Bill Ackman / 2020 / Credit
Insurance before the alarm.
Bill Ackman and the cost of protection before panic.
Before the outcome was obvious.
In March 2020, Pershing Square used credit-index protection to hedge the damage it feared from COVID. Its investor letter reports $2.6 billion of exit proceeds against $27 million of premiums and commissions, with the exit completed on 23 March. The funds then redeployed proceeds into equities. This was a portfolio hedge as well as a successful standalone position. The denominator matters: premiums paid are not the same thing as the notional amount of credit protected.
What could have gone wrong
Protection can expire or lose value if the feared repricing does not occur. Its value must also be understood alongside losses in the portfolio being protected.
Price the insurance, understand the exposure, and decide in advance what would justify taking the hedge off.
Put the thesis to the test.
Change the assumptions and watch the arithmetic update. These are simplified scenarios; they do not recreate the instrument’s pricing or the path of the trade.
How this model works
Profit ratio = profit ÷ stated position. Exposure ratio = stated position ÷ fund assets. Neither is a measure of maximum loss or a net investor return.
The workbook’s simple annualisation is profit ratio × 365 ÷ duration = 165,634%. It is linear, not compounded, and is not a repeatable annual return. Fees, financing, collateral, premium carry and changing exposures are not modelled.
What these figures mean.
Source: Legendary Trades Models, Master Comparison!A16:L16; Trade P&L Models, case 13. The following are original workbook inputs, preserved for transparency. They are estimates, not independently audited results.
- Workbook position
- $27m
- Workbook “gross profit”
- $2.6bn
- Workbook duration
- 21 days
- Workbook fund assets
- $8bn
- Workbook fund return
- 70.2%
- Workbook position ROI
- 9,629%
The fund-return field is a separate source claim, not a calculated result of this trade. Its reporting period and gross/net basis are not independently established here. Model ratios are recalculated from inputs rather than copied from rounded source ROI values.
Historical context: Pershing Square · Letter to investors, 25 March 2020 ↗. This source supports the context discussed above; it does not validate every workbook input.