in the opinion of the
Investment Manager, may not have been reflected in pricing
obtained from external sources. The practical application of
quoted market prices to portfolio positions is a function of
the quoted dierential in bid/oer spreads. Long and short
positions generally are marked to mid-market (subject to
the Investment Manager’s discretion to mark such positions
dierently if and when deemed appropriate).
In order to value over-the-counter credit derivatives, the
Investment Manager uses a third-party pricing service
that obtains quotes from multiple dealers. Cleared credit
derivatives (including index credit default swaps) will
generally be valued using prices obtained from the clearing
house that clears the majority of the volume of such credit
derivative and/or as necessary, the value of a third-party
pricing provider if a single clearing house does not clear the
majority of such credit derivative.
Investments that have unobservable inputs are fair valued
using valuation methodologies determined by the Investment
Manager. The Investment Manager may choose to employ an
independent third-party valuation firm to conduct valuations.
The valuation committee of the Investment Manager
considers the appropriateness of the valuation methods and
inputs, including information obtained after the close of
markets, and may request that alternative valuation methods
be applied to support the valuation arising from the methods
discussed. Any material changes in valuation methods are
discussed and agreed with the Board of Directors.
Offsetting of Financial Instruments
Financial assets and financial liabilities are reported gross
by counterparty in the statement of financial position. It
is not the Company’s intention to settle financial assets
and financial liabilities net of the collateral pledged to or
received from counterparties.
Presented in Note 8 are the Company’s derivative assets
and liabilities reported by counterparty, showing the eect
of netting financial assets and financial liabilities against
collateral pledged to or received from the same relevant
counterparties.
Functional and Presentation Currency
The Company’s functional currency is the United States
Dollar (“USD”), which is the currency of the primary
economic environment in which it operates. The Company’s
performance is evaluated, and its liquidity is managed, in
USD. Therefore, USD is considered the currency that most
faithfully represents the economic eects of the underlying
transactions, events and conditions. The presentation
currency of the Company’s Financial Statements is USD.
Foreign Currency Translations
Assets and liabilities denominated in non-U.S. currencies
are translated into USD at the prevailing exchange rates at
the reporting date. Transactions in non-U.S. currencies are
translated into USD at the prevailing exchange rates at the
time of the transaction.
The Company includes the portion of gains and losses on
investments due to changes in foreign exchange rates with the
portion due to changes in market prices of the investments
Annual Report 2022
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Pershing Square Holdings, Ltd.
based on the classification of the underlying investment in the
statement of comprehensive income.
The portion of gains and losses related to the Bonds’ liability
(including the interest expense liability) due to changes
in foreign exchange rates is included in net gain/(loss)
on currency translation of the Bonds in the statement of
comprehensive income.
Amounts Due To and Due From Brokers
Due from brokers consists of cash held at the Company’s
prime brokers, cash and securities pledged in connection with
derivative contracts and amounts receivable for securities
transactions that have not settled at the reporting date, if
any. Cash related to securities sold, not yet purchased, is
restricted until the securities are purchased. Due to brokers
consists of cash received from counterparties to collateralize
the Company’s derivative contracts and amounts payable for
securities transactions that have not settled at the reporting
date, if any.
Cash and Cash Equivalents
The Company considers all highly liquid financial instruments
with a maturity of three months or less at the time of purchase
to be cash equivalents. Cash and cash equivalents in the
statement of financial position is comprised of U.S. Treasury
Bills and money market funds which are invested in U.S.
Treasury obligations.
Investment Income/Expense
Dividend income is recognized on the date on which the
investments are quoted ex-dividend and presented gross
of withholding taxes, which are disclosed separately in the
statement of comprehensive income. Dividend expense
relating to securities sold not yet purchased is recognized
when the shareholders’ right to receive the payment is
established. Interest income and expense related to cash,
collateral cash received/posted by the Company, rebate
expense and borrowing costs on securities sold not yet
purchased and securities lending is recognized when
earned/incurred.
Net Gain or Loss on Financial Assets and Financial
Liabilities at Fair Value Through Profit or Loss
The Company records its security transactions and the related
revenue and expenses on a trade date basis.
Unrealized gains and losses comprise changes in the fair value
of financial instruments for the year and from reversal of prior
years’ unrealized gains and losses for financial instruments
which were realized in the reporting period.
Realized gains and losses on disposals of financial instruments
classified at fair value through profit or loss are calculated
using the highest cost relief method (specific identification).
These gains or losses represent the dierences between an
instrument’s initial carrying amount and disposal amount, or
cash payments or receipts from derivative contracts.
Professional Fees
Professional fees include, but are not limited to, expenses
relating to accounting, investment valuation, administrative
services, auditing, tax preparation expenses, legal fees and
expenses, professional fees and expenses (including fees and
expenses of investment bankers, advisers, appraisers, public
and government relations firms and other consultants and
experts) and investment-related fees and expenses including
research, but excluding investment transaction costs.
Other Expenses
Other expenses include, but are not limited to, investment-
related expenses associated with activist campaigns
including expenses for: (i) proxy contests, solicitations
and tender oers; (ii) compensation, indemnification and
expenses of nominees proposed by the Investment Manager
as directors or executives of portfolio companies; and (iii)
printing and postage expenses, bank service fees, insurance
expenses, and expenses relating to regulatory filings and
registrations made in connection with the Company’s
business and investment activities.
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Pershing Square Holdings, Ltd.
Taxes
The Company is not subject to any income or capital gains
taxes in Guernsey. The Company is subject to withholding taxes
applicable to certain investment income, such as dividends.
Deferred tax assets and liabilities are measured at the tax
rates that are expected to apply in the year when the asset is
realized or the liability is settled, based on tax rates (and tax
laws) that have been enacted or substantively enacted at the
reporting date. See Note 19 for further details.
Management Fees and Performance Fees
The Company recognizes management fees and performance
fees in the period in which they are incurred in accordance
with the terms of the IMA, which is an executory contract
under IAS 37 as discussed in Note 3. Refer to Note 15 for
detailed information regarding the calculation of both fees.
Net Assets Attributable to Management Shareholders
In accordance with IAS 32, the Company classifies its Public
Shares and the Special Voting Share as equity, as shareholders
do not have any rights of redemption.
Management Shares can be converted into a variable
number of Public Shares based upon their net asset values
as of the last day of each calendar month and are therefore
classified as financial liabilities in accordance with IFRS.
At no time can Management Shares be redeemed in cash
at the option of the management shareholders. Net assets
attributable to Management Shares, if any, are accounted for
on an amortized cost basis at the net asset value calculated
in accordance with IFRS. The change in the net assets
attributable to Management Shares, other than that arising
from share issuances, share repurchases or conversions, is
recognized in the statement of comprehensive income.
As of December 31, 2020, all Management Shares were
converted to Public Shares.
3. SIGNIFICANT ACCOUNTING
JUDGEMENTS, ESTIMATES AND
ASSUMPTIONS
The preparation of the Company’s Financial Statements
requires management to make judgements, estimates and
assumptions that aect the reported amounts recognized
in the Financial Statements and disclosure of contingent
liabilities. Uncertainty about these assumptions and
estimates could result in outcomes that could require a
material adjustment to the carrying amount of the asset or
liability in future periods.
Judgements
In the process of applying the Company’s accounting
policies, management has made the following judgements,
which have a significant eect on the amounts recognized in
the Financial Statements:
Assessment of Investment Management Agreement as
an executory contract
The Company classifies the IMA as an executory contract.
Under paragraph 3 of IAS 37, “executory contracts” are
contracts under which neither party has performed any of
its obligations or both parties have partially performed their
obligations to an equal extent. The objective of IAS 37 is to
ensure, inter alia, that appropriate recognition criteria and
measurement bases are applied to provisions, contingent
liabilities and contingent assets. The Board has determined
that the IMA meets the definition of an executory contract
in that: it is a contract for the performance of services, it
imposes continuing obligations on each party, and it has
been entered into for a renewable term.
Under the IMA, the services that the Company has
contracted for consist of investment management services
to be delivered by the Investment Manager. The Investment
Manager has sole authority to make investments on
behalf of the Company throughout the term of the IMA.
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Pershing Square Holdings, Ltd.
In consideration for those services, the Company has
continuing obligations to pay management fees and
performance fees (if any). See Note 15 - Investment
Management Agreement – Management Fees, Performance
Fees and Termination.
As explained in Note 15, the performance fee is made up of
certain components including the Potential Oset Amount
(as defined in Note 15). In the Company’s judgment, these
components constitute a single unit of account because no
component is payable without the others being payable,
the components are settled as a single amount and it is not
possible to segregate the dierent services provided by the
Company and attribute them to the dierent components of
the performance fee.
The IMA is automatically renewable each December 31 for
one year. The IMA is terminable (a) at December 31 of any
year by each party upon four months’ prior notice (subject,
in the case of termination by the Company, to shareholder
approval requiring a 66 2/3 % majority by voting power
of the outstanding shares and a 66 2/3 % majority of the
outstanding Public Shares, as prescribed by the Company’s
Articles of Incorporation) or (b) at any time if the other
party liquidates, a receiver or liquidator or administrator is
appointed in respect of the other party’s assets or the other
party commits a material breach that remains uncured
for more than 30 days after notice thereof. The Company
considers that its termination rights are substantive. In
the event that the IMA is terminated, the Company is only
liable for performance fees up to the date of termination,
and the Investment Manager cannot recover any Potential
Oset Amount (except to the extent that it is part of the
performance fee).
In its application of IAS 37, the Board has determined
that payment of performance fees is entirely dependent
on performance of services under the IMA and on the
Company’s NAV appreciation generated by those services
(subject to standard high water mark arrangements).
Accordingly, those fees (including the Potential Oset
Amount component of performance fees) arise and are
recognized as the services are performed by the Investment
Manager, and the Company’s NAV appreciates. The
Company accrues a provision for performance fees over
the applicable period based on its NAV appreciation above
the high water mark. The Board has assessed that in this
manner, the Company’s NAV appreciation appropriately
matches the timing of recognizing the Company’s obligation
to pay fees that may be triggered by such NAV appreciation.
The Company also assessed whether the Potential
Oset Amount gave rise to a financial liability under the
requirements to record contingent settlement obligations
in IAS 32 paragraph 25. The Company concluded that no
financial liability arises until December 31 of each year, at
which point the performance fee including the oset amount
crystallizes, because the arrangements only give rise to a
financial asset for the Investment Manager at that date.
Assessment of Company investment as structured entity
IFRS 12 defines a structured entity as an entity that has
been designed so that voting or other similar rights of
the investors are not the dominant factor in deciding who
controls the entity.
PS VII Master, L.P. (“PS VII Master”) operates as a co-
investment vehicle invested primarily in securities of (or
otherwise seeking to be exposed to the value of securities
issued by) Universal Music Group N.V. (“UMG”), commenced
operations on August 9, 2021 and is an aliated investment
fund. As of December 31, 2022 and December 31, 2021,
the Company held an investment in PS VII Master. This
investment is reflected under financial assets at fair value
through profit or loss in the statement of financial position.
The Company has assessed whether PS VII Master should
be classified as a structured entity. The Company has
considered the terms of the investment management
agreement between PS VII Master and the Investment
Manager along with the voting and redemption rights of
the other PS VII Master investors, including their rights
to remove the Investment Manager, and has determined
Annual Report 2022
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Pershing Square Holdings, Ltd.
that the dominant factor of control of PS VII Master is PS
VII Master’s contractual agreement with the Investment
Manager. The Company, therefore, has concluded that PS
VII Master is a structured entity.
The Company, Pershing Square, L.P. (“PSLP”) and
Pershing Square International, Ltd. (“PSINTL” and
together with the Company and PSLP, the “Pershing Square
Funds”) wholly own Pershing Square SPARC Sponsor, LLC
(“SPARC Sponsor”), a Delaware limited liability company,
as non-managing members and are its only source of
funding. The business and aairs of SPARC Sponsor are
managed exclusively by its non-member manager, PSCM.
SPARC Sponsor is the sponsor entity for Pershing Square
SPARC Holdings, Ltd. (“SPARC”), a Delaware corporation,
which is a newly organized company formed for the
purpose of eecting a merger, capital stock exchange,
asset acquisition, stock purchase, reorganization or similar
business combination with one or more businesses. SPARC
filed its initial Form S-1 Registration Statement (“SPARC
S-1”) with the SEC on November 24, 2021 and subsequently
filed amendments with the most recent amendment filed on
March 24, 2023. As of December 31, 2022 and December 31,
2021, the Company held an investment in SPARC Sponsor.
This investment is reflected under financial assets at fair
value through profit or loss in the statement of financial
position. SPARC remains subject to SEC approval. No
assurance can be given that SPARC will be eectuated.
Pershing Square SPARC Holdings, Ltd. (“SPARC Cayman”),
a Cayman Islands exempted company and its sponsor
entity, Pershing Square SPARC Sponsor Cayman, LLC
(“SPARC Sponsor Cayman”), a Delaware limited liability
company were previously formed for the same purpose as
SPARC and SPARC Sponsor, but the Investment Manager
later determined to proceed using a Delaware entity. In
connection therewith, the Investment Manager determined
to liquidate SPARC Cayman and SPARC Sponsor Cayman.
SPARC Sponsor Cayman was wholly owned by the Pershing
Square Funds as non-managing members. The business and
aairs of SPARC Sponsor Cayman were managed exclusively
by its non-member manager, PSCM. As of December 31,
2021, the Company held an investment in SPARC Sponsor
Cayman which is reflected under financial assets at fair value
through profit or loss in the statement of financial position.
The Company has assessed whether SPARC Sponsor and
SPARC Sponsor Cayman should be classified as structured
entities. The Company has considered the terms of the limited
liability company agreements of SPARC Sponsor and SPARC
Sponsor Cayman and has determined that the dominant
factor of control is PSCM’s role as non-member manager. The
Company, therefore, has concluded that SPARC Sponsor and
SPARC Sponsor Cayman are structured entities.
The Pershing Square Funds wholly owned Pershing Square
TH Sponsor, LLC (“PSTH Sponsor”), a Delaware limited
liability company, as non-managing members and were its
only source of funding. The business and aairs of PSTH
Sponsor were managed exclusively by its non-member
manager, PSCM. PSTH Sponsor was the sponsor entity
for Pershing Square Tontine Holdings, Ltd. (“PSTH”), a
Delaware corporation, which was a blank check company
formed for the purpose of eecting a merger, capital stock
exchange, asset acquisition, stock purchase, reorganization
or similar business combination with one or more
businesses. PSTH filed its initial Form S-1 Registration
Statement (the “PSTH S-1”) with the Securities and
Exchange Commission (“SEC”) on June 22, 2020 and
subsequently had its Initial Public Oering (“IPO”) on July
22, 2020. On July 11, 2022, PSTH announced that it would
not consummate an IBC within the time period required by
its charter and would redeem all of its outstanding shares of
Class A common stock, eective as of the close of business
on July 26, 2022. PSTH liquidated on September 27, 2022.
As of December 31, 2021, the Company held an investment
in PSTH Sponsor. This investment is reflected under
financial assets at fair value through profit or loss in the
statement of financial position.
The Company assessed whether PSTH Sponsor should
be classified as a structured entity. The Company has
considered the terms of the limited liability company
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Pershing Square Holdings, Ltd.
valuation agents. The independent third-party pricing
services/valuation agents utilize proprietary models to
determine fair value. The valuation agents’ modeling may
consider, but is not limited to, the following inputs: amount
and timing of cash flows, probability assessments, volatility
of the underlying securities’ stock price, comparable
transaction data, dividend yields and/or interest rates.
Changes in assumptions about these factors could aect the
reported fair value of financial instruments in the statement
of financial position and the level where the instruments
are disclosed in the fair value hierarchy. The models are
calibrated regularly and tested for validity using prices
from observable current market transactions in the same
instrument (without modification or repackaging) or based
on available observable market data. Refer to Note 7 for the
sensitivity analysis performed on significant unobservable
inputs used in the valuation of Level 3 investments.
4. NEW STANDARDS, INTERPRETATIONS
AND AMENDMENTS
The Company has assessed the impact of amendments made
to IFRS 1, IFRS 3, IFRS 9, IAS 16, IAS 37 and IAS 41, and has
determined that they do not aect the Company’s Financial
Statements. The Company has also assessed the impact of
the following amendments, which have been issued but are
not yet eective, and has determined that they are unlikely
to aect the Company’s Financial Statements.
agreement of PSTH Sponsor and has determined that the
dominant factor of control is PSCM’s role as non-member
manager. The Company, therefore, has concluded that
PSTH Sponsor was a structured entity.
All realized and unrealized gains and losses from the
Company’s investments in PSTH Sponsor, PS VII Master,
SPARC Sponsor Cayman and SPARC Sponsor (collectively,
the “Structured Entities”) are reflected in the statement of
comprehensive income for the years ended 2022 and 2021,
as applicable. The Company has not provided any financial
or other support to these unconsolidated Structured Entities.
See Note 7 for the discussion on the fair value measurement
and Note 16 for related party transactions regarding the
Company’s investments in the Structured Entities.
Estimates and Assumptions
The key assumptions concerning the future and other key
sources of estimation uncertainty at the reporting date, that
have a significant risk of causing a material adjustment to
the carrying amounts of assets and liabilities within the next
financial year, are discussed below. The Company based
its assumptions and estimates on parameters available
when the Financial Statements were prepared. Existing
circumstances and assumptions about future developments
may change due to market changes or circumstances arising
beyond the control of the Company. Such changes are
reflected in the assumptions when they occur.
Fair Value of Financial Instruments
When the fair value of financial assets and financial liabilities
recorded in the statement of financial position cannot be
derived from active markets, their fair value is determined
by the Investment Manager using prices obtained from
counterparties or independent third-party pricing services/
New Pronouncement Effective Date
IFRS Insurance Contracts January ,
Amendments to IAS – Classification of
Liabilities as Current or Non-current
January ,
Amendments to IAS – Definition of
Accounting Estimates
January ,
Amendments to IAS – Deferred Tax
related to Assets and Liabilities arising from
a Single Transaction
January ,
Annual Report 2022
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Pershing Square Holdings, Ltd.
6. FINANCIAL ASSETS AND FINANCIAL
LIABILITIES AT FAIR VALUE THROUGH
PROFIT OR LOSS
Financial assets at fair value through profit or loss:
Financial liabilities at fair value through profit or loss:
5. SEGMENT INFORMATION
In accordance with IFRS 8: Operating Segments, it is
mandatory for the Company to present and disclose
segmental information based on the internal reports that
are regularly reviewed by the Board in order to assess each
segment’s performance.
Management information for the Company as a whole is
provided internally to the Directors for decision-making
purposes. The Board’s decisions are based on a single
integrated strategy and the Company’s performance is
evaluated on an overall basis. The Company has a portfolio
of long and occasionally short investments that the Board
and Investment Manager believe exhibit significant
valuation discrepancies between current trading prices
and intrinsic business value, often with a catalyst for value
recognition. Therefore, the Directors are of the opinion
that the Company is engaged in a single economic segment
of business for all decision-making purposes. The financial
results of this segment are equivalent to the results of the
Company as a whole.
As of December 31 2022 2021
Investments in securities
Derivative financial instruments
Financial assets at fair value
through profit or loss
As of December 31 2022 2021
Derivative financial instruments
Financial liabilities at fair
value through profit or loss
For the years ended
December 31 2022 2021
Realized Unrealized
Total
Gains/(Losses) Realized Unrealized
Total
Gains/(Losses)
Financial assets at fair
value through profit or loss () () ()
Derivative financial
instruments () ()
Net changes in fair value () ()
Net changes in fair value of financial assets and financial liabilities through profit or loss:
Annual Report 2022
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Pershing Square Holdings, Ltd.
7. FAIR VALUE OF ASSETS
AND LIABILITIES
Fair Value Hierarchy
IFRS 13 requires disclosures relating to fair value
measurements using a three-level fair value hierarchy. The
level within which the fair value measurement is categorized
is determined on the basis of the lowest level input that is
significant to the fair value measurement. Assessing the
significance of a particular input requires judgment and
considers factors specific to the asset or liability. Financial
instruments are recognized at fair value and categorized in
the following table based on:
Level 1 – Inputs are unadjusted quoted prices in active
markets.
Level 2 – Inputs (other than quoted prices included in Level
1) are obtained directly or indirectly from observable market
data at the measurement date.
Level 3 – Inputs, including significant unobservable
inputs, reflect the Company’s best estimate of what market
participants would use in pricing the assets and liabilities at
the measurement date.
As of December 31 2022 2021
Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total
Financial Assets:
Equity Securities:
Common Stock:
Financial Services – – – –
Hospitality – – – –
Media – – – –
Real Estate Development and
Operating – – – –
Restaurant – – – –
Retail – – – –
Transportation – – – –
Preferred Stock:
Financial Services – – – –
Investment in Aliated Entities:
Media –
()
– –
()
–
Special Purpose Acquisition Company – – – – – –
()
Special Purpose Acquisition Rights
Company – – –
()
– – – –
()
–
Derivative Contracts:
Currency Call/Put Options –
()
– – – – –
Currency Forwards –
()
– –
()
–
Equity Options –
()
– – – – –
Forward Purchase Units:
Special Purpose Acquisition Company – – – – – –
()
Interest Rate Swaptions –
()
– –
()
–
Total –
Recurring Fair Value Measurement of Assets and Liabilities
(in thousands)
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Pershing Square Holdings, Ltd.
As of December 31 2022 2021
Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total
Financial Liabilities:
Derivative Contracts:
Equity Forwards:
Transportation $ – – – – –
()
–
Currency Forwards –
()
– –
()
–
Forward Purchase Units:
Special Purpose Acquisition Company – – – – – –
()
Total $ – – –
(1) Level 2 financial instruments include OTC currency call/put options, equity options, interest rate swaptions and currency forwards that are fair valued by the Investment
Manager. The fair values of these financial instruments may reflect, but are not limited to, the following inputs: current market and contractual prices from market makers
or dealers, volatilities of the underlying financial instruments, interest rates, and/or current foreign exchange forward and spot rates. The significant inputs are market
observable and included within Level 2. The Investment Manager utilizes a third-party pricing service and its widely recognized valuation models, to obtain fair values of these
financial instruments.
(2) These figures relate to the Company’s investment in PS VII Master as of the years ended 2022 and 2021, as discussed in Note 16. For the year ended 2022 the instruments
underlying the Company’s investment in PS VII Master included 99.9% (2021: 98.7%) of Level 1 financial instruments, 0.0% (2021: 0.9%) of Level 2 financial instruments and
0.01% (2021: 0.4%) of other assets and liabilities that are outside the scope of IFRS 13. Due to certain restrictions on when the Company can dispose of its investment, the
Investment Manager has determined that PS VII Master is a Level 2 financial instrument.
(3) This figure relates to the Company’s investment in PSTH Sponsor (refer to Note 16). Substantially all of the instruments underlying the Company’s investment in PSTH
Sponsor are Level 3.
(4) These figures relate to the Company’s investments in the Committed Forward Purchase Units and the Additional Forward Purchase Units. Refer to Note 16 for further details.
(5) Level 2 financial instruments include equity forward contracts that are fair valued by the Investment Manager using market observable inputs. The fair values of these financial
instruments may reflect, but are not limited to, the following inputs: market price of the underlying security, notional amount, and/or fixed and floating interest rates.
(6) Figure relates to the Company’s investment in Pershing Square SPARC Sponsor LLC. Refer to Note 16 for further details.
Recurring Fair Value Measurement of Assets and Liabilities (continued)
(in thousands)
The Company’s cash and cash equivalents and short-term
receivables and payables are recorded at carrying value which
approximates fair value. The Bonds, which are not included in
the table of Recurring Fair Value Measurement of Assets and
Liabilities, are classified as Level 1 financial liabilities and the
fair values of the Bonds are discussed further in Note 18.
Some of the Company’s investments in Level 1 securities
represent a significant portion of the Company’s portfolio.
If such investments were sold or covered in their entirety, it
might not be possible to dispose of them at the quoted market
price which IFRS requires to be used in determining fair value.
The Directors have considered the impact of climate change
on the valuation of the Company’s investments. In line with
IFRS the Company’s investments are valued at fair value,
which for substantially all of the Company’s investments
are, or incorporate, quoted prices for investments in active
markets at December 31, 2022 and therefore reflect market
participants’ view of climate change risk. Climate change risk
does not have a material impact on the value of the Company’s
other investments.
Level 3 Transfers
Transfers between levels during the year are determined
and deemed to have occurred at each financial statement
reporting date. There were no transfers into or out of Level
3 fair value measurements since the last financial statement
reporting date.
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Pershing Square Holdings, Ltd.
Level 3 Reconciliation
Level 3 investments are fair valued using valuation
methodologies determined by the Investment Manager. In
applying its valuation methods, the Investment Manager
utilizes information including, but not limited to the following:
amount and timing of cash flows, probability assessments,
volatility of the underlying securities’ stock price, comparable
transaction data, dividend yields and/or interest rates. The
Investment Manager employed an independent third-party
valuation firm to conduct valuations for the Forward Purchase
Units and the Sponsor Warrants held by PSTH Sponsor
(each as disclosed in Note 16). The independent third-party
valuation firm provided the Investment Manager with a
written report documenting their recommended valuations as
of the determination date.
The following table summarizes the change in the carrying
amounts associated with Level 3 investments for the years
ended 2022 and 2021.
As disclosed in the table above, the Company had net losses of $155,920,358 and $588,927,039 for the years ended December
31, 2022 and December 31, 2021, respectively, from Level 3 securities. A majority of the net loss in 2022 was attributable
to the Company’s investment in PSTH Sponsor due to the liquidation of PSTH as fully described in Note 16. The net loss in
2021 was primarily driven by changes in the market value of the Company’s investments in PSTH Sponsor and the Forward
Purchase Units due to a decrease in the price of PSTH’s publicly traded Class A common stock. PSTH Class A common stock
traded lower from its price of $27.72 on December 31, 2020 to $19.72 on December 31, 2021. The Company had net gains of
$694,217,768 in 2020 from its investments in PSTH Sponsor and the Forward Purchase Units. The total net loss related to
PSTH instruments for the Company was $44.8 million.
Forward
Purchase Units
PSTH
Sponsor
SPARC Sponsor
Cayman
SPARC
Sponsor Total
Balance at December 31, 2021 () – –
Purchase of SPARC Cayman common shares – – –
Purchase of SPARC common shares – – –
Contribution to sponsor entity – –
Distribution from Class B shares – () – – ()
Net gain/(loss) () () () ()
Balance at December 31, 2022 – – – – –
Forward
Purchase Units
PSTH
Sponsor
SPARC Sponsor
Cayman
SPARC
Sponsor Total
Balance at December 31, 2020 – –
Purchase of SPARC Cayman ordinary shares – – –
Purchase of SPARC ordinary shares – – –
Net gain/(loss) () () () () ()
Balance at December 31, 2021 () – –
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Pershing Square Holdings, Ltd.
As of December 31, 2021
Financial Assets/
Liabilities Fair Value
Valuation
Techniques Unobservable Input Input
Forward Purchase Units:
Committed Forward Purchase Units Financial Liability $ (5,923,858)
Black-Scholes
pricing model
Discount for Lack of Marketability %
Additional Forward Purchase Units Financial Asset $ 1,524,055
Black-Scholes
pricing model
Discount for Lack of Marketability %
Discount for Probability of Exercise %
Investment in PSTH Sponsor:
Sponsor Warrants Financial Asset $ 170,376,263
Black-Scholes
pricing model
Volatility 25%
Illiquidity Discount 20%
Probability of Warrant Renegotiation 18.8%
Quantitative Information of Significant Unobservable Inputs – Level 3
The table below summarizes quantitative information about the significant unobservable inputs used in the fair value
measurement and the valuation processes used by the Company for Level 3 securities as of December 31, 2021. As of
December 31, 2022, the Company’s only Level 3 security was its investment in SPARC Sponsor.
The significant unobservable inputs listed above as of
December 31, 2021 were reflective of the rights and
obligations associated with each investment.
The Discount for Lack of Marketability (“DLOM”) for the
Committed Forward Purchase Units related to an embedded
lock-up (the “FPA Lock-Up”), whereby the securities
underlying the Committed Forward Purchase Units could
not be sold for 180 days post the completion of PSTH’s Initial
Business Combination (“IBC”). As a result of the FPA Lock-
Up, the DLOM was 1% as of December 31, 2021.
The Additional Forward Purchase Units were subject to the
same FPA Lock-Up and had embedded optionality such that
they could have been exercised at any amount up to $2 billion.
This additional feature, combined with the FPA Lock-Up,
resulted in a DLOM of 45% as of December 31, 2021. The
Discount for Probability of Exercise was a direct result of
the embedded option component. It was modeled to reflect
the possible exercise of values between nil and $2 billion,
resulting in a discount of 79.8% as of December 31, 2021.
The Sponsor Warrants had three significant unobservable
inputs: (i) Volatility, (ii) Illiquidity Discount and (iii)
Probability of Warrant Renegotiation. The volatility of
25% as of December 31, 2021 reflected the anticipated
implied volatility of the potential target company from
PSTH’s IBC over the Sponsor Warrants’ 10-year term.
The Illiquidity Discount of 20% as of December 31, 2021
related to an embedded lock-up, whereby the securities
underlying the Sponsor Warrants could not have been sold
for three years post the completion of PSTH’s IBC. The
Probability of Warrant Renegotiation was a discount based
on the probability that the Sponsor Warrants would be
restructured at the time of PSTH’s IBC. The discount of 18.8%
as of December 31, 2021 was representative of the average
of sponsor incentive restructurings and founder stock
forfeitures in completed SPAC transactions.
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Pershing Square Holdings, Ltd.
Sensitivity Analysis to Significant Changes in Unobservable Inputs with Level 3 Hierarchy
The table below represents the significant unobservable inputs used in the fair value measurement of Level 3 investments
together with a quantitative sensitivity analysis as of December 31, 2021.
2021
Financial Assets/
Liabilities Unobservable Input
Sensitivity
Used
Effect on
Fair Value
Forward Purchase Units:
Committed Forward Purchase Units Financial Liability Discount for Lack of Marketability +%/-% / ()
Additional Forward Purchase Units Financial Asset
Discount for Lack of Marketability +%/-% () /
Discount for Probability of Exercise +%/-% () /
Investment in PSTH Sponsor:
Sponsor Warrants Financial Asset
Volatility +5%/-5% $34,608,359 / $(35,703,875)
Illiquidity Discount +5%/-5% $(10,648,536) / $10,648,536
Probability of Warrant Renegotiation +3%/-3% $(6,295,477) / $6,295,477
8. DERIVATIVE CONTRACTS
In the normal course of business, the Company enters into
derivative contracts for investment and hedging purposes.
These instruments are subject to various risks, similar to
non-derivative instruments, including market, credit and
liquidity risk (see Note 13). The Company manages these
risks on an aggregate basis along with other risks associated
with its investing activities as part of its overall risk
management strategy. All derivatives are reported at fair
value (as described in Note 2) in the statement of financial
position. Changes in fair value are reflected in the statement
of comprehensive income. A description of the derivatives
traded by the Company is below.
Options
Options are contractual agreements that convey the right,
but not the obligation, for the purchaser either to buy or sell
a specific amount of a financial instrument, commodity or
currency at a contracted price, either at a fixed future date
or at any time within a specified period.
The Company purchases and sells call and put options
through regulated exchanges and OTC markets. Options
purchased by the Company provide the Company with the
opportunity to purchase (call options) or sell (put options)
the underlying asset at an agreed-upon value either on
or before the expiration of the option, depending on the
option’s style of exercise.
The Company is exposed to credit risk on purchased options
only to the extent of their carrying amount, which is their
fair value. Options written by the Company provide the
purchaser (the party facing the Company) the opportunity
to purchase from or sell to the Company the underlying
asset at an agreed-upon value. In writing an option, the
Company bears the market risk of an unfavorable change in
the asset underlying the written option. The exercise by the
purchaser of an option written by the Company could result
in the Company buying or selling a financial instrument
at a price higher or lower than the current market value,
respectively. The maximum loss for written put options is
limited to the number of contracts written and the related
strike prices, and the maximum loss for written call options
(which could be unlimited) is contingent upon the market
price of the underlying asset at the exercise date. At
December 31, 2022 and December 31, 2021, the Company
had no written options.
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Pershing Square Holdings, Ltd.
Swaptions
A swaption is an option contract that provides its owner
the right, but not the obligation, to enter into a previously
agreed-upon swap on a future date or to cancel an existing
swap in the future. A payer swaption is an option to enter
into a swap as a fixed-rate payer and receive the floating
rate. A receiver swaption is an option to enter into a swap as
a fixed-rate receiver and pay the floating rate.
Equity Forwards
An equity forward contract involves a commitment by
the Company to purchase or sell equity securities for a
predetermined price, with payment and delivery of the
equity securities at a predetermined future date. An equity
forward embeds a cost of carry (interest) charge payable by
the Company (when the Company commits to purchase) or
receivable by the Company (when the Company commits to
sell) the underlying securities.
Currency Forwards
A currency forward contract is a commitment to purchase
or sell a currency on a future date at a negotiated forward
exchange rate. Currency forward contracts are used for
trading purposes and may hedge the Company’s exposure
to changes in currency exchange rates on its portfolio
investments.
Credit Default Swaps
Credit default swap contracts involve an arrangement
between two parties, which allows one party to protect
against losses incurred as a result of a specified credit event
relating to an underlying reference obligation or, in the
case of index credit default swaps, a basket of reference
obligations. The protection buyer will pay a fixed coupon
in return for a payment by the other party, the protection
seller, contingent upon a specified credit event occurring.
The protection buyer pays the protection seller a quarterly
fixed coupon. If a specified credit event occurs, there is an
exchange of cash flows and/or securities designed so that
the net payment to the protection buyer reflects the loss
incurred by holders of the referenced obligation in the event
of its default.
In the case of OTC credit default swaps, which are usually
on single reference entities, the ISDA agreement establishes
the nature of the credit event, and such events may include
bankruptcy and failure to meet payment obligations when
due. For cleared credit default swaps, the terms incorporate
a uniform set of definitions published by ISDA. At the point
in time when a credit default swap contract is entered into,
the parties thereto agree that the contract will be governed
by these definitions and that the determinations of the
Credit Derivatives Determinations Committees will be
binding on the contract.
The following table shows the fair values of derivative
financial instruments recorded as assets or liabilities as
of December 31, 2022 and December 31, 2021, together
with their average notional amounts which is indicative
of the trading activity throughout the year. The notional
amount, which is recorded on a gross basis, is the amount
of a derivative’s underlying asset, reference rate or index
value, and is the basis upon which changes in the value of
derivatives are measured.
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Pershing Square Holdings, Ltd.
As of December 31 2022 2021
Fair Value Notional
(1)
Fair Value Notional
(2)
Derivatives primarily held for trading purposes
Assets
Currency Call/Put Options $ $ – $ –
Forward Purchase Units – –
Total Assets $ $ $
Liabilities
Equity Forwards $ – $ – $
Forward Purchase Units – –
Total Liabilities $ – $ – $
Derivatives primarily held for risk management purposes
Assets
Currency Forwards $ $ $
Equity Options – –
Interest Rate Swaptions
Total Assets $ $ $
Liabilities
Credit Default Swaps $ – $ – – $ –
Currency Forwards
Index Credit Default Swaps – – – –
Total Liabilities $ $ $
(1) The Company also traded Commodity Options, Equity Forwards and Forward Purchase Units during 2022 but did not hold these instruments as of December 31, 2022 and the
average notional amounts traded were $21.3 million, $411.4 million and $508.6 million, respectively.
(2) The Company also traded Currency Call/Put Options, Credit Default Swaps and Index Credit Default Swaps during 2021 but did not hold these instruments as of December 31,
2021 and the average notional amounts traded were $1.5 million, $21.8 million and $5,803.9 million, respectively.
Fair Value of Derivative Financial Instruments
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88
Pershing Square Holdings, Ltd.
Amounts Not Offset in the
Statement of Financial Position
As of
December 31, 2022
Gross
Amounts
(1)
Gross
Amounts
Offset in the
Statement
of Financial
Position
Net Amounts
Presented in
the Statement
of Financial
Position
(1)
Financial
Instruments
(Policy
Election)
(2)
Financial
Collateral
Pledged /
(Received)
(3,4)
Net Amount
Derivative Assets
Counterparty A $ 251,620,138 –$ 251,620,138 –$ (244,010,000) $ 7,610,138
Counterparty D 276,196,921 – 276,196,921 – (269,480,000) 6,716,921
Counterparty E 155,174,348 – 155,174,348 – (152,820,000) 2,354,348
Counterparty F 4,034,895 – 4,034,895 – (3,980,000) 54,895
Counterparty G 278,809 – 278,809 – (278,809) –
Total $ 687,305,111 –$ 687,305,111 –$ (670,568,809) $ 16,736,302
Derivative Liabilities
Counterparty H – – – –
Total – – – –
Offsetting of Derivative Assets and Liabilities
The table below summarizes gains or losses from the Company’s
derivative trading activities for December 31, 2022 and December
31, 2021 that are included in investment gains and losses.
Derivatives for
Trading Activities
Year Ended 2022
Net Gain/(Loss)
Year Ended 2021
Net Gain/(Loss)
Commodity Options () –
Credit Default Swaps – ()
Currency Call/Put Options () ()
Currency Forwards
Equity Forwards ()
Equity Options ()
Forward Purchase Units ()
Index Credit Default Swaps – ()
Interest Rate Swaptions
Total Return Swaps – ()
Total Net Gain/(Loss)
Offsetting of Derivative Assets and Liabilities
IFRS 7 requires an entity to disclose information about
osetting rights and related arrangements. The disclosures
provide users with information to evaluate the eect of
netting arrangements on an entity’s financial position.
The disclosures are required for all recognized financial
instruments that could be oset in accordance with IAS
32 Financial Instruments Presentation. The disclosures
also apply to recognized financial instruments that are
subject to an enforceable master netting arrangement or
similar agreement, irrespective of whether they are oset in
accordance with IAS 32.
The table below displays the amounts by which the fair
values of derivative assets and liabilities could be oset in the
statement of financial position as a result of counterparty
netting. Collateral pledged/received represents amounts by
which derivative assets and liabilities could have been further
oset for financial statement presentation purposes if the
Company did not include collateral amounts in due from/to
brokers in the statement of financial position.
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Pershing Square Holdings, Ltd.
Amounts Not Offset in the
Statement of Financial Position
As of
December 31, 2021
Gross
Amounts
(1)
Gross
Amounts
Offset in the
Statement
of Financial
Position
Net Amounts
Presented in
the Statement
of Financial
Position
(1)
Financial
Instruments
(Policy
Election)
(2)
Financial
Collateral
Pledged /
(Received)
(3)
Net Amount
Derivative Assets
Counterparty A $ 326,527,964 –$ 326,527,964 –$ (289,720,000) $ 36,807,964
Counterparty B 513,573,400 – 513,573,400 – (485,154,594) 28,418,806
Total $ 840,101,364 –$ 840,101,364 –$ (774,874,594) $ 65,226,770
Derivative Liabilities
Counterparty C () – () – –
Total () – () – –
(1) As of December 31, 2022, the amounts of derivative contracts presented in the preceding table dier from the amounts reported in the statement of financial condition as a result of
derivative assets and liability contracts in the amounts of $17,649,711 and $10,245,916 (2021: $3,663,520 and $26,320,444), respectively, which are not subject to enforceable ISDA
master netting arrangements.
(2) Amounts related to ISDA master netting agreements, determined by the Company to be legally enforceable in the event of default and if certain other criteria are met in accordance
with applicable osetting accounting guidance, but were not oset due to the Company’s accounting policy.
(3) Amounts related to ISDA master netting agreements and collateral agreements determined by the Company to be legally enforceable in the event of default, but were not oset
due to the Company’s accounting policy. The collateral amounts may exceed the net amounts presented in the statement of financial condition. Where this is the case, the collateral
pledged/received is limited to the net amounts of financial assets and liabilities with that counterparty. As of December 31, 2022, the Company received additional collateral of
$101,191 (2021: $144,514,399) related to independent amounts and/or valuation dierences with the counterparty, not presented in the table above.
(4) The Company is subject to Uncleared Margin Rules, requiring the Company to post initial margin to individual third-party accounts custodied at a bank separate from the
counterparty with which the instruments are traded. The Company is subject to insolvency risk at the bank where these third-party accounts are custodied. The collateral posted
to the Company's third-party accounts is represented by "Counterparty H". The Company also received collateral from its counterparties into tri-party accounts at the same bank.
The securities posted to these accounts are only accessible in the event of counterparty default. As of December 31, 2022, the value of securities posted to the tri-party accounts was
$1.13 billion (2021: nil), which exceeded the Company's net exposure to its counterparties.
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Pershing Square Holdings, Ltd.
9. TRADE AND OTHER
RECEIVABLES/PAYABLES
The following is a breakdown of the Company’s trade and
other receivables/payables as stated in the statement of
financial position.
10. CASH AND CASH EQUIVALENTS
The following is a breakdown of the Company’s cash and cash
equivalents as stated in the statement of financial position.
As of December 1, 2022, money market fund investments
in Goldman Sachs Financial Square Treasury Instruments
Fund and BlackRock Liquidity Funds Treasury Trust Fund
had fair values of $1,083,858,632 (2021: $1,223,175,876) and
$50,299,312 (2021: $544,600,673), respectively.
As of December 31 2022 2021
Trade and other payables
Other payables
Interest payable
Settlement of share buybacks –
Performance fees payable –
11. SHARE CAPITAL
Authorized and Issued Capital
The Board has general and unconditional authority to issue
an unlimited number of shares (or options, warrants or other
rights in respect of shares). All of the Company’s share classes
participate pro-rata in the profits and losses of the Company
based upon the share class’s ownership of the Company at the
time of such allocation.
The Company had 190,858,442 Public Shares (2021:
199,120,882) and the Special Voting Share outstanding as
of December 31, 2022. The Company also held 20,098,308
Public Shares in Treasury (2021: 11,835,868) for a total of
210,956,750 Public Shares in issue (2021: 210,956,750) as of
December 31, 2022.
The Company’s Articles of Incorporation, in accordance with
the Listing Rules, incorporate pre-emption rights in favor
of existing shareholders on the issue or sale from treasury
of new equity securities for cash (or to issue any rights to
subscribe for or convert equity securities into ordinary shares
of the Company). At the 2022 Annual General Meeting,
the Company proposed and shareholders passed a special
resolution to approve the disapplication of the pre-emption
rights contained in the Articles of Incorporation so that
the Board has the authority to allot and issue (or sell from
treasury) up to 19,912,088 Public Shares (equal to 10% of
Public Shares outstanding as at the latest practicable date
prior to the date of publication of the 2022 Notice of the
Annual General Meeting). Such disapplication for issuances
of 10% or less of outstanding equity is commonly requested by
issuers listed on the LSE. The Company intends to propose the
same special resolution at the 2023 Annual General Meeting.
In order to maintain the status of the Company as a foreign
private issuer under U.S. securities law and regulations, the
Company has issued a Special Voting Share to PS Holdings
Independent Voting Company Limited (“VoteCo”), a
Guernsey limited liability company. The Special Voting Share
As of December 31 2022 2021
Trade and other receivables
Dividends receivable
Prepaids and other receivables
Interest receivable
As of December 31 2022 2021
Cash and cash equivalents
U.S. Treasury money
market funds
U.S. Treasury Bills –
Cash –
Annual Report 2022
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Pershing Square Holdings, Ltd.
at all times carries 50.1% of the aggregate voting power in the
Company (except for certain matters set forth in the Listing
Rules on which it may not vote). VoteCo’s organizational
documents require it to vote in the interest of the Company’s
shareholders as a whole. The Investment Manager has no
aliation with VoteCo. The members of the VoteCo board of
directors are independent from the Investment Manager and
have no interest in the Company or the Investment Manager.
VoteCo is wholly owned by a trust established for the benefit
of one or more charitable organizations outside of the United
States, currently the Breast Cancer Society of Canada.
Lock-up
In connection with the Company’s IPO, Mr. Ackman and
selected partners of the Investment Manager have each
entered into a lock-up arrangement with the Company (the
“Lock-Up Deed”) whereby their aggregate Management
Shares held at the time of the IPO are subject to a lock-up of
10 years commencing from October 1, 2014, other than sales
of Management Shares (i) required to pay taxes on income
generated by the Company; (ii) required due to regulatory
constraints; or (iii) following separation of employment from
the Investment Manager. Management Shares subject to
the Lock-Up Deed may from time to time be transferred to
aliates, provided that the transferee agrees to be subject
to the remaining lock-up period. On August 9, 2018, the
Company amended the Lock-Up Deed to clarify that parties to
the Lock-Up Deed may sell the specific Management Shares
they held at the time of the IPO, so long as they continue to
hold at least as many Management Shares in the aggregate as
they held at the time of the IPO (or, if the Management Shares
have been converted to Public Shares, so long as they hold at
least as many Public Shares as such Management Shares were
converted into). Following the conversion of all Management
Shares into Public Shares on December 31, 2020, 7,950,974
Public Shares remain subject to the Lock-Up Deed as of
December 31, 2022 and December 31, 2021.
Share Conversion
Subject to the terms of the Lock-Up Deed, holders of
Management Shares are entitled to convert Management
Shares into Public Shares and persons who are eligible to
hold Management Shares are entitled to convert Public
Shares into Management Shares, on a NAV-for-NAV basis at
each month end.
During the year ended December 31, 2022 and December
2021, there were no conversions between share classes.
Voting Rights
The holders of Public Shares have the right to receive notice
of, attend and vote at general meetings of the Company.
Public Shares held in Treasury do not have voting rights.
Each Public Share and Management Share, if any, carries
such voting power so that the aggregate issued number of
Public Shares and Management Shares carries 49.9% of the
total voting power of the aggregate number of voting shares.
Each Public Share carries one vote and each Management
Share carries such voting power so that the total voting power
of the Public Shares and Management Shares are pro-rated in
accordance with their respective net asset values. The Special
Voting Share carries 50.1% of the aggregate voting power in
the Company. The Special Voting Share and the Management
Shares may not vote on certain matters specified in the
Listing Rules.
Specified Matters
In order to comply with the Listing Rules, the Company was
required to make certain revisions to its shareholder voting
structure. The Listing Rules permit only holders of the Public
Shares to vote on certain matters (the “Specified Matters”).
Each of the Specified Matters is set forth in the Listing Rules.
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Pershing Square Holdings, Ltd.
Distributions
The Board may at any time declare and pay dividends (or
interim dividends) based upon the financial position of
the Company. No dividends shall be paid in excess of the
amounts permitted by the Companies (Guernsey) Law,
2008 and without the prior consent of the Board and the
Investment Manager.
On February 13, 2019, the Company initiated a quarterly
interim dividend of $0.10 per Public Share, which remained in
eect until March 28, 2022 when the Company announced an
increase to $0.125 per Public Share for the remainder of the
calendar year 2022. The Company’s intended policy in future
years is to pay quarterly dividends in an amount determined
by multiplying the average NAV per Public Share of all
trading days in December of the prior year by 0.25%, subject
to a cap on the total dividends paid for the year of 125% of
the average of the total dividends paid in each of the previous
three years. Once the dividend is set for a specific year, the
Company does not intend to decrease the dividend in future
years, even if the NAV per Public Share were to decline.
On January 31, 2023, the Company announced a quarterly
dividend of $0.1307 per Public Share for 2023.
A proportionate quarterly dividend will be paid per
Management Share and the Special Voting Share, based
on their respective net asset values per share. Dividends
will be paid in U.S. Dollars unless a shareholder elects to be
paid in GBP. Shareholders may also elect to reinvest cash
dividends into Public Shares through a DRIP administered by
an aliate of the Company’s registrar. Further information
regarding the dividend, including the anticipated payment
schedule and how to make these elections, is available at
https://pershingsquareholdings.com/psh-dividend- information.
Each dividend is subject to a determination that after the
payment of the dividend the Company will continue to meet
the solvency requirements under Guernsey law, and that, in
accordance with the indentures governing the Bonds, the
Company’s total indebtedness will be less than one third of
the Company’s total capital. The Board may determine to
modify or cease paying the dividend in the future.
In the year ended December 31, 2022, the Company paid
dividends of $93,271,012, a higher amount than it paid in
the year ended December 31, 2021 of $79,650,896 due to an
increase in the quarterly dividend beginning in the second
quarter of 2022.
Capital Management
The Company’s general objectives for managing capital are:
• To maximize its total return primarily through the capital
appreciation of its investments;
• To minimize the risk of an overall permanent loss of
capital; and
• To continue as a going concern.
To the extent the Investment Manager deems it advisable
and provided that there are no legal, tax or regulatory
constraints, the Company is authorized to manage its capital
through various methods, including, but not limited to: (i)
repurchases of Public Shares and (ii) further issuances of
shares, provided that the Board only intends to exercise its
authority to issue new shares if such shares are issued at a
value not less than the estimated prevailing NAV per share
(or under certain other specified circumstances).
At the 2022 Annual General Meeting, shareholders renewed
the Company’s authority to engage in share buybacks up to a
maximum of 14.99% of the Public Shares then outstanding.
The Company announced share buyback programs in May
and July of 2022 on the London Stock Exchange and Euronext
Amsterdam (the “2022 Share Buyback Programs”) of $100
million or for up to 10 million of the Company’s outstanding
Public Shares and $200 million or for up to 20 million of
the Company’s outstanding Public Shares, respectively.
The Company appointed Jeeries International Limited as
the buyback agent. As of December 31, 2022, 8,262,440
shares had been repurchased for $263.9 million at an average
discount of 32.9%, representing 88.0% of the 2022 Share
Buyback Programs. There were no share buybacks in 2021.
All Public Shares repurchased were held in Treasury. Since
the Company’s first buyback program in May 2017, including
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93
Pershing Square Holdings, Ltd.
The Public Shares, Special Voting Share and Treasury Shares transactions for the years ended December 31, 2022 and
December 31, 2021 were as follows:
Public Shares Special Voting Share Treasury Shares
As of December 31, 2020
As of December 31, 2021
Share Buybacks () –
As of December 31, 2022
12. INTEREST INCOME AND EXPENSE
The following is a breakdown of the Company’s interest
income and expense as stated in the statement of
comprehensive income.
Interest Income
Year Ended
2022
Year Ended
2021
U.S. Treasury Bills –
Collateral balances
Cash at prime brokers –
Securities lending –
Interest Expense
Year Ended
2022
Year Ended
2021
Bonds coupon expense
Collateral balances
Amortization of Bonds issue costs
incurred as finance costs
Amortization of Bonds original issue
discount incurred as finance costs
Cash or debit balance at prime brokers
the Company’s May 2018 tender oer, the Company has
repurchased a total of 59,096,679 Public Shares for $1.1 billion
at an average discount of 28.1% through December 31, 2022.
The Company intends to propose that shareholders renew
its general share buyback authority at the 2023 Annual
General Meeting to allow the Company to engage in share
buybacks for up to a maximum of 14.99% of the Public
Shares outstanding. If approved by shareholders and
depending on market conditions, the Company’s available
capital and the considerations described in “Discount to
NAV” on pages 33-34, the Company may decide to utilize
the share buyback authority to make further acquisitions of
Public Shares in the market.
As discussed on page 91 under “Lock-up”, the Investment
Manager imposed a 10-year lock-up on certain holders of
Management Shares at the time of the IPO, subject to certain
exceptions. This lock-up does not aect capital resources
available to the Company.
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Pershing Square Holdings, Ltd.
13. FINANCIAL RISK AND MANAGEMENT
OBJECTIVES AND POLICIES
Risk Mitigation
The Investment Manager does not use formulaic approaches
to risk management. Instead, risk management is
integrated into the portfolio management process. The
primary risk management tool is extensive research
completed by the Investment Manager prior to an initial
investment. The Investment Manager defines investment
risk as the probability of a permanent loss of capital rather
than price volatility. Factors considered by the Investment
Manager in assessing long investment opportunities
include, but are not limited to:
• The volatility/predictability of the business;
• Its correlation with macroeconomic factors;
• The company’s financial leverage;
• The defensibility of the company’s market position; and
• Its discount to intrinsic value.
The Investment Manager believes that the acquisition of a
portfolio of investments, when acquired at a large discount
to intrinsic value, provides a margin of safety that can
mitigate the likelihood of an overall permanent loss of the
Company’s capital. The primary risks in the Company’s
portfolio are company-specific risks which are managed
through investment selection and due diligence.
The Investment Manager does not have a formulaic
approach in evaluating correlations between investments,
but is mindful of sector and industry exposures and other
fundamental correlations between the businesses in which
the Company invests.
The Investment Manager believes that an important
distinguishing factor about the Company’s portfolio is that it
does not generally use margin leverage.
At times, the Investment Manager has made investments
that, due to the circumstances of the investment (e.g., the
highly leveraged nature of the businesses or assets, the relative
illiquidity of the investment, and/or the structure of the
Company’s investment), have a materially greater likelihood of
a potential permanent loss of capital for the Company. In light
of this greater risk, the Investment Manager generally requires
the potential for a materially greater reward if successful, and
sizes the investments appropriately.
Refer to Principal Risks and Uncertainties (which are
explicitly incorporated by reference into these Notes to
Financial Statements) for further information regarding
principal risks faced by the Company.
Market Risk
Market risk is the risk that the fair value or future cash
flows of financial instruments will fluctuate due to changes
in market variables such as interest rates, foreign exchange
rates and equity prices.
The Company’s derivatives and investments held as
of December 31, 2022 are presented in the Condensed
Schedule of Investments on pages 110-111 (which is
explicitly incorporated by reference into these Notes to
Financial Statements). Derivative trading activities are
discussed in detail in Note 8.
Interest Rate Risk
Interest rate risk arises from the possibility that changes in
interest rates will aect future cash flows or the fair values
of financial instruments. Generally, most financial assets
decline in value when interest rates rise and increase in
value when interest rates decline. While nearly every one
of the Company’s investments is exposed to the economy to
some degree, the Investment Manager attempts to identify
companies for which increases or decreases in interest rates
are not particularly material to the investment thesis. The
Company does not generally hedge its interest rate exposure
as the Investment Manager does not believe that, absent
the potential for asymmetric profits, hedging interest rate
risk is a prudent use of capital. The Company purchased
interest rate swaptions throughout 2021 and 2022, as the
Investment Manager identified an attractive investment
opportunity to hedge the risk of rising interest rates with a
potential asymmetric payo.
Annual Report 2022
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Pershing Square Holdings, Ltd.
The following table illustrates the Company's exposure to U.S.
and Japanese interest rates from its investment in interest rate
swaptions as of December 31, 2022 and December 31, 2021.
The analysis calculates the eect of a reasonably possible
percentage change to the underlying interest rates and its
eect on the Company's profit or loss with all other variables
held constant.
Currency
(2022)
Net Foreign
Currency
Exposure
Change in
Currency
Rate
Effect on Net Assets
Attributable to all
Shareholders and on
Profit/(Loss) for the Year
CAD +%
CAD -% ()
EUR +%
EUR -% ()
JPY +%
JPY -% ()
Interest Rate (2022) Exposure
Change in
Interest
Rate
Effect on
Net Assets
Attributable to
all Shareholders
and on Profit/
(Loss) for the
Year
U.S. 30 Year Treasury +%
U.S. 30 Year Treasury -% ()
JPY 10 Year Treasury +%
JPY 10 Year Treasury -% ()
Interest Rate (2021) Exposure
Change in
Interest
Rate
Effect on
Net Assets
Attributable to
all Shareholders
and on Profit/
(Loss) for the
Year
U.S. 2 Year Treasury +%
U.S. 2 Year Treasury -% ()
U.S. 10 Year Treasury +%
U.S. 10 Year Treasury -% ()
As of December 31, 2022 and December 31, 2021 cash
and cash equivalents equaled $1,147,443,227 and
$1,767,776,549, respectively. The Company did not perform
a sensitivity analysis on cash and cash equivalents as it
would have no significant impact on its net assets.
The Bonds have no interest rate risk as the interest rates are
fixed and they are carried at amortized cost.
Currency Risk
The Company invests in financial instruments and enters
into transactions that are denominated in currencies other
than USD. Consequently, the Company’s financial assets or
liabilities denominated in currencies other than USD are
exposed to the risk that the exchange rate of USD relative
to other currencies may change in a manner that has an
adverse eect on their fair value. In addition, portfolio
companies with foreign operations are also exposed to
currency risk, which may adversely aect their valuation.
The Company primarily utilizes forward exchange contracts
and currency options to hedge currency risk, and it may
invest in such instruments if the Investment Manager
identifies an investment opportunity with the potential for
asymmetric profits. Also refer to the Condensed Schedule
of Investments on pages 110-111 (which is explicitly
incorporated by reference into these Notes to Financial
Statements) for additional details of the Company’s financial
assets and liabilities.
The following tables show the currencies to which the
Company had significant exposure at December 31, 2022
and December 31, 2021 on its financial assets and financial
liabilities. The analysis calculates the eect of a reasonably
possible movement of the currency rate against USD on equity
and on profit or loss with all other variables held constant.
Currency
(2021)
Net Foreign
Currency
Exposure
Change in
Currency
Rate
Effect on Net Assets
Attributable to all
Shareholders and on
Profit/(Loss) for the Year
CAD +%
CAD -%
EUR () +%
EUR () -% ()
Annual Report 2022
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Pershing Square Holdings, Ltd.
As of December 31 2022 2021
North America % %
Europe % %
Total % %
% Change in Net Assets
Attributable to all Shareholders
Change in Equity Price (2022)
+% +%
-% -%
As of December 31 2022 2021
Media % %
Restaurant % %
Retail % %
Hospitality % %
Real Estate Development and Operating % %
Transportation % %
Financial Services % %
Special Purpose Acquisition Company – %
Special Purpose Acquisition Rights Company – –
Total % %
Equity Price Risk
The Company’s portfolio is highly concentrated, with a
significant proportion of its capital in one or a limited set
of investments. A substantial majority of the Company’s
portfolio is typically allocated to 8 to 12 core holdings usually
comprised of highly liquid, listed large cap North American
companies. Because the portfolio is highly concentrated
and primarily invested in public equities (or derivative
instruments which reference public equities), fluctuations in
equity prices are a significant risk to the portfolio. Refer to
the Company Performance on page 2, Investment Manager’s
Portfolio Update on pages 16-21 and the Condensed Schedule
of Investments on pages 110-111 (each of which is explicitly
incorporated by reference into these Notes to Financial
Statements) for quantitative and qualitative discussion of
the Company’s portfolio and additional details regarding the
Company’s financial assets and financial liabilities.
The following table estimates the eect on the Company’s
net assets due to a possible change in equity prices with all
other variables held constant.
% Change in Net Assets
Attributable to all Shareholders
Change in Equity Price (2021)
+% +%
-% -%
The following table analyzes the Company’s concentration
of equity price risk in the Company’s equity portfolio by
geographical distribution (based on issuer’s place of primary
listing or, if not listed, place of domicile).
The following table analyzes the Company’s concentration
of equity price risk in the Company’s equity portfolio by
industry sectors:
If the Company holds a short position, it represents
obligations of the Company to deliver the specified securities
and, thereby, create a liability to purchase the security in
the open market at prevailing prices. Accordingly, such
transactions may result in additional risk as the amount
needed to satisfy the Company’s obligations may exceed the
amount recognized in the statement of financial position.
Liquidity Risk
The Company’s policy and the Investment Manager’s
approach to managing liquidity are to ensure, as much
as possible, that it will have sucient liquidity to meet
its liabilities when due, under both normal and stressful
market conditions. The Company invests primarily in liquid,
large-capitalization securities which, under normal market
conditions, are readily convertible to cash. Less liquidity is
tolerated in situations where the risk/reward trade-o is
suciently attractive to justify a greater degree of illiquidity.
Annual Report 2022
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Pershing Square Holdings, Ltd.
As of December 31, 2022 Less than 1 Month 1 to 3 Months 3 to 6 Months 6 to 12 Months Over 1 Year Total
Assets
Cash and cash equivalents ––––
Due from brokers – – – –
Trade and other receivables – – – –
Financial assets at fair value
through profit or loss:
Investments in securities
Derivative financial
instruments* – – – –
Total Assets
Liabilities
Due to brokers ––––
Trade and other payables – – – –
Deferred tax expense payable – –
Bonds –
Financial liabilities at fair
value through profit or loss:
Derivative financial
instruments* – – – –
Total Liabilities
* In the case of derivatives that reference equity securities, the derivative terms provide that the counterparty, if directed, may terminate the derivative directly in the
marketplace without requiring any upfront cash payment and such termination would follow the above liquidation time horizons.
The Company’s portfolio investments may be subject
to contractual or regulatory restrictions on trading, or
“trading windows” imposed with respect to certain issuers
for which the Investment Manager has board representation
or is otherwise restricted. However, these restrictions were
not taken into consideration in the liquidity calculation
below as the Investment Manager has been able to liquidate
such securities successfully through block trades or
automatic purchase/sale plans. The Investment Manager
believes that the appropriate metric for assessing portfolio
liquidity is to calculate how many days it would require to
liquidate a position assuming the Investment Manager were
able to capture 20% of the trailing 90-day average trading
volume (the “Liquidation Period”). On a monthly basis,
the Liquidation Period is applied to the existing portfolio to
assess how long it will take to divest the Company (and the
other PSCM-managed funds) of its portfolio positions.
The following tables summarize the liquidity profile of the
Company’s assets and liabilities based on the following
assumptions:
• Financial assets and financial liabilities at fair value through
profit or loss are disposed over their Liquidation Period;
•
The deferred tax expense liability associated with the
Company’s investment in The Howard Hughes Corporation
matches its Liquidation Period, as fully described in Note
16; and
• The receipt/disposition of all other assets and liabilities,
including cash and cash equivalents, due to/from brokers,
trade receivables and payables and Bonds is based on their
contractual maturities and undiscounted cash flows.
Annual Report 2022
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Pershing Square Holdings, Ltd.
As of December 31, 2021 Less than 1 Month 1 to 3 Months 3 to 6 Months 6 to 12 Months Over 1 Year Total
Assets
Cash and cash equivalents ––––
Due from brokers – – – –
Trade and other receivables – – – –
Financial assets at fair value
through profit or loss:
Investments in securities
Derivative financial
instruments* – – – –
Total Assets
Liabilities
Due to brokers ––––
Trade and other payables – – – –
Deferred tax expense payable
Bonds –
Financial liabilities at fair
value through profit or loss:
Derivative financial
instruments* – – ** –
Total Liabilities
* In the case of derivatives that reference equity securities, the derivative terms provide that the counterparty, if directed, may terminate the derivative directly in the
marketplace without requiring any upfront cash payment and such termination would follow the above liquidation time horizons.
** Pursuant to the Forward Purchase Agreement, the Company has an obligation to purchase Committed Forward Purchase Units no later than simultaneously with the closing of
PSTH’s IBC. This calculation assumes PSTH completes an IBC prior to its mandatory liquidation date. The Committed Forward Purchase Units have a purchase price of $20.00
per unit, which equates to a total cash outlay of $907,175,760. The Company has not considered the Additional Forward Purchase Units as liabilities for the purpose of this
analysis as their exercise is at the discretion of the Company and the other Pershing Square Funds. See Notes 14 and 16 for further details.
Annual Report 2022
99
Pershing Square Holdings, Ltd.
Credit Risk
Credit risk is the risk that a counterparty to a financial
instrument will fail to discharge an obligation or commitment
that is entered into with the Company, resulting in a financial
loss to the Company. It arises principally from derivative
financial assets, cash and cash equivalents, and balances due
from brokers.
In order to mitigate credit risk, the Company seeks to trade
only with reputable counterparties that the Investment
Manager believes to be creditworthy. The Investment
Manager reviews credit rating reports on its counterparties
on a weekly basis and monitors its net counterparty
exposure. The Company exchanges variation margin with its
counterparties on a daily basis.
Certain of the Company’s positions are subject to the
Uncleared Margin Rules, which further mitigate the
Company’s counterparty risk by requiring both the Company
and the counterparty to post initial margin to individual
custody accounts. In the event of a counterparty default,
the initial margin posted by the counterparty will become
accessible to the Company. The initial margin posted by the
Company and its counterparties is custodied at Bank of New
York Mellon in non-cash collateral and is not considered part
of the custodian’s balance sheet.
Please refer to the Condensed Schedule of Investments on
pages 110-111 (which is explicitly incorporated by reference
into these Notes to Financial Statements) for additional
details regarding the Company’s financial assets and
financial liabilities.
Credit exposure represents the fair value of derivative
contracts in a net asset position oset against derivative
contracts in a net liability position and net of collateral
exchanged with its ISDA counterparties, plus the initial
margin posted by the Company to custody accounts. After
taking into eect the osetting permitted under IAS 32, the
Company’s credit exposure related to derivative contracts was
$521,943,463 and $210,774,355 at December 31, 2022 and
December 31, 2021, respectively.
The Company maintains its cash and cash equivalents
position at major financial institutions. At times, cash
balances may exceed federally insured limits and, as such,
the Company has credit risk associated with such financial
institutions. The cash and cash equivalents balances are
reflected in the statement of financial position. At December
31, 2022 and December 31, 2021, cash was primarily invested
in U.S. Treasury money market funds and/or U.S. Treasury
Bills with daily liquidity as disclosed in Note 10.
The Company’s prime brokers are required to provide
custody services for the Company’s securities. The prime
brokers are not permitted under U.S. law to lend out (or “re-
hypothecate”) the Company’s securities if these securities
are fully paid for unless the Company enters into a securities
lending agreement. If the Company uses margin leverage,
the prime brokers may lend out the Company’s securities to
fund the prime brokers’ business, but are restricted under
U.S. law; that is, the prime brokers may only lend out an
amount of the Company’s securities that is less than or equal
to 140% of the debit balance that the prime broker extends to
the Company as credit. The Company monitors its accounts
to avoid running a debit balance. Additionally, the Company
has processes in place that allow it to quickly move securities
from its prime brokers into a regulated bank entity which is
not legally permitted to re-hypothecate client securities.
The following table analyzes the Company’s cash and cash
equivalents (2022: $1,147,443,227, 2021: $1,767,776,549),
due from brokers (2022: $506,639,045, 2021: $158,421,029)
and financial assets portfolio (2022: $11,283,739,014, 2021:
$13,871,878,198) based on the underlying custodians’ and
counterparties’ credit rating, with the exception of the
Company’s investments in SPARC Sponsor, SPARC Sponsor
Cayman, PSTH Sponsor and the Additional and Committed
Forward Purchase Units, as applicable, which the Company
excluded for purposes of this calculation.
As of December 31 2022 2021
AAA % %
A % %
BBB+ % %
Total % %
Annual Report 2022
100
Pershing Square Holdings, Ltd.
The following is a breakdown of the Company’s due to and due
from brokers as stated in the statement of financial position.
As of December 31 2022 2021
Due to brokers
Collateral received from
counterparties for derivative
contracts
As of December 31 2022 2021
Due from brokers
Collateral pledged to third party
accounts for derivative contracts –
Cash held at prime brokers
Collateral pledged bilaterally
to counterparties for derivative
contracts –
14. COMMITMENTS AND CONTINGENCIES
As of December 31, 2022, no commitments or contingencies
existed.
As of December 31, 2021, the Company had commitments
relating to its Forward Purchase Units and the undrawn
balance of the promissory note as described on page 105 of
Note 16. No other commitments or contingencies existed as of
December 31, 2021.
15. INVESTMENT MANAGEMENT
AGREEMENT — MANAGEMENT FEES,
PERFORMANCE FEES AND TERMINATION
The Investment Manager receives management fees and
performance fees, if any, from the Company pursuant to the IMA.
Management Fee
The Investment Manager receives a quarterly management
fee payable in advance each quarter in an amount equal
to 0.375% (1.5% per annum) of the net assets (before any
accrued performance fee) attributable to fee-paying shares.
The fee-paying shares of the Company are the Public Shares
and the Special Voting Share. Management Shares, if any,
are not charged a management fee. Management fees paid by
Public Shares held by PSCM employees, partners and certain
of their aliated entities are refunded to such shareholders
by the Investment Manager.
For the years ended December 31, 2022 and 2021, the
Investment Manager earned management fees from the
Company of $148,482,762 and $146,070,348, respectively.
Performance Fee
Generally, the Investment Manager receives performance fees
annually and upon payment of dividends in an amount equal
to 16% of the NAV appreciation attributable to the fee-paying
shares of the Company above a high water mark (the “16%
performance fee”) and before giving eect to the accrued
performance fees minus the Additional Reduction (defined
below). The 16% performance fees paid in connection with
dividends are prorated to reflect the ratio of the dividend
to the Company’s net asset value at the time the dividend is
paid. The Company’s payment of a dividend will reduce the
high water mark by the percentage of net asset value the
dividend represents. These performance fees are defined
as the “Variable Performance Fee” in the IMA. No Variable
Performance Fee can be higher than the 16% performance
fee, but it may, as a result of the Additional Reduction, be
lower (although it can never be a negative amount).
The “Additional Reduction” is an amount equal to (i)
the lesser of the 16% performance fee and the Potential
Reduction Amount (defined below), oset (up to such lesser
amount) by (ii) the then current portion of the Potential
Oset Amount.
The “Potential Reduction Amount” is equal to (i) 20% of
the aggregate performance fees and allocation earned by the
Investment Manager and its aliates in respect of the same
calculation period on the gains of current and certain future
funds managed by the Investment Manager or any of its
aliates plus (ii) if the Potential Reduction Amount for the
previous calculation period exceeded the 16% performance
fee, the excess amount (which is in eect carried forward).
Annual Report 2022
101
Pershing Square Holdings, Ltd.
The “Potential Oset Amount” refers to the fees and other
costs of the oering and admission on Euronext Amsterdam
of the Public Shares and the commissions paid to placement
agents and other formation and oering expenses incurred
prior to the IPO of the Company that were, in each case,
borne by the Investment Manager pursuant to the IMA.
The Potential Oset Amount will be reduced by each dollar
applied to reduce the Additional Reduction, until it is fully
reduced to zero.
The Potential Oset Amount is not a Company obligation but
instead is a component used in the calculation of the Variable
Performance Fee. Thus, if the Company or the Investment
Manager terminates the IMA or the Company liquidates
and the Company pays the Variable Performance Fee that
may crystallize in connection therewith, the Company has
no obligation to pay any remaining portion of the Potential
Oset Amount.
The Potential Oset Amount equaled $120 million in the
aggregate at the time of the IPO. After giving eect to the
Potential Reduction Amount of $10.8 million in the year
ended 2021, the Potential Oset Amount was reduced from
$52.4 million to $41.6 million as of December 31, 2021 and
remained unchanged as of December 31, 2022.
For the year ended December 31, 2022, the Investment
Manager did not earn any performance fees. For the
year ended December 31, 2021, the Investment Manager
earned performance fees of $1,476,256 in connection
with the payment of the quarterly dividend and an annual
performance fee of $462,582,726. Performance fees paid by
Public Shares held by employees, partners and certain of their
aliated entities are refunded to such shareholders by the
Investment Manager.
Since the Company did not crystallize performance fees
in 2022, the Potential Reduction Amount of $0.01 million
recorded in 2022 will be carried forward to calculate the
Additional Reduction and reduce any Variable Performance
Fee in future years, subject to any oset by the Potential
Oset Amount.
Termination
The IMA automatically renews annually, except that it may
be terminated (a) as of December 31st of any year upon four
months’ prior written notice by either party, subject, in the
case of termination by the Company, to approval by a 66 2/3%
vote (by voting power) of the holders of the then outstanding
voting shares of the Company, together with a 66 2⁄3% vote
(by voting power) of the holders of the then outstanding
Public Shares; and (b) in case of dissolution or liquidation
of either party or if a receiver or provisional liquidator or
administrator or similar ocer is appointed over any of the
assets of such party or if either party commits a material
breach of its obligations under the IMA and such breach
remains uncured for more than 30 calendar days after the
notice thereof delivered to the party in breach by the other
party in accordance with the IMA.
The termination of the IMA at any time will be a
crystallization event, which will result in the Variable
Performance Fee described above being payable.
16. RELATED PARTY DISCLOSURES
PSH Ownership
During the year ended December 31, 2022, William Ackman
and Nicholas Botta transferred a total of 41.4 million and 1.6
million Public Shares, respectively, to wholly owned aliated
entities they control. The transfers did not result in a change of
beneficial ownership or voting control of Public Shares.
During the year ended December 31, 2021, William Ackman
exercised previously purchased call options referencing 14
million Public Shares and terminated 7 million out-of-the
money put options. As a result, William Ackman no longer
owns any options on PSH, and only owns PSH Public Shares.
As of December 31, 2022 and December 31, 2021, William
Ackman, Nicholas Botta, other PSCM aliates and their
respective aliated entities had total net economic share
ownership of approximately 26% and 25%, respectively, of
the Company.
Annual Report 2022
102
Pershing Square Holdings, Ltd.
Director’s Fees
For the year ended December 31, 2022, the Company’s
independent Directors’ fees in relation to their services for
the Company were $581,628 of which none were payable as of
December 31, 2022. For the year ended December 31, 2021,
the Company’s independent Directors’ fees in relation to their
services for the Company were $618,765 of which none were
payable as of December 31, 2021.
Management and Performance Fees
The relationship between the Company and the Investment
Manager and the fees earned are disclosed in Note 15.
Beneficial Ownership of Portfolio Companies
In the normal course of business, the Company and its aliates
make concentrated investments in portfolio companies
where the aggregate beneficial holdings of the Company
and its aliates may be in excess of 10% of one or more
portfolio companies’ classes of outstanding securities. At such
ownership levels, a variety of securities laws may, under certain
circumstances, restrict or otherwise limit the timing, manner
and volume of disposition of such securities. In addition, with
respect to such securities, the Company and its aliates may
have disclosures or other public reporting obligations with
respect to acquisitions and/or dispositions of such securities.
Similar restrictions and/or obligations may apply where the
Company and its aliates have a representative on the board of
a portfolio company.
As of December 31, 2022 and December 31, 2021, the Company
and its aliates beneficially owned in excess of 10% of the
outstanding common equity securities of The Howard Hughes
Corporation (“HHC”) and UMG. William A. Ackman is the
chairman of the board of HHC and was appointed as non-
executive director of UMG on May 12, 2022.
As of December 31, 2022 and December 31, 2021, the Company
and the other Pershing Square Funds, through their ownership
of SPARC Sponsor, were the sole shareholders of SPARC.
Additionally, as of December 31, 2021, the Company and the
other Pershing Square Funds, through their ownership of SPARC
Sponsor Cayman, were the sole shareholders of SPARC Cayman.
As of December 31, 2021, the Company and the other Pershing
Square Funds beneficially owned in excess of 10% of the Class A
common stock of PSTH, assuming full election of the Forward
Purchase Units.
HHC Tender Offer
On October 14, 2022, PSCM announced that the Pershing
Square Funds had commenced a cash tender oer to purchase
up to an aggregate of 6,340,000 shares of common stock
of HHC, at a price not greater than $60.00 nor less than
$52.25 per share, net to the seller in cash, less any applicable
withholding taxes and without interest. The exact price would
be determined through a modified Dutch auction described in
the Oer to Purchase and the Letter of Transmittal, each dated
as of October 14, 2022 and filed with the SEC (the “Oer”).
If the Pershing Square Funds accepted any of the common
stock for purchase pursuant to the Oer, PSLP, PSINTL and
the Company would have purchased approximately 7.47%,
2.27% and 90.26%, respectively, of those shares. The Oer was
scheduled to expire on November 10, 2022 unless the Oer was
extended or earlier terminated.
On November 11, 2022, PSCM announced that the Pershing
Square Funds had increased the price range of the Oer to not
greater than $70.00 nor less than $61.00 per share, net to the
seller in cash, less any applicable withholding taxes and without
interest. The Pershing Square Funds also extended the Oer
to expire on November 28, 2022 unless the Oer was further
extended or earlier terminated.
On November 30, 2022, PSCM announced that the Pershing
Square Funds had accepted for payment 1,559,205 shares
of HHC, at $70.00 per share, for a total purchase price of
$109,144,350. The Company purchased 1,407,338 of the
shares tendered.
Pershing Square SPARC Holdings, Ltd.
SPARC is a Delaware corporation formed for the purpose of
eecting a merger, share exchange, asset acquisition, share
purchase, reorganization or similar business combination
with one or more businesses. SPARC filed its initial Form S-1
Registration Statement with the SEC on November 24, 2021
and subsequently filed amendments with the most recent
amendment filed on March 24, 2023.
Annual Report 2022
103
Pershing Square Holdings, Ltd.
SPARC Sponsor, a Delaware limited liability company, is the
sponsor entity of SPARC. The Pershing Square Funds wholly
own SPARC Sponsor as non-managing members and are its only
source of funding. The business and aairs of SPARC Sponsor
are managed exclusively by its non-member manager, PSCM.
SPARC Cayman, a Cayman Islands exempted company and
SPARC Sponsor Cayman, a Delaware limited liability company
were previously formed for the same purpose as SPARC and
SPARC Sponsor, but the Investment Manager later determined
to proceed using a Delaware entity. In connection therewith,
the Investment Manager liquidated SPARC Cayman and SPARC
Sponsor Cayman.
SPARC intends to distribute, at no cost, subscription warrants
(“SPARs”) to purchase SPARC shares at a future date to PSTH
security holders who owned either Class A Common Stock
(ticker: PSTH) or PSTH warrants (ticker: PSTH.WS) as of
the close of business on July 25, 2022 (the last date on which
such instruments could have been redeemed or cancelled):
one SPAR for every four shares of PSTH common stock and
one SPAR for every two PSTH warrants. After SPARC has
entered into a definitive agreement for its business combination
and distributed to SPAR holders a prospectus, included in an
eective registration statement that describes the proposed
business combination, SPAR holders may elect to exercise
their SPARs. SPARC intends that, at the time during which
a holder may elect to exercise, the SPARs will be quoted on
the OTCQX marketplace of the OTC Markets Group or other
quotation service. The shares issuable upon the exercise of the
SPARs will be issued concurrently with the closing of SPARC’s
business combination. SPARC remains subject to SEC review.
No assurance can be given that SPARC will be eectuated. The
amended SPARC S-1 Registration Statement is available on the
SEC’s website.
From November 9, 2021 through December 23, 2022,
the Pershing Square Funds made capital contributions of
$3,999,650 to SPARC Sponsor to fund its acquisition of 399,965
shares of SPARC common stock (“Sponsor Shares”) to pay
various organizational and legal costs of SPARC. Additionally,
the Pershing Square Funds made capital contributions of $5,771
to SPARC Sponsor to pay for its expenses. The Company’s
capital contributions totaled $3,508,175. As of December 31,
2022 and December 31, 2021, the Company owned 87% of
SPARC Sponsor.
From June 14, 2021 through May 24, 2022, the Pershing Square
Funds made total capital contributions of $2,653,160 to SPARC
Sponsor Cayman to fund its acquisition of 132,658 shares of
SPARC Cayman common shares to pay various organizational
and legal costs of SPARC Cayman. The proceeds of SPARC
Sponsor Cayman’s 2022 share purchases were specifically used
by SPARC Cayman to wind down its operations and liquidate.
The Company’s capital contributions totaled $2,308,940. As
of December 31, 2021, the Company owned 87% of SPARC
Sponsor Cayman.
Refer to Note 7 for fair market value associated with SPARC
Sponsor and SPARC Sponsor Cayman as of December 31, 2022
and December 31, 2021, as applicable.
Rebalancing Transactions
The Investment Manager may seek to eect rebalancing
transactions from time to time pursuant to policies that are
intended to result in the Company and the other Pershing
Square Funds managed by the Investment Manager generally
holding investment positions on a proportionate basis relating
to their respective adjusted net asset values, which are equal
to each of the entities’ net asset values plus any accrued (but
not crystallized) performance fees and the amount of any
outstanding long-term debt, including the current portion
thereof (which in the case of the Company, includes the gross
proceeds from the Outstanding Bonds as further discussed in
Note 18). Rebalancing transactions involve either the Company
purchasing or selling securities or other financial instruments
held by/to one or more Pershing Square Funds.
Rebalancing transactions are subject to a number of
considerations including, but not limited to, cash balances and
liquidity needs, tax, regulatory, risk and other considerations,
which may preclude these transactions from occurring
or limit their scope at the time of the transactions. The
Investment Manager eects rebalancing transactions based
on independent market prices, and consistent with the
valuation procedures established by the Investment Manager.
Neither the Investment Manager nor any of the Pershing
Square Funds receive any compensation in connection with
rebalancing transactions. In addition, rebalancing transactions
are generally eected without brokerage commissions being
charged. To the extent that rebalancing transactions may be
viewed as principal transactions due to the ownership interests
Annual Report 2022
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Pershing Square Holdings, Ltd.
in the Pershing Square Funds by the Investment Manager
and its personnel, the Investment Manager will either not
eect such transactions or comply with the requirements of
Section 206(3) of the U.S. Investment Advisers Act of 1940, as
amended, including that the Investment Manager will notify
the relevant entity (or an independent representative of that
entity) in writing of the transaction and obtain the consent of
that entity (or an independent representative of that entity),
and any other applicable law or regulation.
In 2021, the Investment Manager eected rebalancing
transactions for certain of the Company’s investments between
the Company and PSINTL with an aggregate fair value of
$63,780,080. There were no rebalancing transactions for the
year ended December 31, 2022.
PS VII
On August 9, 2021, the Company, PSLP and PSINTL made
capital contributions of $2.5 billion, $202.5 million and $87.2
million respectively, to PS VII Master, for a total of $2.8 billion.
The capital contributions were used to acquire 128,555,017
ordinary shares of UMG, representing 7.1% of the share
capital of UMG at the time of the acquisition. As a result of the
closing of this acquisition, the share purchase and indemnity
agreements described under “PSTH’s Proposed IBC and
Cancellation” transferred to the Company and its aliates and
PSTH was released from its obligations under these agreements
to Vivendi S.E.
On August 24, 2021, the Pershing Square Funds made
additional capital contributions to PS VII Master of
approximately $25 million, of which the Company contributed
$22,377,329. The capital contributions were used by PS VII
Master to reimburse PSTH for expenses PSTH incurred in
connection with PSTH’s proposed UMG transaction. The
$25 million was reflected in the cost of UMG shares and was
ultimately borne by all investors in PS VII Master.
On September 1, 2021, PS VII Master raised $1.18 billion of
additional capital, for a total capital raise of $4 billion. On
September 9, 2021, a second purchase of 52,769,098 UMG
ordinary shares was executed for $1.15 billion. In total,
181,324,115 ordinary shares of UMG were purchased by
PS VII Master for $3.9 billion, representing approximately
10% of UMG at the time of acquisition. There are no trading
restrictions on the stock acquired.
On September 21, 2021, at the time of UMG’s listing on
Euronext Amsterdam, PS VII Master’s UMG ordinary shares
were converted to UMG common stock.
On October 1, 2021, PS VII Master transferred to the Company
its ownership of 105,325,592 UMG ordinary shares and cash of
$12.5 million, as a partial redemption in kind of its ownership
interest in PS VII Master as of September 30, 2021. The market
value of these shares at the time of distribution was $2.8 billion
with a gain of $510.5 million. This represented 92% of the
Company’s investment in PS VII Master. The remaining 8%
is still invested in PS VII Master for regulatory purposes. The
Company is not charged a management fee or performance fee
in relation to its investment in PS VII Master.
On December 9, 2021, the Company received a capital
distribution from PS VII Master of $1,881,372, the result of
dividends (net of withholding) received by PS VII Master from
its investment in UMG common stock.
As of December 31, 2022 and December 31, 2021, the Company
had a capital balance of $250,935,505 and $273,045,403 in PS
VII Master, respectively, representing an ownership of 28% of
the fund.
Pershing Square Tontine Holdings, Ltd.
PSTH, a Delaware corporation, was a blank check company
formed for the purpose of eecting a merger, capital stock
exchange, asset acquisition, stock purchase, reorganization
or similar business combination with one or more businesses.
PSTH filed its S-1 Registration Statement with the Securities
and Exchange Commission (“SEC”) on June 22, 2020 and
subsequently consummated its IPO on July 24, 2020.
PSTH Sponsor, a Delaware limited liability company, was
the sponsor entity of PSTH. The Pershing Square Funds
wholly owned PSTH Sponsor as non-managing members and
were its only source of funding. The business and aairs of
PSTH Sponsor were managed exclusively by its non-member
manager, PSCM.
Annual Report 2022
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Pershing Square Holdings, Ltd.
The Company’s investments as of December 31, 2021 in PSTH
and PSTH Sponsor, both aliates of PSCM, are described
below. PSTH announced on July 11, 2022 that it would
redeem all of its outstanding shares of Class A common stock
eective as of the close of business on July 26, 2022, and would
thereafter liquidate. The eect of the PSTH liquidation on the
Company is described in “PSTH Liquidation”.
Class B Common Stock
On May 7, 2020, the Pershing Square Funds made a capital
contribution of $25,000 to PSTH Sponsor to fund PSTH
Sponsor’s acquisition of 100 shares of PSTH Class B common
stock at a price of $250.00 per share. The Company’s portion of
the contribution was $21,076.
Promissory Note
In addition to its purchase of Class B common stock, PSTH
Sponsor agreed to loan PSTH up to $1,500,000 to cover certain
expenses pursuant to a promissory note. On July 24, 2020 all
amounts drawn down by PSTH under the promissory note with
PSTH Sponsor, along with a nominal amount of interest, were
fully repaid and immediately distributed to the Company and
the other Pershing Square Funds.
As of December 31, 2021, $378,880 was left under the
promissory note that could be drawn down; however, there
were no borrowings outstanding.
Sponsor Warrants
On July 21, 2020, PSTH Sponsor purchased warrants from
PSTH for an aggregate purchase price of $65,000,000 (the
“Sponsor Warrants”). Based on the Company’s ownership
in PSTH Sponsor, its portion of the purchase price was
$58,967,000.
Pursuant to the Sponsor Warrants agreement filed as an
exhibit to the PSTH S-1, the Sponsor Warrants would have
been exercisable, in whole or in part, for that number of
shares constituting 5.95% of the common shares of the post-
combination business on a fully diluted basis at the time
immediately following PSTH’s IBC, at an exercise price equal
to $24.00 per common share of the post-combination business.
The Sponsor Warrants would have had a term of 10 years
from PSTH’s IBC and would generally not have been salable,
transferable or exercisable until three years into their term.
Refer to Note 7 for additional detail on the valuation
methodologies and fair market value associated with the
Company’s investment in PSTH Sponsor as December 31, 2021.
Forward Purchase Agreement
The Pershing Square Funds entered into a forward purchase
agreement with PSTH on June 21, 2020. Pursuant to the
forward purchase agreement, the Pershing Square Funds
agreed to purchase an aggregate of $1 billion or 50,000,000 of
units (the “Committed Forward Purchase Units”). The forward
purchase agreement also provided that the Pershing Square
Funds may elect to purchase up to an additional aggregate
amount of $2 billion or 100,000,000 of units (the “Additional
Forward Purchase Units” and collectively with the Committed
Forward Purchase Units, the “Forward Purchase Units”). Each
of the Forward Purchase Units had a purchase price of $20.00
and consisted of one share of PSTH Class A common stock
and one-third of one warrant. The Pershing Square Funds’
obligation or right, as applicable, to purchase the Forward
Purchase Units was allocated among the Company, PSLP, and
PSINTL at 90.72%, 5.73% and 3.55%, respectively.
Refer to Note 7 for additional detail on the valuation
methodologies and fair market value associated with the
Forward Purchase Units as of December 31, 2021.
PSTH’s Proposed IBC and Cancellation
On June 20, 2021, PSTH announced that it had entered
into a definitive agreement with Vivendi S.E. to acquire
approximately 10% of the outstanding ordinary shares of UMG
for approximately $4 billion.
On July 19, 2021, PSTH announced that the PSTH board
of directors unanimously determined not to proceed with
the UMG transaction and to assign PSTH’s share purchase
agreement to the Company and its aliates, an assignment
which the Company and its aliates agreed to assume,
Annual Report 2022
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Pershing Square Holdings, Ltd.
committing them to purchase 5% of UMG with an option to
purchase an additional 5% of UMG by September 15, 2021. The
Company and its aliates also agreed to assume the indemnity
agreement between PSTH and Vivendi, and to reimburse
PSTH for the expenses PSTH incurred in connection with the
proposed UMG transaction, which were approximately $25
million. The purchase of UMG shares and the reimbursement of
expenses to PSTH are discussed in “PS VII” within this Note.
PSTH Liquidation
On July 11, 2022, PSTH announced that it would not
consummate an IBC within the time period required by its
charter and would redeem all of its outstanding shares of
Class A common stock, eective as of the close of business
on July 26, 2022, and thereafter liquidate. As a result, the
forward purchase agreement was terminated and the Sponsor
Warrants expired.
After the liquidation of PSTH was completed and all liabilities
were settled, PSTH had $16.8 million of net assets. PSTH
distributed available cash of $16.7 million to PSTH Sponsor
which held PSTH's Class B common stock and the Sponsor
Warrants, with $0.1 million payable to PSTH Sponsor as
of December 31, 2022. PSTH Sponsor further distributed
such cash to the Pershing Square Funds, the non-managing
members of PSTH Sponsor. The Company’s portion of the cash
distributed and the remaining receivable totaled $14.2 million.
PSTH Sponsor initially paid a total cost of $65,025,000 for the
Class B common stock and the Sponsor Warrants.
PSTH Litigation
On August 17, 2021, a derivative lawsuit on behalf of PSTH was
filed in the U.S. District Court for the Southern District of New
York by a PSTH shareholder against PSTH, the independent
directors of PSTH, PSTH Sponsor, PSLP, PSINTL and the
Company alleging, among other things, that PSTH is an
investment company under the Investment Company Act of
1940. The case was dismissed with prejudice by agreement of
the parties and terminated August 3, 2022.
17. EARNINGS PER SHARE
Basic and diluted earnings per share (“EPS”) is calculated
by dividing the profit/(loss) for the year attributable to
the Public Shares and the Special Voting Share over the
weighted average number of Public Shares and the Special
Voting Share outstanding, respectively. In accordance with
IFRS, the weighted average shares outstanding for the Public
Shares and the Special Voting Share were 196,513,766 and
1, respectively for the year ended December 31, 2022, and
199,120,882 and 1, respectively for the year ended December
31, 2021. The Company’s share buybacks provided accretion
to the Public Shares of $0.67 per share during the year ended
December 31, 2022. Accretion is not included in calculation
of EPS. The Company did not repurchase shares during the
year ended December 31, 2021.
Annual Report 2022
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Pershing Square Holdings, Ltd.
Bond
Date of
Issuance Bond Face
Price of Bonds at
Issuance (of Par)
Fixed Rate
Coupon
(per annum)
Coupon
Payment Maturity Date
2027 Bonds October 1, 2021 99.869% 1.375% Annual October ,
2030 Bonds November 2, 2020 100% 3.250% Semi-Annual November ,
2031 Bonds October , 99.670% % Semi-Annual October ,
2032 Bonds August , 100% % Semi-Annual July ,
2039 Bonds July 25, 2019 100% 4.950% Semi-Annual July 15, 2039
18. BONDS
The Company has the following Senior Notes issued and outstanding, which are listed on Euronext Dublin with a symbol of
PSHNA:
The Company used the net proceeds of the oerings for
general corporate purposes, including to make investments
or hold assets in accordance with the Company’s Investment
Policy, and in the case of the 2027 and 2031 Bonds, a portion
of the proceeds were used to fund the tender oer of the
2022 Bonds described below.
On September 22, 2021, the Company commenced a cash
tender oer for the 2022 Bonds. Bonds in the amount of
$369,377,000 were tendered and cancelled on October 4,
2021. Bond holders participating in the tender received
consideration from the Company of $1,032.82 per $1,000 of
principal plus accrued and unpaid interest through October
3, 2021, equating to a total payment of $385,958,128.
The consideration paid in excess of principal resulted in
a one-time extinguishment expense of $12,122,953 to
the Company. Following the cancellation, the aggregate
principal amount of the 2022 Bonds outstanding was
$630,623,000.
On June 15, 2022, the Company redeemed all outstanding
2022 Bonds at a redemption price equal to 100% of the
principal amount of $630,623,000, plus accrued and unpaid
interest through June 14, 2022 of $14,451,777. Following the
redemption, the 2022 Bonds were retired.
The Outstanding Bonds rank equally in right of payment
with each other and contain substantially the same
covenants. Each of the Outstanding Bonds is callable
at par plus a customary make whole premium until a
certain date (the “Par Call Date”) and thereafter becomes
callable at 100% of Par. The Par Call Date for each of these
Outstanding Bonds is as follows:
Bond Par Call Date
2027 Bonds August 1, 2027
2030 Bonds August 15, 2030
2031 Bonds July ,
2032 Bonds July 15, 2030
2039 Bonds July ,
If a key man event (Mr Ackman’s death, permanent
disability or withdrawal as managing member of the general
partner to the Investment Manager) were to have occurred
prior to July 15, 2022, generally, each of the Bonds would
have required the Company to make an oer to acquire the
Bonds at 101% of par plus accrued interest. As of July 15,
2022 and thereafter, if a key man event occurs, the specified
debt to capital ratio in the Bonds’ debt covenants is reduced
from 1.0 to 3.0 to 1.0 to 4.0. If, at the time of the key man
event, the Company’s debt to capital ratio is above 1.0 to
4.0, the Company will be required to either reduce its debt
or issue additional equity within 180 days. In the event
the Company elects to reduce its debt, the Bonds become
callable at 101% of par plus accrued interest in the amount
necessary to achieve the required debt to capital ratio and
the Company may select which Bonds to redeem.
Annual Report 2022
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Pershing Square Holdings, Ltd.
The fair value of the Bonds as of December 31, 2022 and
December 31, 2021 is summarized in the table below:
In accordance with IFRS 9, the Bonds’ carrying value on the
statement of financial position as of December 31, 2022 and
December 31, 2021, is $2,332,567,827 and $3,009,416,881,
respectively. As of December 31, 2022 and December 31,
2021, the carrying value includes $3,011,145 and $3,055,718
of original issue discount and $25,558,581 and $35,055,718
of capitalized transaction costs, respectively, which are
amortized over the life of the Bonds using the eective
interest method.
As of December 31 2022 2021
Fair Value of the Bonds
2022 Bonds –
2027 Bonds
2030 Bonds
2031 Bonds
2032 Bonds
2039 Bonds
Total Fair Value
2021
At December 31, 2020
Write-o of 2030 & 2032 Bonds issue costs
2022 Bonds cancelled from tender oer ()
2027 & 2031 Bonds issued
2027 & 2031 Bonds issue costs ()
2027 & 2031 Bonds original issue discount ()
Unrealized currency (gain)/loss on translation
during the year ()
Finance costs for the year
Bonds coupon payments during the year ()
At December 31, 2021
Finance costs for the year:
Bonds coupon expense
Amortization of Bonds issue costs incurred
as finance costs
Amortization of Bonds original issue discount
incurred as finance costs
Interest expense
19. DEFERRED TAX EXPENSE
As a foreign corporation holding a beneficial ownership
in a U.S. real property interest (HHC), the Company will
be subject to the Foreign Investment in Real Property Tax
Act of 1980 (“FIRPTA”) income tax withholding upon
disposition of such investment. Foreign corporations
purchasing U.S. real property interests are required to pay
the U.S. corporate tax rate (currently 21%) on the gain
realized upon the disposition. To accrue for this potential
withholding the Company assessed a 21% rate on the
unrealized gains on the stock purchased. As the stock price
of HHC declined for the year ended December 31, 2022,
deferred tax expense had a positive impact on the statement
of comprehensive income in the amount of $59,327,053. The
Company had a deferred tax expense of $59,098,133 for the
year ended December 31, 2021.
2022
At December 31, 2021
True-up of 2027 & 2031 Bonds issue costs ()
2022 Bonds redeemed ()
Unrealized currency (gain)/loss on translation
during the year ()
Finance costs for the year
Bonds coupon payments during the year ()
At December 31, 2022
Finance costs for the year:
Bonds coupon expense
Amortization of Bonds issue costs incurred
as finance costs
Amortization of Bonds original issue discount
incurred as finance costs
Interest expense
Annual Report 2022
109
Pershing Square Holdings, Ltd.
20. EVENTS AFTER THE
REPORTING PERIOD
The Investment Manager has evaluated the need for
disclosures and/or adjustments resulting from subsequent
events during the period between the end of the reporting
period and the date of authorization of the Financial
Statements. This evaluation together with the Directors’
review thereof did not result in any additional subsequent
events that necessitated disclosures and/or adjustments,
except as follows.
Non-Adjusting Subsequent Events
On January 31, 2023, the Company announced a quarterly
dividend of $0.1307 per Public Share for 2023.
Adjusting Subsequent Events
The Company did not have any subsequent events after the
reporting period requiring adjustments to the Financial
Statements.
Annual Report 2022
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Pershing Square Holdings, Ltd.
Supplemental U.S. GAAP Disclosures
CONDENSED SCHEDULE OF INVESTMENTS
(Stated in United States Dollars)
Shares Description/Name Fair Value Percentage of Net Assets
Investments in Securities
Equity Securities
Common Stock
Canada:
Restaurant:
Restaurant Brands International Inc. %
Restaurant Brands International Limited Partnership
Transportation
13,266,340 Canadian Pacific Railway Limited
Total Canada (cost $1,801,101,989)
Europe:
Media:
105,325,592 Universal Music Group N.V.
Total Europe (cost $2,309,571,504)
United States:
Financial Services
Hospitality:
Hilton Worldwide Holdings Inc.
Real Estate Development and Operating:
The Howard Hughes Corporation
Restaurant:
Chipotle Mexican Grill, Inc.
Retail:
Lowe’s Companies Inc.
Total United States (cost $2,746,956,212)
Total Common Stock (cost $6,857,629,705)
Preferred Stock
United States:
Financial Services (cost $40,813,065)
Total Equity Securities (cost $6,898,442,770) %
Annual Report 2022
111
Pershing Square Holdings, Ltd.
CONDENSED SCHEDULE OF INVESTMENTS (CONTINUED)
Shares Description/Name Fair Value Percentage of Net Assets
Investment in Aliated Entities
Europe:
Media:
PS VII Master, L.P.
10,405,273 Universal Music Group N.V., Common Stock %
Other Assets and Liabilities
Total Europe (cost $208,714,974)
United States:
Special Purpose Acquisition Rights Company
(1)
– –
Total United States (cost $3,508,175) – –
Total Investment in Aliated Entities (cost $212,223,149)
Total Investments in Securities (cost $7,110,665,919)
Derivative Contracts
Currency Call/Put Options Purchased
Various Currency Call Options, U.S. Dollar Put Options
(cost $86,583,599)
Currency Forwards
Currencies
Equity Options Purchased
United States:
Energy (cost $115,575,073)
Interest Rate Swaptions Purchased
JPY Swaptions 170,367,376 1.72
U.S. Swaptions 330,721,975 3.35
Total Interest Rate Swaptions (cost $233,140,228)
Total Derivative Contracts (cost $435,298,900) %
(1) Figure relates to the Company’s investment in Pershing Square SPARC Sponsor LLC. Refer to Note 16 for further details.
Annual Report 2022
112
Pershing Square Holdings, Ltd.
FINANCIAL HIGHLIGHTS
For the year ended 2022 Public Shares
Per share operating performance
Beginning net asset value at January 1, 2022
Net gain on currency translation of the Bonds
Change in net assets resulting from financing:
Share buyback accretion
Dividends paid ()
Change in net assets resulting from operations:
Net investment loss ()
Net gain from investments and derivatives
(1)
()
Ending net asset value at December 31, 2022
Total return prior to performance fees ()%
Performance fees –
Total return after performance fees ()%
Ratios to average net assets
Expenses before performance fees ()%
Performance fees –
Expenses after performance fees ()%
Net investment income/(loss)
(2)
()%
(1) Net gain from investments and derivatives includes deferred tax expense. See Note 19 for further details.
(2) Net investment income/(loss) ratio includes dividend income, interest income, performance fees (if any), management fees, interest expense, professional fees, other expenses
and withholding tax (dividends) as shown on the statement of comprehensive income.
Annual Report 2022
113
Pershing Square Holdings, Ltd.
Certain Regulatory Disclosures
1. None of the Company’s assets are subject to special
arrangements arising from an illiquid nature.
2. There have been no material changes to the Company’s
risk profile and risk management system as disclosed in the
Prospectus of the Company dated October 2, 2014.
3. a) There have been no changes to the maximum amount
of leverage which the Investment Manager may employ
on behalf of the Company since the Company’s inception.
The terms of the Company’s Bonds restrict the Company
from incurring indebtedness beyond a total debt-to-
capital ratio of 33.3%. If a key man event occurs after July
15, 2022, the terms of the Bonds reduce the Company’s
permitted total debt-to-capital ratio to 25%.
Articles 7 and 8 of the Level 2 Regulations of the
Alternative Investment Fund Managers Directive (the
“Directive”) set forth the methodology of calculating
the leverage of the Company in accordance with the
gross method and the commitment method. Leverage is
expressed as the exposure of the Company. Exposures
are calculated using the sum of the absolute values of
all positions valued in accordance with Article 19 of the
Directive and all delegated acts adopted pursuant to
Article 19. For derivatives, exposures are calculated using
the conversion methodology set forth in Annex II to the
Level 2 Regulations. For all other securities, exposures
are calculated using market values. The gross method
excludes cash and cash equivalents held in the Company’s
base currency as per Article 7. The commitment method
includes cash and cash equivalents and employs netting
and hedging arrangements as per Article 8. The total
amount of leverage employed by the Company as per these
calculations as of December 31, 2022 is shown below.
Gross method:
Commitment method:
The Company generally does not expect to use margin
financing. In the past, securities purchased by the
Company pursuant to prime brokerage services
agreements typically, but not always, have been fully paid
for. Although it is anticipated that securities purchased in
the future typically will be fully paid for, this may not be
the case in all circumstances.
In addition, the Company, from time to time, enters into
total return swaps, options, forward contracts and other
derivatives, some of which have inherent recourse leverage.
The Company generally uses such derivatives to take
advantage of investment opportunities or manage regulatory,
tax, legal or other issues and not in order to obtain leverage.
However, depending on the investment strategies employed
by the Company and specific market opportunities, the
Company may use such derivatives for leverage.
b) There have been no material changes to the right of the
re-use of collateral or any guarantee granted under any
leveraging arrangement.
From time to time, the Company may permit third-party
banks, broker-dealers, financial institutions and/ or
derivatives counterparties (“Third Parties”), to whom
assets have been pledged (in order to secure such Third
Party’s credit exposure to the Company), to use, reuse,
lend, borrow, hypothecate or re-hypothecate such assets.
Typically, with respect to derivatives, the Company pledges
to Third Parties cash, U.S. Treasury securities and/or
other liquid securities (“Collateral”) as initial margin and
as variation margin. Collateral may be transferred to the
Third Party and/or to an unaliated custodian for the
benefit of the Third Party. In the case where Collateral is
transferred to the Third Party, the Third Party pursuant
to these derivatives arrangements will be permitted to
use, reuse, lend, borrow, hypothecate or re-hypothecate
such Collateral. The Third Parties will have no obligation
to retain an equivalent amount of similar property in
their possession and control, until such time as the
Company’s obligations to the Third Party are satisfied.
The Company has no right to this Collateral, but has
the right to receive fungible, equivalent Collateral upon
the Company’s satisfaction of the Company’s obligation
under the derivatives. Collateral held as securities by
an unaliated custodian may not be used, reused, lent,
Annual Report 2022
114
Pershing Square Holdings, Ltd.
borrowed, hypothecated or re-hypothecated. From time to
time, the Company may oer guarantees to Third Parties
with respect to derivatives, prime brokerage and other
arrangements. These guarantees are not provided by the
Company as a guarantee of the payment and performance
by other funds managed by the Investment Manager to
such Third Parties. Rather, the guarantees are typically to
guarantee the payment and performance by entities that are
direct or indirect subsidiaries of the Company. Such entities
are typically set up to manage regulatory, tax, legal or other
issues. To the extent that a subsidiary is not 100% owned
by the Company, the Company will typically only guarantee
such subsidiary for the benefit of Third Parties to the extent
of the Company’s ownership interest in the subsidiary.
4. With respect to the liquidity management procedures of
the Company, the Company is a closed-ended investment
fund, the Public Shares of which are admitted to trading on
Euronext Amsterdam and the LSE. As such, Public Shares
have no redemption rights and shareholders’ only source of
liquidity is their ability to trade Public Shares on Euronext
Amsterdam and the LSE.
5. The Bonds are subject to the following transfer restrictions:
(a) Each holder of the Bonds is required to be either
(a) a qualified institutional buyer (“QIB”) as defined
in Rule 144A under the U.S. Securities Act of 1933, as
amended (the “Securities Act”) who is also a qualified
purchaser (“QP”) as defined in Section 2(a)(51) of the U.S.
Investment Company Act of 1940 or (b) a non-U.S. person,
provided that, in each case, such holder can make the
representations set forth in the Listing Particulars, dated
June 24, 2015,
(b) The Bonds can only be transferred to a person
that is a QIB/QP in a transaction that is exempt from
the registration requirements of the Securities Act
pursuant to Rule 144A or to a non-U.S. person in an
oshore transaction that is not subject to the registration
requirements of the Securities Act pursuant to Regulation
S, or to the Company, and
(c) The Company has the right to force any holder who is
not a QIB/QP or a non-U.S. person to sell its Bonds.
For the Year Ended 2022
Fixed
Remuneration
(1)
Variable
Remuneration
(1)
Total
Number of
Beneficiaries
Total remuneration of entire PSCM sta
(2)
Remuneration of PSCM sta who are fully or partly
involved in the activities of the Company
(3)
Proportion of remuneration of PSCM sta who are
involved in the activities of the Company as a percentage
of the total PSCM sta remuneration % % % out of
Remuneration of senior management and PSCM sta
whose actions have a material impact on the risk profile
of the Company
(1) Fixed remuneration reflects salaries and guaranteed remuneration earned in 2022 by PSCM staff. All other remuneration earned in 2022 is considered to be variable
remuneration.
(2) Total remuneration reflects salaries, bonuses and performance fees/allocations earned by PSCM staff in 2022 for services provided to PSCM, the Company and/or other funds
managed by PSCM.
(3) Remuneration earned in 2022 by any staff member involved in the activities of the Company for services provided by such staff member to PSCM, the Company and/or other
funds managed by PSCM.
6. Remuneration
Annual Report 2022
115
Pershing Square Holdings, Ltd.
Affirmation of the Commodity Pool Operator
To the best of the knowledge and belief of the undersigned,
the information contained in the audited Financial
Statements of Pershing Square Holdings, Ltd. for the year
ended December 31, 2022 is accurate and complete.
By: Michael Gonnella
Chief Financial Ocer
Pershing Square Capital Management, L.P.
Commodity Pool Operator
Pershing Square Holdings, Ltd.
Commodity Pool
/s/ Michael Gonnella
Michael Gonnella
Annual Report 2022
116
Pershing Square Holdings, Ltd.
ENDNOTES TO CHAIRMAN’S STATEMENT
i
The Company’s NAV appreciation is calculated with respect
to the Public Shares only and is as of December 31, 2022.
Performance results are presented on a net-of-fees basis. Net
returns include the reinvestment of all dividends, interest,
and capital gains from underlying portfolio companies and
assume an investor has participated in any “new issues” as
such term is defined under Rules 5130 and 5131 of FINRA.
Net returns also reflect the deduction of, among other things,
management fees, brokerage commissions, administrative
expenses and performance fees (if any). Performance is
based on the dollar return for the specific period, including
any and all dividends paid by the Company, calculated from
the beginning of such period to the end of such period. Past
performance is not a guarantee of future results.
ii
The Company’s share price performance and discount
to NAV for 2022 is calculated based on the Company’s
Public Shares traded on Euronext Amsterdam and includes
dividend reinvestment. The share price decline over 2022
for Public Shares listed on the LSE in Sterling and USD was
1.9% and 11.6%, respectively. The LSE shares’ discount to
NAV widened from 28.8% to 31.9% during 2022 for shares
listed in Sterling and from 29.7% to 32.1% for shares listed
in USD.
iii
Please see Endnote 3 in “Endnotes to Company
Performance and Investment Manager’s Report”.
iv
2020 COVID-19 hedges refer specifically to the CDS index
hedges initiated in late February through early March of 2020.
v
The Company’s total debt to capital ratio is calculated
in accordance with the “Total Indebtedness to Total
Capital Ratio” under the PSH Bonds’ Indentures. Under
the Indentures, the Company’s “Total Capital” reflects
the sum of its NAV and its “Total Indebtedness”. Total
Indebtedness reflects the total “Indebtedness” of the
Company and any consolidated subsidiaries (excluding
any margin debt that does not exceed 10% of the
Company’s total capital), plus the proportionate amount
of indebtedness of any unconsolidated subsidiary or
aliated special investment vehicle. As defined in the
Indentures, “Indebtedness” reflects indebtedness (i)
in respect of borrowed money, (ii) evidenced by bonds,
notes, debentures or similar instruments or letters of
credit (or reimbursement agreements in respect thereof),
representing capital lease obligations, (iv) representing
the balance deferred and unpaid of the purchase price of
any property or services (excluding accrued expenses and
trade payables in the ordinary course of business) due
more than one year after such property is acquired or such
services are completed or (v) in respect of the Company’s
capital stock that is repayable or redeemable, pursuant to
a sinking fund obligation or otherwise, or preferred stock
of any of the Company’s future subsidiaries. Indebtedness
does not include, among other things, NAV attributable
to any management shares or hedging obligations or
other derivative transactions and any obligation to return
collateral posted by counterparties in respect thereto.
vi
Reflects the discount to NAV of the Company’s Public
Shares traded on Euronext Amsterdam. The discount to
NAV for Public Shares traded on the LSE in Sterling widened
from 21.3% on December 31, 2017 to 31.9% on December 31,
2022. The Company did not have an LSE listing in USD as of
December 31, 2017.
vii
Ownership by aliates of PSCM also includes their charitable
vehicles. Holdings of aliates of the Investment Manager have
not been aggregated for regulatory reporting purposes.
Endnotes and Disclaimers
Annual Report 2022
117
Pershing Square Holdings, Ltd.
ENDNOTES TO COMPANY OVERVIEW,
COMPANY PERFORMANCE AND
INVESTMENT MANAGER’S REPORT
1. Performance results are presented on a net-of-fees basis.
Net returns include the reinvestment of all dividends,
interest, and capital gains from underlying portfolio
companies and reflect the deduction of, among other
things, management fees, brokerage commissions,
administrative expenses and accrued and/or crystallized
performance allocation/fees (if any). The Company’s
performance is based on the dollar return for the
specific period, including any and all dividends paid by
the Company, calculated from the beginning of such
period to the end of such period. Where the Company’s
performance is presented with that of PSLP, performance
results assume that an investor (i) has been invested in
PSLP since inception and has participated in any “new
issues,” as such term is defined under Rules 5130 and
5131 of FINRA and (ii) invested in PSLP at its inception
on January 1, 2004 and converted to PSH at its inception
on December 31, 2012. Such performance information
does not reflect either the performance of PSLP since its
inception or PSH since its inception and no individual
fund has actually achieved these results. The information
is presented to illustrate how Pershing Square’s core
strategy has performed over a longer time horizon prior
to the inception of the Company and is not necessarily,
and does not purport to be, indicative, or a guarantee, of
future results. This performance provided is calculated
based on certain inputs and underlying assumptions,
but not all considerations may be reflected therein and
such performance is subject to various risks and inherent
limitations that are not applicable to the presentation of
the performance of either PSH or PSLP alone. Although
Pershing Square believes the performance calculations
described herein are based on reasonable assumptions,
the use of dierent assumptions would produce dierent
results. For example, depending on the timing of an
individual investor’s specific investment in the Company
and/or PSLP, net performance for an individual investor
may vary from the net performance as stated herein. The
performance is also provided to you on the understanding
that you will understand and accept the inherent
limitations of such results, and will not rely on them
in making any investment decision with respect to an
investment with Pershing Square.
2. PSLP’s net performance results are presented as it is
the Pershing Square fund with the longest track record
and substantially the same investment strategy to the
Company. The inception date for PSLP is January 1,
2004. In 2004, Pershing Square earned a $1.5 million
(approximately 3.9%) annual management fee and PSLP’s
general partner earned a performance allocation equal to
20% above a 6% hurdle from PSLP, in accordance with
the terms of the limited partnership agreement of PSLP
then in eect. That limited partnership agreement was
later amended to provide for a 1.5% annual management
fee and 20% performance allocation eective January 1,
2005. The net returns for PSLP presented herein reflect
the dierent fee arrangements in 2004, and subsequently.
In addition, pursuant to a separate agreement, in
2004 the sole unaliated limited partner of PSLP paid
Pershing Square an additional $840,000 for overhead
expenses in connection with services provided unrelated
to PSLP, which have not been taken into account in
determining PSLP’s net returns. To the extent that such
overhead expenses had been included as fund expenses of
PSLP, net returns would have been lower.
3. The S&P 500 Total Return Index (“index”) has been
selected for purposes of comparing the performance of
an investment in the Company or PSLP, as applicable,
with a well-known, broad-based equity benchmark. The
statistical data regarding the index has been obtained
from Bloomberg and the returns are calculated assuming
all dividends are reinvested. The index is not subject to
any of the fees or expenses to which the Pershing Square
Funds are subject. The Pershing Square Funds are not
restricted to investing in those securities which comprise
this index, their performance may or may not correlate
to this index and they should not be considered a proxy
for this index. The volatility of an index may materially
dier from the volatility of the Pershing Square Funds’
portfolios. The S&P 500 is comprised of a representative
sample of 500 U.S. large cap companies. The index
is an unmanaged, float-weighted index with each
stock’s weight in the index in proportion to its float, as
determined by Standard & Poor’s. The S&P 500 index is
proprietary to and is calculated, distributed and marketed
by S&P Opco, LLC (a subsidiary of S&P Dow Jones Indices
LLC), its aliates and/or its licensors and has been
licensed for use. S&P® and S&P 500®, are registered
trademarks of Standard & Poor’s Financial Services LLC.
© 2023 S&P Dow Jones Indices LLC, its aliates and/or
its licensors. All rights reserved.
Annual Report 2022
118
Pershing Square Holdings, Ltd.
4. The performance data presented on page 2 under
“Cumulative (Since Inception)” and “Cumulative (Since
PSH Inception)” is calculated from January 1, 2004 and
December 31, 2012, respectively.
5. The Investment Manager’s Report contains Pershing
Square’s own views and opinions, based on publicly
available information, to illustrate Pershing Square’s
thinking on the matters therein. An investment in the
Company will entail substantial risks, and a prospective
investor should carefully consider the risks described in
“Principal Risks and Uncertainties” and the disclosures
contained in Pershing Square’s Form ADV Part 2A and
the Company’s Prospectus.
6. NAV performance is presented as net returns. Please
also refer to Endnote 3 and Endnote i of the Chairman’s
Statement.
7. Please refer to Endnote ii of the Chairman’s Statement.
8. Please refer to Endnotes 1 and 3.
9. Stock price performance reflects the Company’s NAV
performance prior to its IPO and the NAV performance of
PSLP prior to the inception of the Company. Please refer
to Endnote 1. The Company’s share return is calculated
based on PSH’s Public Shares traded on Euronext
Amsterdam and includes dividend reinvestment.
10. Reflects the discount to NAV of the Company’s Public
Shares traded on Euronext Amsterdam as of March 21,
2023. The discount to NAV for Public Shares listed on the
LSE in Sterling and USD was 33.8% and 34.2% on that
date, respectively.
11. Twelve-year performance data is calculated from January
1, 2004 to July 31, 2015. PSLP performance data is used
prior to the inception of the Company. Also refer to
Endnote 1.
12. Assets under management equal the net assets of the
Pershing Square Funds calculated in accordance with U.S.
GAAP without deducting amounts attributable to accrued
performance fees, while adding back the principal value
of the Company’s debt outstanding ($1.8 billion and €500
million translated into USD at the prevailing exchange
rate at the reporting date, 1.08). Also refer to Endnote vii
of the Chairman’s Statement.
13. Reflects the aggregate investments of Pershing Square
aliates and their charitable vehicles in the Pershing
Square Funds.
14. The increase in shareholders’ look-through ownership in
the Company’s underlying portfolio reflects the product
of (a) the percentage increase in shareholders’ ownership
of the Company as a result of share repurchases and
(b) the weighted-average of the percentage increase
in the Company’s ownership of its underlying portfolio
companies due to those companies’ share repurchases.
15. Please refer to Endnote 21.
16. Long term equity portfolio excludes 2022 portfolio
companies held by the Company for less than one year.
Please also refer to Endnote 21.
17. Please refer to Endnote 21.
18. Please refer to Endnote 21.
19. Please refer to Endnote iv of the Chairman’s Statement.
20. The Portfolio Update reflects Pershing Square’s own views
and opinions as a shareholder of the portfolio companies
discussed therein and should not be taken to reflect the
view or opinions of the board of directors of any portfolio
company or that of any individual director.
21. This report reflects the contributors and detractors
to the performance of the portfolio of the Company.
Other than bond interest expense and share buyback
accretion, positions with contributions or detractions
to performance of 50 basis points or more are listed
separately, while positions with contributions or
detractions to performance of less than 50 basis points
are aggregated.
The contributions and detractions to performance
presented herein are based on gross returns which do
not reflect the deduction of certain fees or expenses
charged to the Company, including, without limitation,
management fees and accrued/crystallized performance
fees (if any).
Inclusion of such fees and expenses would produce
lower returns than presented here. In addition, at times,
Pershing Square may engage in hedging transactions to
seek to reduce risk in the portfolio, including investment-
specific hedges that do not relate to the underlying
securities of an issuer in which the Company is invested.
For each issuer, the gross returns reflected herein (i)
include only returns on the investment in the underlying
issuer and the hedge positions that directly relate to the
securities that reference the underlying issuer (e.g., if the
Annual Report 2022
119
Pershing Square Holdings, Ltd.
Company was long Issuer A stock and also purchased puts
on Issuer A stock, the gross return reflects the profit/
loss on the stock and the profit/loss on the put); (ii) do
not reflect the cost/ benefit of hedges that do not relate to
the securities that reference the underlying issuer (e.g., if
the Company was long Issuer A stock and short Issuer B
stock, the profit/loss on the Issuer B stock is not included
in the gross returns attributable to the investment in
Issuer A); and (iii) do not reflect the cost/ benefit of
portfolio hedges. Performance with respect to currency
hedging related to a specific issuer is included in the
overall performance attribution of such issuer.
The contributors and detractors to the gross returns
presented herein are for illustrative purposes only. The
securities on this list may not have been held by the
Company for the entire calendar year. All investments
involve risk including the loss of principal. It should not
be assumed that investments made in the future will be
profitable or will equal the performance of the securities
on this list. Past performance is not indicative of future
results. Please refer to the net performance figures
presented on page 2.
22.
While the Pershing Square Funds often take an engaged
posture with respect to certain investments, they will
own, and in the past have owned, other investments,
including passive investments and hedging-related
positions. “Short Positions” includes options, credit
default swaps and other instruments that provide short
economic exposure.
All trademarks are the property of their respective
owners. It should not be assumed that any of the
securities transactions or holdings discussed herein were
or will prove to be profitable, or that the investment
recommendations or decisions Pershing Square
makes in the future will be profitable or will equal the
investment performance of the securities discussed
herein. Companies shown in this figure are meant to
demonstrate Pershing Square’s experience engaging with
public companies and the types of industries in which
the Pershing Square Funds invest, and were not selected
based on past performance.
Limitations of Performance Data
Past performance is not necessarily indicative of future
results. All investments involve risk including the loss of
principal. This report does not constitute a recommendation,
an oer to sell or a solicitation of an oer to purchase
any security or investment product. This report contains
information and analyses relating to all publicly disclosed
positions above 50 basis points in the Company’s portfolio
during 2022. Pershing Square may currently or in the
future buy, sell, cover or otherwise change the form of its
investment in the companies discussed in this report for
any reason. Pershing Square hereby disclaims any duty to
provide any updates or changes to the information contained
here including, without limitation, the manner or type of any
Pershing Square investment.
Forward-Looking Statements
This report also contains forward-looking statements, which
reflect Pershing Square’s views. These forward-looking
statements can be identified by reference to words such as
“believe”, “expect”, potential”, “continue”, “may”, “will”,
“should”, “seek”, “approximately”, “predict”, “intend”,
“plan”, “estimate”, “anticipate” or other comparable words.
These forward-looking statements are subject to various risks,
uncertainties and assumptions. Accordingly, there are or will be
important factors that could cause actual outcomes or results to
dier materially from those indicated in these statements. Should
any assumptions underlying the forward-looking statements
contained herein prove to be incorrect, the actual outcome or
results may dier materially from outcomes or results projected
in these statements. None of the Company, Pershing Square or
any of their respective aliates undertakes any obligation to
update or review any forward-looking statement, whether as a
result of new information, future developments or otherwise,
except as required by applicable law or regulation.
Pershing Square Holdings, Ltd.
pershingsquareholdings.com