Pershing Square Holdings, Ltd.
2021 Annual Report
Annual Report 2021
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Pershing Square Holdings, Ltd.
Pershing Square Holdings, Ltd.
2021 Annual Report
Table of Contents
Company Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Company Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Chairman’s Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Investment Manager’s Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Principal Risks and Uncertainties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Report of the Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Directors’ Remuneration Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Corporate Governance Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Report of the Audit Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Report of Independent Auditor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Statement of Financial Position . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
Statement of Comprehensive Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
Statement of Changes in Net Assets Attributable to Management Shareholders . . . . . . . . . . . . . . . . . 70
Statement of Changes in Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
Statement of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
Supplemental U.S. GAAP Disclosures
Condensed Schedule of Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112
Financial Highlights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114
Disclosures
Certain Regulatory Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115
Affirmation of the Commodity Pool Operator . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 7
Endnotes and Disclaimers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 118
Annual Report 2021
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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 2, 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 35-36 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. Over more than 18 years, the investment strategy pursued by the Investment Manager
has generated a 17.1% annualized net return and cumulative net returns of 1,670.5% for PSLP/PSH (as converted)
compared to a 10.2% annualized net return and cumulative net returns of 484.0% for the S&P 500, PSH’s historical
benchmark index, over the same period.
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Annual Report 2021
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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 % % %
Year-to-date through March 22, 2022 ()% ()% ()%
January 1, 2004–March 22, 2022
(1,4)
Cumulative (Since Inception) % % %
Compound Annual Return % % %
December 31, 2012–March 22, 2022
(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.
1,670.5%
1,495.4%
484.0%
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 118. 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 118-121.
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
Annual Report 2021
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Pershing Square Holdings, Ltd.
Chairman’s Statement
INTRODUCTION
The global coronavirus pandemic continued to have a major eect on the world’s economy in 2021; however, incredible
progress was made thanks to the development of vaccines, and as they have become more widely distributed, have enabled
us to adjust to a new way of living with the remaining risks of COVID-19. I am pleased to report that the actions taken by our
portfolio companies in 2020 to protect and preserve their businesses, and to develop new strategic initiatives, put them in a
position to recover strongly in 2021. As markets recovered, the Investment Manager predicted that the unprecedented U.S.
government stimulus and pent-up global demand would lead to an increase in inflation, and that interest rates would need to
increase. The Investment Manager implemented a hedging strategy during 2021 which helped to protect our investors from
the potential risks of inflation whilst also positioning PSH’s portfolio to generate long-term returns in the future.
Despite the progress made against COVID-19, we continue to find ourselves in an uncertain time due to geopolitical events.
At the time of writing this letter, Russia and Ukraine are at war, and the situation is evolving rapidly. Our companies
continue to report strong earnings and their operations are not materially exposed to the conflict, but there is no doubt the
horrific events in Ukraine will have political and economic ramifications across the world.
INVESTMENT PERFORMANCE
During the year ended December 31, 2021, PSH’s total Net Asset Value (“NAV”) return including dividends was 26.9%,
ending the year at $57.30 per share.
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PSH generated a total shareholder return of 18.6% over the same period as a result
of the widening of the discount to NAV at which PSH shares traded from 23.0% to 28.3%.
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By comparison, the S&P 500
increased 28.7% during the year ended December 31, 2021.
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This solid performance in 2021 follows a period of outstanding
performance for PSH such that our three-year annualized NAV return is 50.1% (share price 48.4%, S&P 500 26.0%) and
five-year annualized NAV return is 26.4% (share price 23.8%, S&P 500 18.4%). The Board is very pleased to note the
Investment Manager’s strong and consistent track record in generating substantial gains for shareholders.
PSH’s growth in 2021 was driven by strong performance across its portfolio companies, most notably at Lowe’s, Universal
Music Group (“UMG”), and from PSH’s interest rate hedge position. The most notable detractor from performance in 2021
was the decrease in value of PSH’s commitment to invest in Pershing Square Tontine Holdings (“PSTH”). The PSTH share
price declined from $27.72 to $19.72 during 2021, leading to a decrease in the value of PSH’s forward purchase agreements
and Sponsor Warrants. The performance of the entire portfolio is discussed in more detail in the Investment Manager’s
Report below, and further information on the valuation of the PSTH forward purchase agreements and Sponsor Warrants
can be found in the Notes to the Financial Statements.
In my report to you last year, I noted the Investment Manager’s foresight in using an asymmetric hedging strategy that
protected the portfolio from severe declines in the stock market in Q1 2020. In 2021, the Investment Manager once again
eectively utilized a hedge in the fixed income market by purchasing interest rate swaptions with the expectation that
interest rates would rise as the world began to emerge from the COVID-19 pandemic. At an initial cost of $157 million – or
1.4% of PSH’s assets at the time – the hedge’s asymmetric nature protected the portfolio with a relatively small investment.
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As the Investment Manager’s thesis became more widely accepted by the market, the hedge significantly increased in value.
In January 2022, the substantial majority of the hedge was sold generating proceeds of $1.25 billion across the Pershing
Square Funds. The proceeds were then used to establish a new core position for PSH in Netflix, whose share price had
significantly declined in recent months, leading the Investment Manager to believe it was undervalued. The Investment
Manager remains concerned about the potential impact of inflation on PSH’s portfolio and has since re-established a similar
asymmetric interest rate swaption position to protect the portfolio going forward.
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Pershing Square Holdings, Ltd.
PSH’s portfolio companies have emerged from the pandemic better positioned than before, and the Investment Manager
believes that the intrinsic value of PSH’s portfolio companies will continue to grow and deliver strong returns to
shareholders over the long term.
INVESTMENT MANAGER
The Board has delegated the task of managing the Company’s assets to the Investment Manager as set out in the
Investment Management Agreement (the “IMA”) entered into by PSH and Pershing Square Capital Management, L.P. 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 utilizes 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. The Investment Manager’s nimble use
of hedging strategies demonstrates an important dierentiating attribute and a unique advantage for PSH, and the Board
commends the Investment Manager’s deft approach.
PORTFOLIO CHANGES
The PSH Board was pleased to see that the Investment Manager continued to refresh the portfolio in 2021, particularly
when market volatility created opportunities to reinvest in high-quality companies at attractive prices. During the year,
PSH initiated positions in UMG, Domino’s Pizza and Canadian Pacific Railway. It also enjoyed profitable exits from its
positions in Starbucks and Agilent Technologies. In early 2022 PSH initiated a position in Netflix with the proceeds
generated from its interest rate swaption hedge and also established a new interest rate swaption hedge.
The Investment Manager remains focused on finding a potential transaction for Pershing Square Tontine Holdings Ltd.
(“PSTH”) that meets its core investment principles. As discussed in the Investment Manager’s report in our 2021 Interim
Financial Statements, the Investment Manager has also filed a public registration statement for Pershing Square SPARC
Holdings, Ltd. (“SPARC”) which remains subject to SEC review. If SPARC is approved, it will allow the Investment Manager
to continue to work on a potential merger transaction without burdening investors with the opportunity cost of keeping
their money in a trust account. If SPARC is not approved and PSTH has not completed an initial business combination in the
allotted time, PSTH will return its capital held in trust and PSTH’s Sponsor Warrants would expire worthless.
CORPORATE ACTIONS
In 2021, PSH completed two new bond issuances, raising a total of $1.3 billion of additional capital at attractive interest
rates: €500 million of 1.375% 6-year unsecured Bonds due October 2027, (the “2027 Bonds”) and $700 million of 3.250%
10-year unsecured Bonds due October 2031 (the “2031 Bonds”). The proceeds from the sale of the 2027 Bonds and 2031
Bonds were used in part to fund PSH’s tender for its outstanding 5.500% unsecured Bonds due in 2022 (the “2022 Bonds”).
$369 million of the 2022 Bonds were redeemed in the tender.
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Pershing Square Holdings, Ltd.
PSH’s long-term debt management strategy is to manage leverage over time by increasing NAV through strong performance
and laddering maturities through new issuances. The issuances in 2021 follow two issuances in 2020 and one in 2019, all of
which are investment grade. The net result of these issuances is a laddered set of maturities over the next 17 years which
matches our long-term investment horizon. Our total debt to total capital ratio today is just over 21% and is conservative
given that PSH’s portfolio is liquid and easy to value.
v
The Board continues to believe that PSH’s access to low-cost,
investment grade, long-term debt is a competitive advantage that will serve shareholders well over the long term.
On March 28, 2022, the Company announced that beginning with the second quarter dividend and for the remainder of the calendar
year 2022, the Company will increase its quarterly dividend by 25% to $0.125 per share. The Company’s intended policy in future
years will be to pay quarterly dividends in an amount determined by multiplying the average PSH NAV of all trading days in
December of the prior year by 0.25%, subject to a cap whereby the total dividend for the year is not to exceed 125% of the average
total dividend paid in each of the previous three years so that PSH does not make an excess distribution under the PFIC rules. Once
the dividend is set for a specific year, we do not intend to decrease it from that level even in the event that NAV were to decline in a
future year. PSH’s goal is to maximize its long-term compound annual rate of growth in NAV per share. Our new dividend policy will
allow shareholders to receive quarterly distributions that will increase over time as we achieve this objective.
DISCOUNT TO NAV
The Board closely monitors the discount to NAV at which PSH’s Public Shares trade and is not satisfied with the current
discount. Despite the three-year annualized PSH NAV return of 50.1% for the period ending December 31, 2021, the discount
widened from 25.2% to 28.3% over that period. However, it is interesting to note that shareholders captured approximately
95% of the value of the increase in NAV as the share price annualized return equaled 48.4% over the same period.
The Board believes that the best way to close the discount is for PSH to attract long-term investors by continuing to
deliver strong investment performance over time. We can also do more to increase awareness of our performance and our
strategy among investors. In recent years the Board has actively taken steps to broaden our investor base by securing a
listing on the London Stock Exchange. Our subsequent elevation to the FTSE 100 index has increased the visibility of PSH
to investors. In 2021, we increased our marketing eorts in the U.K., specifically to retail investors and the “platforms”
they use, and remain focused on reaching a broader array of potential investors. We are also pleased that the Association
of Investment Companies (“AIC”) has reclassified PSH from its Hedge Funds group to U.S. Equity, which more accurately
reflects our investment strategy.
Since May 2017, we have repurchased 51 million PSH Public Shares for $837 million, which represents 21% of shares
outstanding prior to the repurchases. During this time the discount widened from 15.3% to 33.9% as of this writing.
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We
are keenly aware that share repurchase programs alone do not inherently act as a discount closing mechanism. We did not
buy back any shares in 2021 because the Board and the Investment Manager did not believe that it would be the best use of
our capital given other investment opportunities available at that time. We have not ruled out undertaking additional buy
backs or other corporate actions in the future should we believe they are likely to be an eective use of capital and in the
best long-term interests of our shareholders.
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Pershing Square Holdings, Ltd.
CORPORATE GOVERNANCE / BOARD
Tope Lawani, Rupert Morley and Tracy Palandjian joined the Board in 2021 as non-executive directors. The addition of
Tope, Rupert and Tracy expanded the Board to seven members, six of whom are independent. Our Board discussions have
already benefited from the perspectives they each bring to our meetings.
The Board continues to work eectively and diligently on behalf of all shareholders. The Investment Manager and the
PSH Board have maintained an open and productive dialogue. I would like to thank my fellow directors for all of their
contributions and time commitment throughout the year.
EVENTS / SHAREHOLDER ENGAGEMENT
PSH’s investor meeting on February 11, 2022, was attended by shareholders representing 34% of shares outstanding
(excluding the 25% of shares owned by PSCM aliates).
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During the meeting, the Investment Manager presented a
portfolio update. The presentation is available on PSH’s website: www.pershingsquareholdings.com.
PSH’s 2022 AGM will be held on May 5, 2022. Although the States of Guernsey removed all travel restrictions on February
17, 2022, visitors to Guernsey are still advised to test before travel. There are also reporting and isolation requirements
should you develop symptoms or test positive for COVID-19 when in Guernsey. We therefore encourage our shareholders
to submit proxy votes in electronic form. The results of the voting will be announced as soon as practicable after the
conclusion of the AGM.
I will report to you on the first half of 2022 in August 2022, 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, 2022
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Pershing Square Holdings, Ltd.
Investment Manager’s Report
LETTER TO SHAREHOLDERS
To the Shareholders of Pershing Square Holdings, Ltd.:
In 2021 Pershing Square Holdings generated strong NAV performance of 26.9%, and a lower total shareholder return
(TSR) of 18.6% due to the widening of the discount to NAV at which PSH’s shares traded during 2021.
5
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 17.1%
compounded annual rate over the last 18 years, compared with a 10.2% return had one invested in the S&P 500 during
the same period.
6
With the magic of compounding, our 17.1% compound annual NAV return translates into a cumulative
total NAV return since inception of 1,670% versus 484% for the S&P 500 over the same period. In other words, Day One
Investors have multiplied their equity investment by 18 times versus the six 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 14.5%
compounded return, a 12 times multiple of their original investment.
7
This lower return reflects the 33.9% discount to NAV
at which PSH’s stock currently trades. 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, and its NAV and market value returns will converge.
The Last Four Years
The last four years have been an extraordinary period of performance for PSH. NAV per share has increased from
$17.41 to $57.30 from December 31, 2017 to December 31, 2021, a compound annual return of 35.4% and a cumulative
return of 236% versus 17.6% and 91.5% for the S&P 500 over the same period. In light of the strong turnaround in PSH’s
performance, we thought it would be useful to examine the steps we took to achieve this outcome as they will provide
useful lessons for the years to come.
In 2017, Pershing Square was in the midst of resolving the overhang from two bad investments that contributed to a
several-year period of underperformance, which led us to what is best described as a moment of reflection for Pershing
Square. Our self-examination inspired a turnaround strategy comprised of four pillars: (1) exit the problematic
investments; (2) restructure Pershing Square to a smaller investment-centric organization with future asset growth driven
by investment results; (3) stabilize our capital base by acquiring a large stake in PSH and halting marketing and capital
raising for the private funds; and (4) reinforce the implementation of our core investment principles which have generated
the substantial majority of our performance since inception.
Exit the Problematic Investments
We sold Valeant and closed out our Herbalife short despite our belief that substantial profits would likely have been realized
from their then trading prices. While retaining both investments would have generated substantial gains,
a
we exited
because we believed that the capital could better be deployed in other opportunities, particularly when one considered the
a As of March 22, 2022, Valeant, now Bausch Health, has increased by 118.6% to $24.05 from our final exit price of $11.00, and our short position in
Herbalife has declined since our exit by 30.6%, or from $48.95 (adjusted for its 2 to 1 stock split) to $33.98.
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Pershing Square Holdings, Ltd.
opportunity cost of our time. The aphorism that you “don’t need to make it back the way you lost it” has always resonated
with us. Fortunately, we were amply rewarded from the redeployment of this capital as profits on the new investments were
substantially greater than the gains we would have achieved from holding the troubled ones.
Restructure Pershing Square to a Smaller Investment-Centric Organization
When my former partner and I launched Gotham Partners, my previous firm, in 1992, my ambition was not to build a
large global asset management firm. Rather, my immodest announced goal (exhibiting the perils of youthful exuberance)
was “to generate one of the best long-term investment records ever.” Our goal was the same when we launched Pershing
Square in 2004. We were o to a good start with a 21% compound annual return for the first nearly 12 years.
8
By 2015,
these strong returns coupled with early capital inflows grew Pershing Square’s equity under management to about
$20 billion.
9
About 60% of these assets were in our two private funds – Pershing Square, L.P. and Pershing Square
International, Ltd. – from which capital could be redeemed each quarter, a redemption “half-life” of about one year, with
the balance of our assets in PSH.
In light of the impermanent nature of our private fund capital and the resulting constant need to retain and recruit new
investors to maintain stable capital, I had inadvertently become the “Chief Marketing Ocer” of Pershing Square (not
to take away from our investor relations team’s excellent work) as investors who had committed large amounts of capital
wished to meet with the CEO and other members of the investment team at least once a year. By 2015 and at $20 billion
of equity under management, these once-a-year meetings with a hundred or more investors ended up consuming or
conflicting with much of our productive time, which interfered with the large blocks of time needed to focus on investing.
Even a five-minute “check in” in the middle of the workday can materially disrupt the “flow” essential to the research and
investment process.
To fix this problem, we informed our investors in January 2018 that members of the investment team would no longer meet
with investors (other than Ben Hakim who took on this responsibility). Investors would continue to be kept well informed
by our investor relations team and our conference calls, letters, presentations, and Annual Investor Meeting.
We understood that as a result of this change in our investor relations policy some of our institutional investors might be
required to, or might choose to, redeem. Even considering the cost of having to manage through a transition period with
substantial capital outflows, we strongly believed that this change would be in the long-term best interests of investors
who chose to stay with us. It was a good decision. With this new approach to investor relations, we have been able to spend
eectively all of our business time on our investments, generating the best performance in our history. We attribute much
of our success over the last four years to our improved ability to focus.
Stabilize Our Capital Base and the Pershing Square Team
During 2018, we substantially enhanced the stability of our capital base by acquiring a larger ownership stake in PSH,
increasing our alignment with other shareholders. As a long-term major owner, we could now invest without regard to
short-term considerations, an enormous competitive advantage as nearly all other investment managers are beholden to
short-term investor capital flows.
Annual Report 2021
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Pershing Square Holdings, Ltd.
The business of raising capital is one which requires time-consuming support from all aspects of the firm. Our decision
to exit the private fund capital raising business allowed us to operate extremely eectively with a much smaller team. In
a small organization, our other-than-investing managerial responsibilities are much more limited. A smaller Pershing
Square is both an extremely eective and attractive place to work, making it easier for us to retain talent, minimize
turnover, and execute a turnaround.
Withdrawals of capital from our private funds and our large investment in PSH stock transformed our capital base to
one that is substantially more permanent and more closely aligned with our investors. Today, nearly 90% of our assets
are held by PSH
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of which Pershing Square employees and aliates are the largest owners with more than 25% of shares
outstanding, a $2.8 billion of equity investment. Employees and our aliates are also the largest investors in our two
private funds representing approximately 44% of their capital or $913 million for a total systemwide equity investment
from employees and aliates of 28% of capital or $3.7 billion.
11
Pershing Square is one of the few investment managers in
the world with such a large commitment of capital from the individuals who are making the investment decisions.
Our permanent capital base has allowed us to be highly opportunistic during periods of market stress – think March 2020
and the first few months of this year. It has also allowed us to win a recent competitive process where a seller of a high-
quality business sought an anchor investor who has: (1) the ability to be a long-term and potentially permanent owner,
(2) significant skin in the game (not just other people’s money), and (3) a strong track record as a steward for other
shareholders.
We believe that we were chosen by Vivendi to be a 10% owner of Universal Music Group largely for the above reasons from
among a highly competitive field comprised of the largest private equity and other investors who needed an “exit strategy”
in order to make the investment. We do not need an exit strategy. Rather, our strong preference is to find businesses
where we believe that an exit will not be required, of which UMG is a good and important example.
Capital is generally, but not always, a commodity. Our dierentiated capital base and growing reputational equity enabled
us to win an investment mandate where price was an important but secondary consideration. With our increasing scale,
large insider investment, and stable capital base, we believe that we will continue to identify other negotiated transactions
where these unique attributes give us important competitive advantages.
Reinforce the Core Principles
Our renewed commitment to the core investment principles that have driven the substantial majority of our returns over
time was the critical fourth pillar in our turnaround. The physical manifestation of the fourth pillar is a ‘stone’ tablet
that sits on each of our desks that reminds us of our commitment to invest in the extremely durable growth companies
that meet our core principles for business quality, simplicity, predictability, and free-cash-flow generation. We have been
greatly rewarded for doing so.
Hedging and the Benefits of Asymmetry
While the four pillars help to explain important contributors to the last four years and our approach to generating strong
results in the future, they are not the only drivers of our results. Since our inception, asymmetric hedging strategies have
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Pershing Square Holdings, Ltd.
been important contributors to performance. Below we compare our performance during periods of extreme market
volatility since our inception during: the financial crisis, the pandemic, and the first few months of 2022 – that greatly
benefitted from our approach to hedging:
Global Financial Crisis
From December 1, 2007 to June 30, 2009, PSLP outperformed the S&P 500 by 3,200 basis points
COVID-19 Pandemic
From January 1, 2020 to December 31, 2020, PSH outperformed the S&P 500 by 5,180 basis points
(60%)
(50%)
(40%)
(30%)
(20%)
(10%)
0%
10%
20%
11/30/07 1/31/08 3/31/08 5/31/08 7/31/08 9/30/08 11/30/08 1/31/09 3/31/09 5/31/09
Returns %
PSLP Net Return S&P 500
March 2009 peak losses:
S&P 500: 52.9%
PSLP: 18.2%
-3.4%
-35.4%
(40%)
(20%)
0%
20%
40%
60%
80%
12/31 1/31 2/29 3/31 4/30 5/31 6/30 7/31 8/31 9/30 10/31 11/30 12/31
Returns %
PSH Net Return S&P 500
March 2020 peak losses:
S&P 500: 30.4%
PSH: 11.2%
70.2%
18.4%
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Pershing Square Holdings, Ltd.
Russia/Ukraine War and Record Inflation
From January 1, 2022 to March 22, 2022, PSH outperformed the S&P 500 by 280 basis points
We do not use hedges to protect our mark-to-market performance from short-term downward volatility. We do not invest
for the short term; therefore, we do not believe it makes sense to hedge for potential short-term declines in the stock
market. We do, however, continually seek investments that can multiply in value when extraordinary negative macro or
market events may occur. We implement this strategy so we are well positioned to acquire more of our existing holdings
and/or potential new investments which may become available at attractive prices during periods of market disruption.
We structure these hedges using instruments, typically options or the purchase of credit default swaps, that oer
asymmetric payos and consume only a modest amount of our capital if the potential market disruption does not occur.
We think this approach can be best understood by analogy to over insuring your home in advance of an expected storm
where insurance is purchased with a suciently large deductible such that the cost is minimal and the potential payo
is large relative to the premiums paid. The downside to this approach is that you may buy insurance which does not
generate a return because your ability to predict future weather conditions is not perfect. So long as you only buy insurance
episodically and opportunistically – that is when the weather looks to be very bad and the premiums are modest – the
potential for opportunism can greatly outweigh the cost of the premiums.
We own businesses that we believe will survive the proverbial great flood. When macro considerations warrant the
purchase of protection and the price of the insurance is favorable, we over insure. When the storm hits, we cash in the
policies and buy more of what we already own and/or new companies that are available at a big discount. We have been
well rewarded for doing so.
(20%)
(10%)
0%
10%
20%
12/31 1/7 1/14 1/21 1/28 2/4 2/11 2/18 2/25 3/4 3/11 3/18
Returns %
PSH Net Return S&P 500
-2.2%
-5.0%
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Pershing Square Holdings, Ltd.
The First Few Months of 2022
Year to date, NAV per share has declined by 215 basis points. This performance reflects both positive and negative
contributors. Year-to-date hedging gains have generated 727 basis points of positive returns, whereas our portfolio
companies have generated 883 basis points of negative returns with the balance of 59 basis points reflecting accrued bond
interest, management fees and other costs.
12
We believe that our companies’ stock price declines are driven principally by
the overall stock market disruption due to uncertainty about Federal Reserve policy and its impact on equity markets, and
the recent war in Ukraine.
Volatility during the first few months of the year has provided opportunities for Pershing Square. In January, we exited
some of our interest rate swaptions that we purchased in December 2020 and in 2021 (“the 2020/2021 swaptions”) that
were approaching expiration, generating $1.25 billion for PSH and the other two Pershing Square funds (“the Funds”),
the proceeds of which were principally invested in Netflix, a business that we have admired and previously researched, but
never owned. Recently, we sold our remaining 2020/2021 swaptions for $195 million generating cumulative total proceeds
of $1.45 billion on the 2020/2021 swaptions from the Funds’ original investment of $188 million.
In light of our continuing concerns about the impact of rising rates on equity markets and the market’s underestimation
of this risk, we replaced a substantial portion of the rate hedges that we sold with new interest rate swaptions (“the 2022
swaptions”) with strike prices that were initially somewhat out of the money and with a longer term to expiration. The
2022 swaptions have already more than tripled in value from our original cost. Assuming the 2022 swaptions are sold at
their current market value, the total proceeds from all of our swaption hedges would be in excess of $2.1 billion.
The War, Inflation, Risk, Uncertainty, and Why We Remain Fully Invested
The war in Ukraine is a tragedy. Watching innocent people die due to the political and geopolitical objectives of one man
is something one would hope would have never reoccurred. Ukraine is putting up a fierce fight and much of the Western
world is helping with aggressive sanctions, military equipment and funding, but we need to do more. Russia’s horrific
actions must be made to be extraordinarily expensive and punishing for its military and its economy so that we deter and
hopefully eliminate such aggression, destruction, and loss of life in the future.
The economic implications of the war are significant in amplifying inflation in energy, agriculture, and other goods and
services, and tempering the risk appetites of investors and corporations. The prospects of high inflation, deteriorating
growth, and the potential for a U.S. and global recession have increased significantly. Russia has become uninvestable.
China is not far behind due to their crackdown on corporations and high-profile CEOs, and their tacit approval of Russia’s
actions. U.S. companies were already in the process of reshoring and near-shoring their supply chains, which will
accelerate due to increasing geopolitical uncertainty. De-globalization is inherently inflationary. Risk premiums should
also continue to rise.
Why then, you might ask, do we remain fully invested? For two principal reasons: first, we believe that the businesses
we own have substantial pricing power that will enable them to cover the costs of inflation and are otherwise suciently
robust and durable to continue to grow and withstand the test of time; and second, we believe that our hedges will likely
generate substantial liquidity that would enable us to take advantage of opportunities in the event of a substantial market
decline. We believe that hedging is a better alternative to keeping funds in cash while one is waiting for opportunities,
particularly because high rates of inflation cause the purchasing power of cash to decline rapidly.
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Pershing Square Holdings, Ltd.
The industries and businesses in which we have invested are highly attractive and well positioned to withstand negative
externalities. About 30% of our equity portfolio is invested in music and video streaming (UMG and Netflix); 26% in
restaurants and restaurant franchising (Chipotle, Restaurant Brands and Domino’s); 15% in a home improvement retailer
(Lowe’s); 10% in real estate in states with substantial in-migration (Howard Hughes) and in residential mortgages (Fannie
Mae and Freddie Mac), 10% in hotel franchising (Hilton), and 8% in a railroad (Canadian Pacific).
13
We expect that each of
these companies will grow their revenues and profitability over the long term, regardless of recent events and the various
other challenges that the world will face over the short, intermediate, and long-term.
While eectively all businesses are exposed to the global economy, we have chosen to invest close to home. Our portfolio
is North American-centric with most to all of our companies’ profits generated in North America. While the U.S. has
its share of problems including a highly litigious business environment, a complex regulatory regime, and political
disharmony and divisiveness, we believe these factors are substantially outweighed by a legal regime where the rule of
law is generally respected (more so than in most other places in the world), limited corruption, a world class military
and defense, and a corporate and capital markets environment where capitalism can flourish. We believe that these
attractive attributes will increase in importance to investors in light of recent events. Much the same way that the world is
deglobalizing, deglobalization appears to be coming to the capital markets.
We expect our portfolio companies to continue to compound their intrinsic values at even higher rates than before due to
their currently reduced valuations. We believe that all of our portfolio companies will generate long-term durable growth
due to their dominant market positions, substantial free cash flow generation, high returns on capital, pricing power, and
strong balance sheets. Furthermore, most of our companies use their free cash flow to repurchase their own shares so our
portfolio companies and their shareholders are the long-term beneficiaries of their recently reduced stock prices. While
most investment managers prefer to report consistent growing returns to their investors, we prefer to have intermittent
periods of downward volatility as they create opportunities to plant the seeds for greater long-term outperformance.
Pershing Square Tontine Holdings, Ltd. (“PSTH”)
PSTH’s failed business combination with Universal Music Group was a significant disappointment in 2021. We worked
for nine months on behalf of PSTH to close the UMG transaction, but were unable to resolve regulatory issues in a timely
fashion (and determined that we could not do so before the transaction deadline) in light of the somewhat atypical
structure of the business combination which was designed to accommodate UMG’s controlling shareholder’s requirements.
Our failure to complete the transaction was unexpected as our (and our counsel’s and that of our counterparty’s)
understanding of the SPAC business combination rules, as well as that of the NYSE whose business combination rules
applied, appeared to permit the transaction structure that we had proposed.
Fortunately, PSH and the other Pershing Square core funds, along with a co-investment fund we raised for this investment,
were able to take over the transaction and to close on time and on the original terms. Doing so preserved Pershing Square’s
track record for closing deals and eliminated potential litigation risk from a potentially failed transaction. The assignment
also restored PSTH to pursue a future transaction, albeit with somewhat less time remaining to do so.
During the first quarter of 2022, UMG’s share price made a roundtrip back to our purchase price in Euros, and an even
lower price in U.S. dollar terms. As a result, PSTH investors who missed the opportunity to acquire UMG through PSTH
have had the opportunity to purchase UMG at the same or a similar price to that we paid, which helps to mitigate the
opportunity cost of the failure of the PSTH/UMG business combination for PSTH shareholders.
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Pershing Square Holdings, Ltd.
We are very fortunate to have UMG as our largest position. It is one of the highest quality businesses we own and it trades
at one of the largest discounts to intrinsic value in our portfolio.
We are continuing to pursue potential business opportunities for PSTH. Recent market volatility and a dicult IPO
environment make PSTH’s $1 billion to $3 billion of committed capital from Pershing Square and its unique Tontine warrant
structure, designed to minimize the risk of shareholder redemptions, an even more attractive counterparty for a merger.
PSTH is open for business. We of course continue to welcome inbound ideas from investment bankers, advisors and
others. We have until July 24, 2022 to sign a letter of intent for a transaction, and six months thereafter to close unless
otherwise extended by shareholders.
Pershing Square SPARC Holdings, Ltd. (“SPARC”)
We have made considerable progress toward the launch of Pershing Square SPARC Holdings, Ltd., although there can be
no certainty the required NYSE rule will be adopted and other required approvals will be obtained. To review, SPARC is
a newly proposed acquisition company that is structured to address certain undesirable features of SPACs that we were
unable to address even with the investor-friendly SPAC innovations of PSTH’s structure.
On March 1, 2022, the NYSE proposed an amendment to its initial subscription warrant listing rule that would allow
SPARC warrants (“SPARs” or generically “subscription warrants”) to trade on the NYSE. The public comment period
for the new rule will end today, March 29
th
. We strongly encourage interested parties to publish a comment today as all
comments are considered carefully by the SEC. (To publish a comment, click here and reference SR-NYSE-2021-45). The
SEC will either approve or disapprove of the new rule no later than May 8th.
If the subscription warrant listing rule is approved and SPARC’s registration statement is declared eective by the SEC, we
intend to distribute SPARs to PSTH shareholders and warrant holders later this year. The SPARs are intended to have a
maximum 10-year term and a minimum strike price of $10.00 per share, subject to upward adjustment, which will enable
us to tailor the amount of capital needed for a potential merger transaction. The SPARs will only become exercisable 20
business days after SPARC has entered into a definitive agreement for a transaction and the registration statement for that
transaction (including comprehensive disclosure about the acquired business) has been declared eective by the SEC.
As the SPARs will be distributed free to PSTH holders, SPARC will have no underwriting fees nor will it have customary
SPAC shareholder warrants outstanding which are typically issued at the time of a SPAC IPO as an inducement for
investors to buy a “unit” in the SPAC’s initial public oering. With no shareholder warrants or underwriting fees, SPARC
will have an extremely simple and ecient capital structure with only common stock outstanding, other than 20% out-of-
the-money Sponsor and Director Warrants on 5.21% of the post-transaction merged company. We expect that SPARC’s
simple capital structure, de minimis frictional costs, and unlimited scalability, backed by a large capital commitment from
the Pershing Square Funds on the same terms as the SPAR holders will make SPARC an ideal vehicle for private companies
to go public, a much more attractive alternative than going public in a conventional IPO.
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Pershing Square Holdings, Ltd.
The SPAC market is in total disarray for reasons largely of its own making. As we have often stated, we believe that
incentives drive all human behavior, particularly on Wall Street. The incentive structure of the current-day SPAC (as
distinguished from PSTH) motivated sponsors to complete transactions in many cases regardless of the outcome for their
common stockholders. In light of typical SPACs’ highly dilutive structures with founder stock, large underwriting fees,
and dilutive shareholder warrants outstanding, it is the rare SPAC transaction that has been able to create even short-
term value for shareholders. We believe the vastly superior structure and economic terms of the SPARC structure will,
over time, enable us to own large stakes in high quality, newly public businesses that meet our investment criteria. No
assurance can be given that SPARC will ultimately be eectuated on the terms outlined above or at all.
14
Pershing Square 3.0
When we consider our history of corporate engagement, we have previously described two Pershing Square eras: (1) the
initial period from our inception as Pershing Square 1.0 or “transactional activism,” where we invested in undervalued
companies in which we were able to create substantial shareholder value by catalyzing corporate events like spinos,
strategic asset or corporate transactions, and/or changes in tax or corporate structure, and (2) Pershing Square 2.0,
beginning with our investment in General Growth Properties, where we joined the board of directors and helped to create
shareholder value from the perspective and influence of an insider.
In the last year or so, some of our investors have asked whether our approach has changed again as they perceive us to be a
“quieter” investor. They note that it has been about five years since our last proxy contest, and we have had only positive,
constructive engagements with our portfolio companies in as many years.
To set the record straight, we have always sought to have positive, constructive engagements with our portfolio companies
and their boards and management teams. Fortunately, we have largely succeeded, other than in the initial stages of a
handful of proxy contests over the years. Unfortunately, our quieter constructive engagements which characterize the
substantial majority of our investments are less widely known because quiet, constructive engagements do not generate
media attention, certainly when compared with proxy contests.
We have also on a few rare occasions engaged in the “noisiest” form of activism, activist short selling, although this has
been limited to two high-profile activist short engagements. Despite our limited participation in this investment strategy, it
has generated enormous media attention for Pershing Square. In addition to massive amounts of media hits, our two short
activist investments managed to inspire a book and a movie. Fortunately for all of us, and as importantly for our reputation
as a supportive constructive owner, we have permanently retired from this line of work.
In our nineteenth year since inception, we have had the opportunity to get to know many boards and management teams,
and we have built a reputation as a constructive, long-term, and helpful owner. The world of large capitalization public
companies is small, and our reputation as a thoughtful investor has therefore become well known among CEOs, boards,
and others who matter. The result is that all of our interactions with companies over the last five years have been cordial,
constructive, and productive. We intend to keep it that way as it makes our job easier and more fun, and our quality of life
better. So, if it is helpful to call this quieter approach Pershing Square 3.0, let it hereby be so anointed.
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Pershing Square Holdings, Ltd.
The Team
I am extremely fortunate to come to work every day alongside an extremely talented group of colleagues. Our look-after-
one-another, family-oriented culture has made work fun, productive, and profitable for the team and our investors. We are
unusual in our industry for the modest size of our organization – at current count 42, beginning with our smallest team,
the two-person reception desk to our largest, our eight-person investment team – particularly when compared with the
amount of assets we manage.
Our small size is by no means an eort to keep costs down. We are fortunate in having an investment strategy –
concentrated and long-term, and a business model – investment-centric rather than asset-gathering – that enables
relatively few to accomplish so much. Small organizations are often more productive, eective, and easier to manage than
large ones.
We are also beneficiaries of the long tenure of our team members. Pershing Square is an extremely interesting and
attractive place to work. We have also been through many challenges and successes together from which we have learned a
lot. Our experience and our culture have proven to be important sources of our competitive advantage and sustainability in
an industry with a relatively short half-life, which is why we are extremely circumspect when adding new team members.
We know that we will experience many challenges over the next hopefully many decades, and we are well prepared for what
comes next.
We are living in extraordinary times. As the steward for a portion, and for some of you a large portion of your investment
assets, we are grateful for your commitment to Pershing Square. Our shareholders include thousands of individual
investors and many institutions for whom the successful investment of their assets can create opportunities as well as
mitigate other risks and costs that they bear. We take this responsibility extremely seriously. We are pleased with our
long-term record and our performance in recent years, but we are not resting on our laurels. We have plenty of work to do
to achieve our ambitious long-term goals, and we remain vigilant, focused, and committed to maximizing the outcome for
our shareholders.
Sincerely,
William A. Ackman
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Pershing Square Holdings, Ltd.
2021 PORTFOLIO UPDATE
Performance Attribution
Below are the contributors and detractors to gross performance of the portfolio of the Company for 2021 and year-to-date 2022
(15)
.
January 1, 2021 – December 31, 2021
Lowe’s Companies Inc. %
Universal Music Group N.V. %
Interest Rate Swaptions %
Hilton Worldwide Holdings Inc. %
Domino’s Pizza Inc. %
Chipotle Mexican Grill, Inc. %
Agilent Technologies Inc. %
The Howard Hughes Corporation %
Index CDS ()%
Bond Interest Expense ()%
Federal Home Loan Mortgage Corporation ()%
Federal National Mortgage Association ()%
Pershing Square Tontine Holdings, Ltd. ()%
All Other Positions and Other Income/Expense ()%
Net Contributors and Detractors %
January 1, 2022 – March 22, 2022
Interest Rate Swaptions %
Canadian Pacific Railway Limited %
Bond Interest Expense ()%
Chipotle Mexican Grill, Inc. ()%
Lowe’s Companies Inc. ()%
Universal Music Group N.V. ()%
Domino’s Pizza Inc. ()%
All Other Positions and Other Income/Expense ()%
Net Contributors and Detractors ()%
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. Bond interest expense includes a one-time bond extinguishment expense of $12.1M
in connection with the partial cancellation of the 2022 Bonds on October 4, 2021. See Note 18 in the Notes to the Financial Statements for additional detail.
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 118-121.
New Positions:
Netflix (“NFLX”)
We have long admired Netflix and had initially researched and analyzed the company as part of our investment due diligence
on UMG. We then updated and completed our work in January when the stock price declined due to disappointing subscriber
guidance. Much like UMG, we believe Netflix is well positioned as a leading beneficiary of the long-term secular growth in
streaming, a high-quality business overseen by a world-class management team. Netflix established subscription video
streaming when it launched its service in the U.S in 2007. Over the subsequent fifteen years, it has achieved global scale with
222 million paid subscribers today in more than 190 countries.
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Pershing Square Holdings, Ltd.
Despite its large scale, Netflix is still in the early stages of capitalizing on the decade-long secular growth in streaming video
and corresponding decline in linear Pay TV. Current subscribers amount to less than a quarter of today’s estimated total
addressable market of 800 million to 900 million households that have either fixed broadband access or subscribe to Pay TV
(excluding China).
Netflix oers consumers on-demand, commercial-free, binge-able content with ubiquitous accessibility at a price point that is
approximately 80% less expensive than the average Pay TV package in the U.S. A Netflix subscription is one of the lowest cost
forms of high value entertainment, with cost per hour of engagement of about 30 cents. The company’s vastly superior value
proposition relative to Pay TV and other forms of entertainment should drive substantial pricing power and meaningfully
increase its penetration across its addressable market over time. We expect the company’s addressable market to grow
materially with global improvements in broadband connectivity and the continuous proliferation in the number of connected
devices (SmartTVs, tablets, and smartphones).
Netflix is well positioned as the dominant market leader with several advantages relative to existing legacy media incumbents
and large-capitalization technology entrants. The company has a diverse library of “content for everyone” that is replenished
at a much faster rate than competitors. It releases 150 to 200 original content episodes per month, more than the volume
released by Prime Video, Hulu, Disney+ and HBO Max combined. Netflix’s industry-leading subscriber base has enabled the
company to establish a very profitable business while spending more on original content than competitors.
Netflix’s competitors are not currently profitable on a standalone basis and may struggle to spend ever increasing amounts on
content unless they achieve significant future subscriber growth. Legacy media incumbents rely on existing profit pools from
Pay TV to fund content spend today, but these sources of funding are quickly eroding due to Pay TV cord-cutting. Large-
capitalization technology competitors such as Amazon and Apple have deployed cash flows from their significantly larger core
businesses to fund video content, but we believe they will not spend unlimited sums to advance video streaming businesses
that remain unprofitable and are ancillary to their core businesses.
As Pay TV cord cutting accelerates in mature markets, we believe there will be consumer appetite to subscribe for multiple
streaming services over time. In the U.S., we estimate that wallet share released from declining linear Pay TV subscriptions,
which are priced at approximately $80 per month, can easily sustain a streaming bundle of three to five streaming services per
household, which are typically each priced around $10 to $15 per month and oer a significantly better customer experience.
Netflix has the lowest churn rate by a wide margin amongst streaming services, highlighting its core position as the anchor,
utility-like service of any “streaming bundle.” Netflix’s retention in the U.S., its most competitive market, has remained
consistently stable at industry-highest levels despite the launch of several new competitors. International markets are earlier
stage growth markets where Netflix has an even more formidable first-mover advantage and significant competitive position
in local language content. Only Netflix has the unique and proven track record of elevating regional productions like Squid
Game, Casa de Papel and Lupin into the global cultural zeitgeist.
As Netflix’s business has achieved scale, its operating profit margins have increased from 4% in 2016 to 21% in 2021. Over
the last five years, Netflix has held content spend per subscriber constant despite growing overall content spend by 23% per
annum. At the same time, the company has increased price by 7% annually, resulting in dramatically improved subscriber
unit economics. From the customer’s perspective, Netflix’s value proposition has become better each year as the growth in the
volume of new high quality content has comfortably exceeded price increases. We believe that the combination of continued
subscriber growth and pricing power will allow the company to leverage its growing content spend over an even larger future
subscriber base, which will drive substantial future margin expansion and provide a better value proposition to its subscribers
each year.
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Pershing Square Holdings, Ltd.
The opportunity to acquire Netflix at an attractive valuation emerged as investor concerns over management’s short-term
guidance, exacerbated by recent market volatility, led to a substantial decline in the company’s share price. Despite a 47%
increase in revenue, approximately 800 basis points of margin expansion and a vastly improved free cash flow profile over the
last two years, as of March 22, 2022, Netflix’s share price is down approximately 45% from recent highs and is trading below
its February 2020, pre-pandemic share price.
Although we expect some near-term variability in the company’s quarterly growth and profitability, we are confident in
Netflix’s long-term outlook. Over the next decade, we estimate the company can achieve double-digit annual revenue growth,
significantly expand its operating profit margins, and grow its earnings per share by more than 20% per year. Moreover, the
company is now cash flow positive which over time will enable capital return through share buybacks in the coming years.
We believe Netflix’s current valuation represents a meaningful discount to intrinsic value for a business of its quality and
exceptional growth potential.
Canadian Pacific Railway (“CP”)
Beginning in late 2021, we reinitiated an investment in Canadian Pacific. CP has been the best performing railroad in North
America over the last decade due to the exceptional leadership of CEO Keith Creel and his predecessor, Hunter Harrison.
We first invested in CP in 2011 and recruited industry veteran Hunter Harrison to lead a turnaround of the company. Under
Hunter and Keith’s leadership, CP has more than doubled its operating margins from 19% in 2011 to 42% in 2021 and become
a leader in profitability among North American Class I railroads.
Canadian Pacific has been the fastest growing North American Class I railroad with average organic revenue growth of 6%
over the last five years. In December, CP closed the acquisition of Kansas City Southern (“KCS”), which we believe will be a
transformational and value-creating transaction. The acquisition of KCS positions CP to be the only North American railroad
with a direct route from Canada to Mexico, and will result in significant revenue and cost synergies. KCS’s rail network is at
the center of the North American rail system, linking Mexico to major markets in the Midwest and Southeast regions of the
United States. The CP-KCS combination will connect six of the seven largest metro regions in North America in one direct
route and oer unparalleled speed and service for customers. CP currently owns KCS through a voting trust, which entitles CP
to full economic ownership of the company, but does not permit CP to take operational control of the railroad until it receives
regulatory approval of its pending merger application. We expect this approval to occur by the end of the year.
We believe CP is an attractive business as it operates in an oligopolistic industry where the barriers to entry are high due
to considerable capital requirements, regulation, and network eects. The company provides a mission-critical freight
transportation service which is often the cheapest or only viable method for transporting heavy freight over long distances,
allowing for significant pricing power. Moreover, we believe freight volumes for the industry are poised for strong growth
as rail freight transportation takes share from trucking. Rail currently accounts for less than 10% of overall freight
transportation dollars in the United States with trucking representing more than 60%.
Rail transportation is both cheaper over longer distances than trucking, and significantly more environmentally friendly
as it reduces greenhouse gas emissions by up to 75% compared to trucking. As customers increasingly look to reduce their
carbon footprints and the railroads continue to enhance their customer service levels, we expect the railroad industry’s share
of the freight transportation market to meaningfully improve from current levels. Furthermore, the current geopolitical
environment has increased the probability of significant investment in North American onshoring and energy production,
which would further strengthen CP’s volume growth over time.
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Pershing Square Holdings, Ltd.
Since we exited our original investment in CP in 2016, we have continued to closely follow the company and have admired the
company’s industry-leading execution and operational excellence. We believe the acquisition of KCS will be transformational
for CP’s rail network, and expect CP’s leadership team to make significant operational improvements at KCS.
Despite our expectation that CP’s best-in-class recent performance will continue and the company’s future growth profile will
be significantly enhanced by the revenue and cost synergies associated with the KCS combination, CP’s shares have recently
traded at a discounted valuation relative to history and its peers. We believe that the successful consummation and integration
of the KCS acquisition will lead to attractive future investment returns relative to our purchase price as CP generates robust
free cash flow per share growth over the medium-term, and which should cause it to receive a higher valuation that is more
consistent with historical and peer levels.
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 thought of as a rapidly growing royalty on the greater global consumption and monetization of music. Together with
aliate funds, we acquired 10% of the company last summer at a negotiated equity value of €33 billion, shortly before its
distribution from Vivendi.
We believe that many investors still underappreciate the future long-term duration of growth in the music industry. Music
is still in the early innings of a decades-long runway of growth, as it remains under-monetized relative to history and when
compared to other forms of media. Due to increasing streaming penetration combined with the development of new services,
platforms, and business models, we believe UMG can grow revenues at an annual rate approaching double-digits for more
than a decade. Streaming is faster-growing, more predictable, minimally capital intensive, and more profitable than the
physical or download recorded music business. High absolute levels of revenue growth coupled with UMG’s fixed-cost base
should allow UMG to significantly expand its operating margins over time, producing attractive compound earnings growth
for the foreseeable future.
In recent months, investors have become concerned about industrywide competition for catalog assets and its impact on returns
on capital. We believe these concerns are largely misplaced. With its best-in-class global team, access to unparalleled data,
and unique ability to increase monetization, we believe UMG is an advantaged buyer and ideal steward for iconic catalogs.
Importantly, UMG does not need to acquire catalogs in order to continue its strong growth trajectory and achieve the medium-
term guidance outlined at its Capital Markets Day last year. The company recently reiterated that these acquisitions are
additive to its existing medium-term growth algorithm, and that UMG will only acquire iconic catalogs where it can improve
monetization, and then only at a price where the returns exceed the company’s cost of capital.
Going forward, to further assist investors in evaluating the business, the company recently committed to providing more
detailed revenue disclosure. We believe that expanded disclosure, coupled with further opportunities for investors to hear
from management, will help investors better understand and appreciate UMG’s advantaged position in a highly attractive and
growing ecosystem. Over time, we also expect UMG to further optimize its capital structure and capital allocation policies.
We believe UMG’s current valuation represents a significant discount to intrinsic value as it fails to reflect both the company’s
attractive business characteristics and long runway for sustained and robust earnings growth.
Annual Report 2021
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Pershing Square Holdings, Ltd.
Lowe’s (“LOW”)
Lowe’s is a high-quality business with significant long-term earnings growth potential. We initiated our investment in the
company in April 2018 based on our assessment that the hiring of a new high-caliber management team who would undertake
a business transformation could dramatically improve the business and close the performance gap to its closest competitor,
Home Depot. Marvin Ellison became CEO in July 2018, and since then, Marvin and his team have executed a multi-year
transformation plan to bolster Lowe’s retail fundamentals, reduce structural costs, expand distribution capabilities, and
modernize systems and the company’s omnichannel capabilities.
The initial implementation of the transformation plan positioned Lowe’s to deftly react to the demand acceleration following
the onset of the COVID-19 pandemic. COVID-19 led existing homeowners to nest at home expanding its utilization to include
working from home, home schooling, and a heightened demand for at-home leisure activities. Higher home asset utilization
catalyzed more maintenance, repair, and remodel activity. More broadly, the pandemic also initiated a structural change in how
people view and invest in their homes. We expect these trends to continue and to inure to the benefit of Lowe’s going forward.
Importantly, while some had questioned whether the increase in demand during the pandemic had simply been a “pull
forward,” we believe that industry demand is likely to normalize at a higher baseline. This view is supported by an aging
housing stock, a general lack of new inventory, robust home equity values, strong consumer balance sheets, historically low
interest rates and a generational shift which is seeing millennial consumers engage in home ownership for the first time. The
culmination of these variables has created an unprecedented backlog in professional home improvement projects heading into
2022, which should provide support for the medium-term outlook.
Independent from the accommodative macroeconomic environment, Lowe’s is well positioned to continue to grow earnings-
per-share through idiosyncratic opportunities including continued e-commerce improvements, and with a heightened focus
and execution on the critically important pro consumer segment. Lowe’s is also positioned to expand margins in 2022 through
a multitude of self-help initiatives which should see Lowe’s operating margin approach its current 13% target. Combined with
best-in-class capital return, Lowe’s is headed for another year of double-digit earnings-per-share growth.
As Lowe’s continues to execute its multiyear business transformation, we believe the company is well positioned to continue to
close the margin gap that exists compared to Home Depot which currently stands at 260 basis points (15.2% for Home Depot
vs. Lowe’s at 12.6%). Notably, the company has announced an analyst day in December 2022 during which the company
intends to provide an updated roadmap on Lowe’s goal to “substantially close the margin gap” with Home Depot.
The successful execution of Lowe’s continued business transformation should allow the company to generate accelerated
double-digit earnings growth for the foreseeable future. Notwithstanding the attractive growth outlook, Lowe’s trades at
about 16 times earnings, a low valuation for a business of this quality, and a substantial discount to its direct competitor,
Home Depot. We find this valuation disparity to be anomalous in light of Lowe’s strong execution and potential for further
operational optimization.
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Pershing Square Holdings, Ltd.
Hilton (“HLT”)
While the hotel industry was extremely negatively impacted by the COVID-19 pandemic, Hilton has done a superb job
navigating industry volatility, a testament to both the company’s high-quality business model and excellent management
team. At the onset of the pandemic, Hilton’s management team took decisive defensive actions which mitigated profit
compression from industry declines in revenue. These actions have now positioned the company to generate improved
margins, stronger cash flows, and higher investment returns as the business rapidly recovers to pre-COVID-19 demand levels.
Notwithstanding the arrival of the COVID-19 Delta and Omicron variants, industry RevPAR (the industry metric for same-
store sales at a given hotel) has shown continued sequential improvement as travel and mobility have recovered along with
COVID-19 vaccine rollouts and the evolution of COVID-19 towards a societally endemic virus. Recent trending has armed
that a robust recovery scenario is underway, led by domestic leisure travel occasions which saw RevPAR eclipse 2019 levels
during the 2021 holiday season, the first time since the onset of the pandemic.
Although there will be volatility in the pace of the recovery, we believe demand is likely to sustainably normalize at or above
2019 levels at some point later this year. In part, this recovery is being driven by an unprecedented snapback in average daily
rate “ADR.” Historically a laggard during prior recessions, ADR has been buoyed by a strong consumer appetite to travel,
broad and accelerating inflationary pressures (hotels can change room rates in real time), and a positive mix-shift from large
corporations to small and medium-sized businesses which are leading the business transient recovery.
Throughout the pandemic, Hilton took actions to reduce corporate expenses by about 20% compared to 2019 levels.
Simultaneously, the company provided resources and support to the Hilton owner community which further solidified Hilton
as the preferred franchise partner thereby expanding Hilton’s pipeline of units around the world. Hilton has armed its near-
to-medium term outlook of mid-single-digit net unit growth and the resumption of its historical 6% to 7% net unit growth
beginning in 2023-2024, a higher growth rate than competitors, and further evidence of Hilton’s dierentiated business
model. We believe that Hilton will continue to grow its market share at an attractive rate over time given independent hotels’
increased interest in seeking an aliation with global brands, particularly in the wake of the pandemic.
While the recovery may continue to be uneven, Hilton has made tremendous progress which will help it become an even more
profitable and stronger business going forward. We believe Hilton’s experience with COVID-19 – the proverbial 1,000-year
flood – has armed the company’s unique high-quality, asset light, high-margin business model, and reinforces our belief
that Hilton deserves a premium valuation.
Chipotle (“CMG”)
Chipotle continued its superb performance in 2021 driven by ongoing strength in digital sales and the recovery of in-store
ordering. The successful business transformation led by CEO Brian Niccol and his team prior to the pandemic dramatically
improved digital access and enabled the company to serve customers as they rapidly pivoted to order ahead pickup and
delivery in 2020. These digital gains have proven resilient, with digital sales growth of 6% in the second half of last year even
as in-store sales rebounded 37%, with the latter now approaching 90% of pre-pandemic levels.
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Pershing Square Holdings, Ltd.
During 2021, Chipotle achieved a significant milestone by generating average restaurant sales of $2.6 million, eclipsing the
2015 peak of $2.5 million and putting the company firmly on track to achieve management’s goal of more than $3 million.
Same-store sales grew 19% in 2021, or 21% from 2019 levels, driven by the in-store sales recovery, key innovations including
the quesadilla and smoked brisket, and menu price increases. Chipotle’s superlative customer value proposition continued to
be evident in 2021 as the company was able to raise prices to cover inflation and protect margins while experiencing very little
customer resistance. Chipotle’s most popular entrée, a chicken burrito/bowl, is still priced below $8.00 in most parts of the
country, demonstrating the significant latent pricing power that can be deployed if the inflationary environment continues.
In early February, management raised their long-term unit growth outlook to include the potential for at least 7,000
restaurants in North America, up from the prior goal of 6,000 restaurants, with annual new restaurant growth of 8% to 10%
in 2022 and beyond, up from 6.5% average growth in the last three years. These new goals reflect the success of small-town
locations that are delivering returns at or above traditional locations, as well as the robust performance of the Chipotlane
digital drive-thru format, which will be featured in over 80% of new openings and is currently in only 12% of the store base.
In addition to new restaurants in North America, Chipotle continues to enjoy a long runway to drive growth across the
business through menu innovation such as the recently launched pollo asado, loyalty program enhancements, operating
leverage with 40% incremental restaurant margins, and the potential for international expansion beyond Canada.
Restaurant Brands (“QSR”)
QSR’s franchised business model is a high-quality, capital-light, growing annuity that generates high-margin brand royalty
fees from now four leading brands: Burger King, Tim Hortons, Popeyes and recently acquired Firehouse Subs.
During the past two years, the company took a number of steps to accelerate its digital investments. The expansion of
the company’s delivery footprint, modernization of its drive-thru experience, increases in mobile ordering adoption, and
improvement in its loyalty programs have helped drive digital sales and the company’s recovery.
Burger King’s international business and Popeyes have returned to strong same-store sales growth relative to pre-
COVID-19 levels, whereas Burger King in the U.S. and Tim Hortons in Canada are still below 2019 levels. Burger King U.S.
is now under new leadership, and we are optimistic about the new management team and their eorts to return the brand
to sustainable growth. Tim Hortons’ recovery in Canada is tied to mobility, showing significant improvement each month
during the last quarter, culminating with December improving to low-single digit growth relative to 2019 levels before the
impact of Omicron.
As the company returns to sustainable growth, management continues to take important steps to position the company for
long-term success. The company announced several new markets for the Tim Hortons and Popeyes brand, and returned to its
historical mid-single-digit unit growth last year. QSR also closed its acquisition of Firehouse Subs for $1 billion in December.
We expect the company to accelerate the Firehouse’s unit growth in the coming years.
As underlying sales trends recover, we expect QSR’s share price will more accurately reflect our view of its business
fundamentals over time. In the meantime, the company recently initiated a share repurchase program and is currently buying
back stock at what we believe to be a low valuation.
Annual Report 2021
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Pershing Square Holdings, Ltd.
The Howard Hughes Corporation (“HHC”)
The COVID-19 pandemic changed how many people work and live, and highlighted the value of HHC’s unique master planned
community (“MPC”) assets. During the past two years, under the new management of David O’Reilly and Jay Cross as CEO
and President respectively, HHC embarked on a transformation plan to become a leaner and more focused organization
centered on the company’s core MPC business. Since embarking on the plan, HHC has generated $376 million in net proceeds
from asset sales.
In 2021, HHC redeployed proceeds from non-core asset sales into the $600 million acquisition of a shovel-ready, 37,000-acre
MPC called Douglas Ranch in Phoenix, Arizona. The site is entitled for 100,000 residential homes and 55 million square feet of
commercial development.
As the world emerges from COVID-19, the migration to the suburbs, especially in lower-tax states, has continued as evidenced
by strong MPC land sales in HHC’s top-ranked Summerlin and Woodlands MPCs. HHC’s operating assets, particularly its
retail portfolio, have also recovered in 2021 and have returned to pre-COVID-19 levels. HHC’s Ward Village in Hawaii has now
pre-sold 64% of its eighth condo tower only two months after launching sales.
We continue to believe that Howard Hughes’ uniquely well positioned MPCs and portfolio of high-quality operating assets will
deliver substantial, shareholder-value-creating growth for years to come.
Domino’s Pizza (“DPZ”)
Our investment in Domino’s was o to a strong start with shares up over 50% from when we made the investment in March
through the end of 2021, driven by robust operating results and a late-year omicron-driven rally in “stay-at-home” stocks.
Most of these gains disappeared in the first few months of this year with Domino’s stock price declining 29% through
March 22nd. In addition to a broader market sello, especially in higher-growth companies, we believe the recent stock
price weakness is attributable to an ongoing slowdown in same-store sales growth that began in the third quarter of 2021.
Domino’s has a long history of defying the skeptics and outperforming following brief periods of weakness, and we believe
this time is no dierent.
The recent deceleration is driven primarily by driver shortages due to the current state of the U.S. labor market, which is acutely
impacting the delivery business that comprises two-thirds of sales. While driver shortages have led to shortened hours and
customer service challenges at many locations, the company is taking corrective action by conducting a full assessment of the
driver labor market, launching new hiring and training systems, raising wages, and eliminating time consuming in-store tasks.
In light of high inflation in labor and food costs, Domino’s recently refreshed its core mix & match delivery oer by raising the
price point from $5.99 to $6.99 and adding new products to the oer. We estimate that this one dollar increase will be a several
percentage-point tailwind to same-store sales growth, without taking into account any positive benefit to ticket that Domino’s
has historically seen from new product additions. This is the first time the company has increased the price on this oering in
over twelve years, and we continue to believe Domino’s customer value proposition remains exceptional. Product innovation, a
peak level of advertising funds, and the return of key promotions should provide additional tailwinds to sales growth.
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Pershing Square Holdings, Ltd.
Concurrent with fourth quarter results in early March, Domino’s announced the promotion of Russell Weiner, COO and
President of Domino’s U.S., to CEO eective May 1st, the retirement of outgoing CEO Ritch Allison, and a new CFO hire.
Shortly after joining Domino’s as Chief Marketing Ocer in 2008, Russell led the wildly successful Pizza Turnaround
campaign, which revitalized the Domino’s brand and led to 7% average U.S. same-store sales growth over the subsequent
twelve years. We believe there is no one better equipped to drive growth for Domino’s, and are looking forward to what Russell
can deliver in the years to come.
Domino’s currently trades at a mid-20s multiple of forward earnings, a compelling valuation given its leading position in the
QSR pizza category enabled by its crown jewel digital and delivery infrastructure, the high certainty nature of the business, and
its mid- to high-teens, long-term earnings growth. We are pleased that the company is taking advantage of its depressed share
price by continuing to repurchase shares, consistent with its longstanding policy of returning excess cash to shareholders.
Fannie Mae (“FNMA” or “Fannie”) and Freddie Mac (“FMCC or “Freddie”) (together “the GSEs”)
Fannie and Freddie suered large stock price declines of 66% and 64%, respectively, in 2021, primarily driven by a Supreme
Court ruling in June that was adverse to shareholders, as we previously discussed in detail in our Semi-Annual report.
Shareholders suered another legal blow in February 2022, when the Court of Appeals for the Federal Circuit ruled decisively
against the plaintis in the takings cases filed in the Court of Federal Claims, which will end this litigation unless the Supreme
Court decides to review the decision.
Despite these disappointing outcomes in the courts, we believe that the GSEs’ exit from conservatorship remains a question of
when and not if, as their role as the irreplaceable core of the U.S. housing finance system is now broadly acknowledged across
the political spectrum. Privatization of Fannie and Freddie will ensure that private capital bears the first loss in any future real
estate dislocation, rather than having Treasury or U.S. taxpayers bear the risk. As common shareholders, we own valuable
perpetual options on both entities that we believe will be worth many multiples of today’s prices once re-privatization occurs.
The perpetual nature of these options protects our investment even if Fannie and Freddie do not exit conservatorship for
years. In the meantime, both entities continue to build capital through retained earnings and now have combined capital of
$75 billion.
Exited Positions:
As previously disclosed, Pershing Square exited its investments in Starbucks and Agilent in 2021.
Annual Report 2021
26
Pershing Square Holdings, Ltd.
PUBLIC COMPANY ENGAGEMENT SINCE INCEPTION
(16)
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 22, 2022, 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 118-121.
2004
2004
Justice
Holdings Ltd.
2020
2020 2020
2021
2021
Annual Report 2021
27
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 2021, 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 a 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 them.
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 2021 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 interests of the Investment Manager are aligned with the Company’s
shareholders as a result of the substantial investment made by 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 and financial instruments used in the
portfolio 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 interests of the Investment Manager are aligned with the Company’s
shareholders as a result of the substantial investment made by
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, subject
to the Company’s Investment Policy. Because
the Company’s portfolio is highly concentrated
and primarily invested in public equities (or
derivatives referencing public equities), it
is sensitive to fluctuations in equity prices
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 concentration and receives a detailed
overview of the portfolio positions no less than quarterly, but 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 with the
management of portfolio companies and takes an active role where it
believes the commitment of time, energy, and capital is justified in light
of the potential for reward. The Board is kept informed of and reviews
the Investment Managers active engagements with portfolio companies.
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 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.
Annual Report 2021
29
Pershing Square Holdings, Ltd.
Risk Description Mitigating Factors
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 is dependent 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 team and other senior personnel of the Investment
Manager are experienced, longstanding employees.
Sound corporate governance principles 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 a key man event.
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.
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30
Pershing Square Holdings, Ltd.
Risk Description Mitigating Factors
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 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, in order to
mitigate market-related downside risk, it 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, and engage
in other hedging strategies.
The Investment Manager identified inflation and an increase in interest
rates as emerging market risks for 2021 and entered into interest rate
swaptions to hedge this risk.
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 maintained by the Investment
Manager, which has implemented robust information security controls,
frequent testing 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 Cybersecurity Committee of the Investment Manager meets
quarterly or more frequently as needed to evaluate cybersecurity
risks and to review the eectiveness of the Investment Manager’s
cybersecurity controls.
The Board receives quarterly updates on cybersecurity and an annual
overview of the Investment Manager’s cybersecurity program.
The Investment Manager adopted additional precautions to mitigate
cybersecurity risks during its period of remote operations, including
additional monitoring of network trac and user activity as well as
employee training to prevent successful phishing/ransomware attacks.
Service Providers Key service providers perform inadequately or
expose Company to risk.
The Investment Manager has adopted a vendor supervision policy
and performs due diligence on service providers 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.
The Company has not experienced any disruption in services from its
service providers as a result of the COVID-19 pandemic and all service
providers continue to meet expectations.
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.
Annual Report 2021
31
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 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 has been appointed as a non-executive director of
Caledonia Investments plc, listed on the London Stock
Exchange, with eect from March 28, 2022. 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 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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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 serves as a member of the board of TaDaweb
S.A., Butterfield Bank Guernsey Limited, 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 U.K. 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 U.K.
Oce of Budget Responsibility, JP Morgan Asia Growth
and Income, BH Macro, Mercator Media, Australia-
United Kingdom Chamber of Commerce, 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, where she was
responsible for production and editorial for its 24-hour
business and financial news coverage.
Prior to joining Bloomberg, she held positions at
Nomura International and Deutsche Bank. Ms Curtis
graduated from the London School of Economics with a
Masters in Economics in 1974.
Directors
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Pershing Square Holdings, Ltd.
TOPE LAWANI
Independent Director
Mr Lawani, a Nigerian national, 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, LinkCommerce Ltd,
Thunes, Axxela Ltd, ZOLA Electric and OVH Energy
BV. 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.
RUPERT MORLEY
Independent Director
Mr Morley is a trustee of Comic Relief and chair
of its investment advisory group. He serves as
chairman and CEO of Rococo Chocolates, one of
Britain’s leading makers of high-quality chocolates,
since 2017. He purchased the business out of
administration in 2019, prior to which he was a
minority shareholder. 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
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34
Pershing Square Holdings, Ltd.
Directors
TRACY PALANDJIAN
Independent Director
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 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 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 vice chair of the Harvard
Board of Overseers, board chair of Facing History
and Ourselves, co-chair of Robert F. Kennedy Human
Rights, and trustee of 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 2021
35
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, 2021.
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 2, 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 our 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
we have invested may later be taken private, and we may
make additional investments in the equity or debt of such
companies. We 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
Annual Report 2021
36
Pershing Square Holdings, Ltd.
in an eort to reduce the capital commitment to a specific
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 gain attributable to all shareholders
for the year ended December 31, 2021 of $2.44 billion
(2020: gain of $3.70 billion). The net assets attributable to
all shareholders at December 31, 2021 were $11.41 billion
(2020: $9.05 billion). For the Company’s performance
returns, please see the Company Performance and Financial
Highlights sections on pages 2 and 114, respectively.
The Company announces the weekly and monthly NAV
and investment performance of its Public Shares to the
Euronext Amsterdam and LSE markets 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 24, 2021 relating to the first half of 2021.
The Company intends to release semi-annual financial
statements for the first half of 2022 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. In 2021, despite the Company’s
the Company in, or giving exposure to, the securities of any
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
Annual Report 2021
37
Pershing Square Holdings, Ltd.
third consecutive year of strong performance, the Public
Shares traded at a discount between 19.9% and 30.3%.
The Board continues to believe that the Public Shares
are undervalued and that sustained positive investment
performance, increased awareness of the Company, and the
associated incremental demand for its shares should narrow
the discount over time.
The Company has taken a variety of actions that aim to
narrow the discount by increasing the Company's visibility
and potential shareholder base. These include adding a
listing on the Main Market of the LSE (2017), inclusion in
the FTSE 250 (2017), adding a U.S.-Dollar denominated LSE
quotation (2018), initiating a quarterly dividend of $0.10
per Public Share (2019), and, most recently, the Company’s
inclusion in the FTSE 100 on December 21, 2020.
In March 2021, the Company engaged Frostrow as a
distributor to cultivate demand across UK-based wealth
managers, retail/adviser platforms and institutional investors.
The Company did not repurchase shares in 2021
under its June 2020 share buyback program before the
program expired on the date of the Company’s 2021
Annual General Meeting. Since 2017, the Company has
repurchased 50,834,239 Public Shares (21.2% of shares
then-outstanding) for a total of $837 million at an average
discount of 26.5%.
When considering potential share repurchase programs, the
Board consults with the Investment Manager and reviews
a number of factors including the available unencumbered
cash and the likelihood that such cash could be deployed
into an attractive new investment in a given market
environment, the level at which current portfolio holdings
trade 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. After examining these
factors, and noting the persistence of the discount despite
the substantial number of shares repurchased to date, the
Board believes that generating long-term positive NAV
performance by reinvesting capital into the portfolio rather
than engaging in further share repurchases is the correct
strategic approach at this time.
Although the Board does not currently intend to authorize
further buyback programs, it may wish to do so in the future.
Accordingly, the Company intends to propose that shareholders
renew the Company’s general share buyback authority at the
Company’s 2022 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
resume 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 25% of the Company at December
31, 2021 (December 31, 2020: 25%). In addition, all
Management Shares were converted to Public Shares as
of December 31, 2020 and are included in the Company’s
Public Share capital by the FTSE Indices. 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 June 26, 2015, the Company issued $1 billion of Senior
Notes maturing on July 15, 2022 (the “2022 Bonds”). The
2022 Bonds were issued at par with a coupon rate of 5.50%
per annum.
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”).
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.
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Pershing Square Holdings, Ltd.
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 2022 Bonds, 2039 Bonds 2032
Bonds, 2030 Bonds and 2031 Bonds, “the Bonds”). The
2027 Bonds were issued at 99.869% of par with a coupon
rate of 1.375% per annum.
On September 22, 2021, the Company commenced a
cash tender oer for the 2022 Bonds. On October 4,
2021, $369,377,000 of the 2022 Bonds were tendered
and cancelled. Following the cancellation, the aggregate
principal amount of the 2022 Bonds outstanding is
$630,623,000.
The Bonds rank equally in right of payment and contain
substantially the same covenants. The Bonds’ coupons are
paid semi-annually, with the exception of the 2027 Bonds,
which are paid annually. The Bonds are listed on Euronext
Dublin with a symbol of PSHNA.
DIVIDEND
On February 13, 2019, the Company announced that it had
initiated a quarterly interim dividend of $0.10 per Public
Share. The Special Voting Share 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 administered by an aliate of Link
Market Services Limited (“Link”), the Company’s registrar.
Further information regarding the dividend, including the
anticipated 2022 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 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, 2021, the Company paid
dividends in the amount of $79,650,896, a lower amount
than it paid in 2020 due to share repurchases (2020:
$81,137,646).
DIRECTORS
The present members of the Board, all of whom are non-
executive Directors, are listed on pages 31-34. 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 44-45.
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
dividend reinvestment program.
Annual Report 2021
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Pershing Square Holdings, Ltd.
• Goldman Sachs & Co. LLC and UBS Securities LLC, the
Company's Prime Brokers and custodians.
• Jeeries International Limited (“Jeeries”), the
Company’s corporate broker. Jeeries’ engagement as
the Company’s buyback agent expired on April 28, 2021.
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
distributor.
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 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, 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 Board is
pleased to note that all of the Company’s portfolio companies
have integrated ESG into their business practices, including
by adopting environmental stewardship programs, diversity
& inclusion initiatives, and, in some cases, aligning the
remuneration of senior management to ESG targets. Links
to the ESG practices of each portfolio company are available
in the Investment Manager’s ESG Statement.
The Investment Manager continues to deepen its own
commitment to ESG practices in its operations. To meet
its goal of being carbon-neutral by the end of 2022, the
Investment Manager has implemented environmentally
sustainable practices throughout its oce space and will
purchase carbon credits for the emissions it is unable
to eliminate. In addition, the Investment Manager has
continued its leadership on diversity initiatives by selecting
female and minority owned banks as co-managers for the
2027 and 2031 Bond oerings and by adding women and
representatives of ethnic minority groups to its analyst and
operational teams. The longstanding participation of the
Investment Manager’s CEO in charitable and community
activities is well documented at
www.pershingsquarefoundation.org which supports
exceptional leaders and innovative organizations that tackle
Annual Report 2021
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Pershing Square Holdings, Ltd.
important social issues and deliver scalable and sustainable
impact. The Board will continue to monitor the Investment
Manager’s implementation of ESG initiatives over the course
of 2022.
MODERN SLAVERY ACT 2015
Although the Company does not fall within the scope
of the U.K. 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, Western 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, 2021 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 Board carefully considered the risks and conditions
of the assignment of the UMG stock purchase to the
Company and the other Pershing Square Funds, including
the assumption of PSTH’s (as defined on page 80)
indemnity of Vivendi and expenses incurred by PSTH
in connection with the transaction, and it concluded the
assignment was in the long-term best interest of the
Company’s shareholders.
• The Board continued to responsibly manage and ladder the
maturities of the Company’s debt obligations by approving
the issuance of the 2027 Bonds and the 2031 Bonds at low
interest rates, and the tender oer for the 2022 Bonds,
which the Board believes will contribute to the Company’s
returns over the long-term. As was the case for the 2030
Bonds, the majority of the co-managers for the 2027
and 2031 Bonds were female and minority owned banks,
continuing to demonstrate the Board and Investment
Manager’s engagement on diversity and inclusion.
• The nomination and subsequent election of Tope Lawani,
Rupert Morley and Tracy Palandjian as non-executive
Directors at the Company’s 2021 Annual General Meeting
meaningfully expanded the Board’s diversity on many
metrics, including ethnicity, gender, background and
experience. It also reflects the Board’s careful planning for
future succession.
• The Board continues to encourage the Investment
Manager to examine the role of the Company’s investment
activities on the community and the environment. The
Manager’s approach to ESG issues is discussed in the
Investment Manager’s ESG Statement available at (link).
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.
Annual Report 2021
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Pershing Square Holdings, Ltd.
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 Chairman
met regularly with shareholders prior to the COVID-19
pandemic, and the Chairman and other Directors plan to
resume this practice when they can safely do so.
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 for the Board, 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 2021, the
Investment Manager took advantage of the eciency of
connecting with shareholders virtually and conducted
hundreds of shareholder calls and meetings, 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 acted as corporate broker to the Company during
2021 to support communications with shareholders and
advise the Company on shareholder sentiment. Since
March 2021, the Company has also engaged Frostrow as a
distributor to strengthen its engagement with existing and
potential shareholders in the UK marketplace. Frostrow
was retained to compliment Jeeries’ activity by focusing
on cultivating demand across UK-based wealth managers,
retail/adviser platforms and institutional investors.
Frostrow’s activities have included identifying and liaising
with the target market, organizing regular one-to-one
investor meetings around the UK, and maintaining contact
with investment company analysts and data providers.
Subsequent to the engagement of Frostrow, the Company
have 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.
Due to COVID-19, the Company moved to virtual investor
events in 2021 and 2022, in which investors received an
update from the Chairman of the Board and the Investment
Manager. The virtual events have provided greater
accessibility to shareholders and eliminated the cost of
travel. We hope to revert to in-person annual investor
events at the appropriate time and to provide simultaneous
webcasts for those unable to attend in person. Shareholders
representing approximately 34% of NAV (excluding aliate
ownership) attended the Company’s 2022 investor event on
February 11, 2022. 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.
Annual Report 2021
42
Pershing Square Holdings, Ltd.
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 27-30 and in
Note 13.
The Board has considered the financial prospects of the
Company through March 31, 2023 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, 2021 of $11,409,195,248;
• The liquidity of the Company’s assets (at December 31,
2021, 90.8% of its assets comprised of cash and cash
equivalents and Level 1 assets); and
• The Company’s total indebtedness to total capital ratio of
20.9% at December 31, 2021.
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 that the Company is well placed
to manage its business risks. Furthermore, the Directors
confirm that 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, 2024.
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 that 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 continued underlying
performance of the Company’s portfolio companies and
the Company’s strong 2021 performance despite market
disruptions caused by the ongoing COVID-19 pandemic.
The Board has also evaluated quantitative data as of
December 31, 2021 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 that a three-year timeframe is appropriate
given the general business conditions aecting PSH’s
portfolio positions, the typical duration of equity positions
taken by the Company and the regulatory environment in
which PSH operates, which is undergoing constant change.
The Board is confident that 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.
Annual Report 2021
43
Pershing Square Holdings, Ltd.
/s/ Andrew Henton
Andrew Henton
Chairman of the Audit
Committee
March 28, 2022
/s/ Anne Farlow
Anne Farlow
Chairman of the Board
March 28, 2022
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 at
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”),
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.
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.
Annual Report 2021
44
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 of the 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 that business expenditures are appropriate
and are 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 annual
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 2021
45
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, 2021 was:
The Directors will receive the following remuneration for
2022:
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. Mr Botta does not receive a fee for his services
as a Director. As of the 2021 Annual General Meeting,
Audit Committee members receive an additional £5,000 to
reflect the increased responsibilities of the role as a result of
the reduction in the size of the Audit Committee. No other
changes to the Director’s 2021 remuneration were proposed.
The Remuneration Committee intends to next review the
Directors’ remuneration in November 2022.
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, 2021, the Directors’ interests in
the Company were as follows:
During the year ended December 31, 2021, Anne Farlow and
Tracy Palandjian purchased 5,561 and 15,500 Public Shares,
respectively. There have been no changes in the interests of
the Directors between December 31, 2021 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
2021 2020
Anne Farlow
Richard Battey
1
Nicholas Botta – –
Bronwyn Curtis
Andrew Henton
2
Tope Lawani
3
–
Rupert Morley
3
–
Tracy Palandjian
3
–
William Scott
4
–
Richard Wohanka
1
1 Retired April 28, 2021
2 Appointed September 23, 2020
3 Elected April 28, 2021
4 Retired April 27, 2020
Annual Report 2021
46
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. Richard Battey and Richard Wohanka, who
had served as non-executive Directors since 2012 and 2018,
respectively, did not oer themselves for re-election to the
Board at the Company’s Annual General Meeting in April
2021. Tope Lawani, Rupert Morley and Tracy Palandjian
were elected to the Board as non-executive Directors on
April 28, 2021.
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,
Annual Report 2021
47
Pershing Square Holdings, Ltd.
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,
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 the Investment
Manager’s culture through its close contact with the
Investment Manager’s management team and support
personnel. The Board has been pleased by the Investment
Manager’s investments in operational infrastructure and
personnel and believes they have contributed to the success
of the Company.
DIVERSITY
The Directors recognize that Board diversity contributes
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.
The Nomination Committee will be 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.
With the election of Ms Palandjian and Messrs Lawani and
Morley at the 2021 Annual General Meeting, the Board
currently comprises three female and four male directors
(43% female), including one female director and one male
director who identify as a director of color (29% directors of
color). This composition exceeds the recommendations of
the Hampton-Alexander and Parker Reviews for female and
ethnic minority board representation, respectively.
The Board intends to maintain or exceed the targets set by
the Hampton-Alexander and Parker Reviews to the extent
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 continued to progress its diversity
and inclusion initiatives in 2021 by adding female and
minority hires to its investment analyst and operational
teams. In addition, a majority of the co-managers for the
2027 and 2031 Bonds were female and minority-owned banks.
Noting its success in these areas, the Investment Manager
will continue to intentionally seek diverse candidates for open
positions and develop relationships with minority owned
businesses, as well as implement other recommendations
made by its Diversity & Inclusion Committee.
Annual Report 2021
48
Pershing Square Holdings, Ltd.
BOARD TENURE AND
SUCCESSION PLANNING
All Directors are required to submit themselves to annual
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-
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 such 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.
Richard Battey and Richard Wohanka, who had served as
non-executive Directors since 2012 and 2018, respectively,
did not oer themselves for re-election to the Board at the
Company’s Annual General Meeting in April 2021. Mr Henton
replaced Mr Battey as the Chairman of the Audit Committee.
The Nomination Committee conducted a thorough search
process for candidates to succeed Messrs Battey and
Wohanka. The Committee identified three exceptional
candidates, Tope Lawani, Rupert Morley, and Tracy
Palandjian, who together meaningfully broadened the
Board’s skills and experience and presented a unique
opportunity for succession planning. All three director
candidates were submitted for shareholder approval
and were elected at the 2021 Annual General Meeting,
increasing the size of the Board to seven directors.
Further details regarding the search process undertaken by
the Nomination Committee are provided under “Nomination
Committee” on pages 50-51.
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, 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.
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.
Annual Report 2021
49
Pershing Square Holdings, Ltd.
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.
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, 2021:
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 minimum 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. The Board reduced the size of the Audit,
Remuneration and Nomination Committees as of the
2021 Annual General Meeting on April 28, 2021, to three
Directors each to more eciently allocate the Committee
workload among the Directors. 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.
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, 2021:
Scheduled Quarterly
Board Meetings
(attended/eligible)
Ad-hoc Board and
Subcommittee Meetings
(attended/eligible)
Richard Battey
1
1/1 5/5
Nicholas Botta
2
4/4 11/11
Bronwyn Curtis 4/4 8/8
Anne Farlow 4/4 11/11
Andrew Henton 4/4 11/11
Tope Lawani
3
3/3 3/4
Rupert Morley
3
3/3 4/4
Tracy Palandjian
3
3/3 2/4
Richard Wohanka
1
1/1 4/4
1 Retired April 28, 2021
2 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.
3 Elected April 28, 2021
Remuneration Committee
Meetings (attended/eligible)
Richard Battey
1
1/1
Bronwyn Curtis 1/1
Anne Farlow
2
1/1
Andrew Henton
2
1/1
Rupert Morley
3
0/0
Tracy Palandjian
3
0/0
Richard Wohanka
1
1/1
1 Retired April 28, 2021
2 Left Committee April 28, 2021
3 Elected April 28, 2021
Annual Report 2021
50
Pershing Square Holdings, Ltd.
The Committee found that the Investment Manager
demonstrated exceptional skill in 2020 in its early
identification of COVID-19 as a material risk to the portfolio,
successful implementation of a hedge and the unwind of
the hedge and reinvestment of the proceeds at the bottom
of the market. The Investment Manager has continued to
utilize this strategy eectively by implementing an interest
rate hedge at the beginning of 2021 and reinvesting the
proceeds into Netflix in early 2022. The Committee also
noted with approval the Investment Manager’s innovative
approach to investment structures and the depth of
knowledge demonstrated by the investment team at Board
meetings. 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.
The Management Engagement Committee also reviewed the
fees earned by the Investment Manager and confirmed that
they 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.
In the event the Nomination Committee is considering
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.
Below is a summary of Director attendance at Management
Engagement Committee meetings in the year ended
December 31, 2021:
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, including the Investment Manager, in April 2021.
The Committee made certain recommendations to the
Board and the Investment Manager based on its assessment
of their performance.
Management Engagement Committee
Meetings (attended/eligible)
Richard Battey
1
1/1
Bronwyn Curtis 1/1
Anne Farlow 1/1
Andrew Henton 1/1
Rupert Morley
2
0/0
Tope Lawani
2
0/0
Tracy Palandjian
2
0/0
Richard Wohanka
1
1/1
1 Retired April 28, 2021
2 Elected April 28, 2021
Annual Report 2021
51
Pershing Square Holdings, Ltd.
Nomination Committee Meetings
(attended/eligible)
Richard Battey
1
3/3
Bronwyn Curtis
2
3/3
Anne Farlow 3/3
Andrew Henton
2
3/3
Nicholas Botta 3/3
Tope Lawani
3
0/0
Richard Wohanka
1
3/3
1 Retired April 28, 2021
2 Left Committee April 28, 2021
3 Elected April 28, 2021
the matter of the succession to the chairmanship of the
Board, another member of the Committee will preside as
Committee Chairman.
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 must seek the approval
of the 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. Three appointments were approved by the
Board in 2021 in accordance with these considerations.
Below is a summary of Director attendance at Nomination
Committee meetings in the year ended December 31, 2021:
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 Messrs Battey and
Wohanka from the Board, the Nomination Committee
engaged Egon Zehnder, a global leadership advisory firm
with no other connection to the Company, to identify a range
of candidates to fill the Board vacancies. The Committee also
considered candidates proposed by members of the Board
and the Investment Manager. The Committee, noting the
U.S. focus of the Company’s investments and the benefits
of expanding the diversity of the Board, actively sought
to identify candidates with U.S. business experience and
diverse ethnic backgrounds. Committee members and
representatives of the Investment Manager conducted
interviews with a number of qualified candidates, of which
three were interviewed by the remaining members of the
Committee. In light of the quality of the candidates and the
significant increase in the Board’s workload, the Nomination
Committee recommended that the Board submit all three
candidates—Tope Lawani, Rupert Morley, and Tracy
Palandjian—for shareholder approval at the 2021 Annual
General Meeting as independent non-executive Directors
of the Company. All three candidates were elected by
shareholders on April 28, 2021.
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 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.
Annual Report 2021
52
Pershing Square Holdings, Ltd.
/s/ Anne Farlow
Anne Farlow
Chairman of the Board
March 28, 2022
Below is a summary of Director attendance at Risk
Committee meetings in the year ended December 31, 2021:
The Risk Committee conducted its annual business risk
assessment in February 2021 and identified 44 risks
relevant to the Company’s business. 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 a 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 first identified the eect of the
COVID-19 pandemic on the Company as an emerging
risk in 2020 and continued to monitor its eects in 2021.
The Committee believes the Company’s portfolio is well-
positioned to weather the short-term market volatility
caused by the pandemic, including the potential eects
of inflation, interest rate increases and supply chain
disruptions. Although the Company’s service providers
continued to work remotely for the majority of 2021, the
processes implemented early in the pandemic functioned
well and their operations ran smoothly. The Investment
Manager returned to in-person operations at the end of
2021 with strong safety protocols in place.
Risk Committee Meetings
(attended/eligible)
Richard Battey
1
1/1
Nicholas Botta 2/2
Bronwyn Curtis 2/2
Anne Farlow 2/2
Andrew Henton 2/2
Tope Lawani
2
1/1
Rupert Morley
2
1/1
Tracy Palandjian
2
1/1
Richard Wohanka
1
1/1
1 Retired April 28, 2021
2 Elected April 28, 2021
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; Best Execution and Cybersecurity Committees, which
meet no less frequently than quarterly and on an as-needed
basis; and 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 evaluation of the Board’s performance in 2021
was performed internally. Each Director completed a
questionnaire assessment of the eectiveness of the Board,
its committees, and the policies and procedures observed
by the Board and its committees. The Chairman discussed
matters related to individual performance individually with
each Director. The Senior Independent Director conducted
a full review of the Chairman’s performance with the other
non-executive Directors.
The results were collated by the Company Secretary
and were presented to the Board by the Chairman. The
evaluation highlighted that the Board’s cohesiveness and
eectiveness during periods with tight timelines and a
high volume of decision making had been a particular
strength during the year. No material weaknesses in
performance were identified in the assessment, and the
Board has concluded that it operated eectively in 2021.
The Board has incorporated the findings of its assessment
into workflows that will build on its existing strengths in
the coming year. The 2019 Board evaluation was externally
facilitated by SCT Consultants. The next external review
will be completed for 2022.
Annual Report 2021
53
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 members have
the relevant experience to successfully perform the duties of
the Committee.
Below is a summary of Director attendance at Audit
Committee meetings in the year ended December 31, 2021:
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 of the
engagement 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
Audit Committee Meetings
(attended/eligible)
Richard Battey
1
3/3
Bronwyn Curtis 6/6
Anne Farlow
2
3/3
Andrew Henton 6/6
Rupert Morley
3
3/3
Richard Wohanka
1
3/3
1 Retired April 28, 2021
2 Left the Committee April 28, 2021
3 Elected April 28, 2021
Report of the Audit Committee
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:
• 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
As part of the December 31, 2021 audit, prior to year-end,
the Audit Committee was involved in the planning and
preparation for the Annual Report, Financial Statements
and the audit. The Audit Committee’s November 2021
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
Annual Report 2021
54
Pershing Square Holdings, Ltd.
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 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, Administrator’s
and auditor’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:
Given the large performance fee owed by the Company for
2021, the Audit Committee reviewed the auditors’ process
for confirming the Investment Manager’s calculation of
the performance fee and the disclosure regarding the
performance fee in Note 15. The Audit Committee also noted
that the performance fee is independently calculated by the
Company’s Administrator as part of its calculation of the
Company’s NAV, and that 1% of the total performance fee is
held back by the Company to account for adjustments, if any,
that arise from the Company’s audit. The Audit Committee is
satisfied with the controls in place for the calculation of the
performance fee and has determined that the disclosure is
consistent with the relevant accounting standards.
The Audit Committee has confirmed that where the
Investment Manager has fair valued Level 3 investments,
including the Company’s investment in Pershing Square TH
Sponsor, LLC and the Committed Forward Purchase Units
and Additional Forward Purchase Units (as defined in Note
16), the Investment Manager has obtained pricing from an
independent third-party pricing service/valuation agent.
The independent third-party pricing service/valuation agent
utilizes proprietary models to determine fair value. The
Audit Committee also reviewed the auditor’s assessment
of the appropriateness of the valuation process and
methodology. The Audit Committee has satisfied itself that
the valuation techniques are reasonable and appropriate
for the Company’s investments, and are 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 27-30. 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 continues to monitor the review by
the Board of 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.
Annual Report 2021
55
Pershing Square Holdings, Ltd.
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
internal control systems, 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 has been in place for the
year ended December 31, 2021, and 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.
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 has been appointed to provide audit
services to the Company, and 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. A resolution to re-appoint Ernst & Young LLP
as auditor will be proposed at the 2022 Annual General
Meeting. The audit partner will rotate, including a change of
physical location from Jersey to Guernsey.
The Company is not required to engage in a formal tender
process under EU or UK regulations due to its incorporation
in Guernsey. However, in recognition of the auditor’s long
tenure and corporate governance best practices, the Audit
Committee will commence a tender process in 2022 to
compare the quality and eectiveness of the auditor with
those of other audit firms. Should the Audit Committee
conclude that a change of auditor is in the best interests of
the Company, a resolution to appoint the new auditor will be
proposed at the 2023 Annual General Meeting.
Annual Report 2021
56
Pershing Square Holdings, Ltd.
Year Ended 2021 Year Ended 2020
Tax Services $
Other Services
1
Total Non-Audit Fees $
1 Ernst & Young LLP was engaged to provide a comfort letter relating to the financial
information of the Company in the oering memorandums for the 2030, 2027 and
2031 Bonds.
The Audit Committee 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 5, 2021. The
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 $221,000 (2020
Actual: $257,000) for the audit of the Annual Report and
Financial Statements. The Audit Committee notes that
2020 and 2021 audit fees reflect an additional fee charged
for audit work undertaken in relation to the Company’s
investment in Pershing Square Tontine Holdings, Ltd.
During the year ended December 31, 2021, the Company
also paid $91,700 (2020: $66,000) for fees related to the
semi-annual review.
The table below summarizes the amounts expensed and
capitalized for tax services and other services, respectively,
during the years ended December 31, 2021 and December
31, 2020.
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.
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
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.
The auditor was engaged to provide non-audit services to
the Company in connection with the issuance of the 2027
and 2031 Bonds, including a comfort letter for 2018, 2019
and 2020 financial statements and the 2021 unaudited
semi-annual financial statements included in the oering
documentation. 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 bond issuances. Furthermore, because
of the auditor’s prior audit of these 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
Ernst & Young LLP to be independent of the Company.
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.
Annual Report 2021
57
Pershing Square Holdings, Ltd.
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;
• 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 Ernst & Young
LLP’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
Ernst & Young LLP’s previous audit work.
Having carried out the review described above and
having satisfied itself that the external auditor remains
independent and eective, the Audit Committee has
recommended to the Board that Ernst & Young LLP
be reappointed as external auditor for the year ending
December 31, 2022.
/s/ Andrew Henton
Andrew Henton
Chairman of the Audit
Committee
March 28, 2022
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
58-64. The Annual Report also includes on pages 65-66 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 2021
58
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 2021 which comprise the Statement of
Financial Position, the Statement of Comprehensive Income,
the Statement of Changes in Net Assets Attributable to
Management Shareholders, 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 2021 and of its profit 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 loan 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;
Report of Independent Auditor
Annual Report 2021
59
Pershing Square Holdings, Ltd.
size, risk profile, the organisation of the Company and
eectiveness of controls, including controls and changes in
the business environment 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 these disclosures
are materially inconsistent with the Company’s Financial
Statements, or our knowledge obtained in the course of the
audit, or otherwise appear to be materially misstated.
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.
• 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
December 31, 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
Key audit matters Misstatement of the valuation of the Company’s
investments
Materiality Overall materiality of $114.1m which
represents 1% of Total Equity.
Annual Report 2021
60
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 (2021 – assets: $13,871.9 million
and liabilities: $38.8 million; 2020 – assets:
$9,697.0 million and liabilities: $573.6 million)
Refer to the Audit Committee Report (pages
53 – 57); Accounting policies (pages 74 – 79);
and Note 7 of the Financial Statements (pages
83 – 89)
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, performed a walkthrough of the investment
valuation class of transactions and evaluated the design of
controls in this area.
In conjunction with our internal valuation specialists
we assessed the reasonableness and appropriateness of
the valuation model/method, comparing these to our
understanding of market practices, and determined
whether significant assumptions used to estimate fair value
are appropriate and supported.
For options, forwards and swaps, 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 level 3 investments we:
• Obtained management’s models, as well as those of
their independent valuation agents, and instructed
our own internal specialists to assist the audit team in
challenging the methodologies and subjective estimates
therein.
• Identified the key unobservable inputs to valuations
and reviewed and assessed the reasonableness of the
sensitivity workings and disclosures, comparing against
our range of acceptable inputs.
• Vouched valuation inputs that do not require specialist
knowledge to independent sources and tested the
arithmetical accuracy of the Company’s calculations.
The audit team also considered the credentials and
qualifications of management’s independent valuation
agents.
Obtained values for all remaining quoted equities from
independent sources and agreed these to management’s
proposed values.
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 2021
61
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 $114.1
million (2020: $90.5 million), which is 1% (2020: 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%
(2020: 75%) of our planning materiality, namely $85.6
million (2020: $67.9 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 $5.7
million (2020: $4.5 million), which is set at 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.
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 2021
62
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 page 55; and
• The section describing the work of the audit committee,
set out on pages 53-57.
Responsibilities of Directors
As explained more fully in the Directors’ responsibilities
statement set out on page 43, 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.
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 proper returns adequate for our audit have
not been received from branches not visited by us; 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 Statement 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 Statement 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 42;
• 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 42;
• Directors' statement on fair, balanced and understandable
Financial Statements, set out on page 43;
• 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 42;
• Board's confirmation that it has carried out a robust
assessment of the emerging and principal risks, set out on
pages 51-52;
Annual Report 2021
63
Pershing Square Holdings, Ltd.
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 the 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 and, 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
which is 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 SOC1
controls report and reviewed it for findings relevant to
the Company. 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;
Annual Report 2021
64
Pershing Square Holdings, Ltd.
/s/ Christopher James Matthews
Christopher James Matthews, FCA
For and on behalf of Ernst & Young LLP Guernsey
March 29, 2022
• 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
• making inquiries with management and those charged
with governance regarding their knowledge of any
actual or suspected fraud or allegations of fraudulent
financial reporting aecting the Company.
• Based on this understanding, we designed our audit
procedures to identify non-compliance with such laws and
regulations identified above. 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.
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 to audit the financial
statements for the year ending 31 December 2012 and
subsequent financial periods. We signed an engagement
letter on 5 April 2013.
• The period of total uninterrupted engagement including
previous renewals and reappointments is 10 years,
covering the years ending 31 December 2012 to 31
December 2021.
• 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 auditors does not
involve consideration of these matters and, accordingly, the auditors accept 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.
Annual Report 2021
65
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, 2021 and 2020, and the related
Statement of Comprehensive Income, Statement of Changes
in Net Assets Attributable to Management Shareholders,
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, 2021 and 2020,
and the results of its operations, changes in net assets
attributable to management shareholders and equity, and
its cash flows for the years then ended, in accordance with
International Financial Reporting Standards as issued by
the International Accounting Standards Board (“IFRS”).
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.
Management’s Responsibility for the Financial
Statements
Management is responsible for the preparation and fair
presentation of the Financial Statements in accordance with
IFRS 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, management is
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 2021
66
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 57 and pages 115
to 121 but does not include the Financial Statements 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, 2022
Annual Report 2021
67
Pershing Square Holdings, Ltd.
Audited Financial Statements
STATEMENT OF FINANCIAL POSITION
As of December 31, 2021 and December 31, 2020
Notes 2021 2020
Assets
Cash and cash equivalents 10 1,767,776,549
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 2021
68
Pershing Square Holdings, Ltd.
These Financial Statements on pages 67-111 were approved
by the Board of Directors on March 28, 2022, and were signed
on its behalf by
/s/ Andrew Henton
Andrew Henton
Chairman of the Audit
Committee
March 28, 2022
/s/ Anne Farlow
Anne Farlow
Chairman of the Board
March 28, 2022
Annual Report 2021
69
Pershing Square Holdings, Ltd.
STATEMENT OF COMPREHENSIVE INCOME
For the years ended December 31, 2021 and December 31, 2020
(Stated in United States Dollars)
Notes 2021 2020
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 (2021: $652,636, 2020: $1,305,482)) ()
Net change in unrealized gain/(loss) on commodity interests ()
Income
Dividend income
Interest income
Expenses
Performance fees () ()
Management fees () ()
Interest expense () ()
Bond extinguishment expense () –
Professional fees () ()
Other expenses () ()
() ()
Net gain/(loss) on currency translation of the Bonds –
Profit/(loss) before tax attributable to equity and management shareholders
Withholding tax (dividends) () ()
Deferred tax expense () ()
Profit/(loss) attributable to equity and management shareholders
Amounts attributable to management shareholders –
Profit/(loss) attributable to equity shareholders
(1)
Earnings per share (basic & diluted)
(2)
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 2021 and 2020.
(1) Profit/(loss) attributable to equity shareholders is comprised of the net profits earned and losses incurred by shareholders of Public Shares and the Special Voting Share.
(2) 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 2021 and
2020 as required under IFRS. See Note 17 for further details.
The accompanying notes form an integral part of these Financial Statements.
Annual Report 2021
70
Pershing Square Holdings, Ltd.
STATEMENT OF CHANGES IN NET ASSETS
ATTRIBUTABLE TO MANAGEMENT SHAREHOLDERS
For the years ended December 31, 2021 and December 31, 2020
(Stated in United States Dollars)
Net Assets
Attributable to
Management
Shareholders
As of December 31, 2020 $ –
Total profit/(loss) attributable to management shareholders –
As of December 31, 2021 $ –
As of December 31, 2019 $
Total profit/(loss) attributable to management shareholders
Dividend distribution to management shareholders ()
Conversion from Management Shares to Public Shares
(1)
()
Accretion from share buybacks
(2)
As of December 31, 2020 $ –
(1) The Company converted all outstanding Management Shares to Public Shares on December 31, 2020. See Note 11 for further details.
(2) Between June 20, 2019 and September 3, 2020, the Company repurchased Public Shares as part of a series of share buyback programs. Any repurchased Public Shares
were subsequently cancelled or held in Treasury. See Note 11 for further details. This amount represents the accretion relating to the share buyback program that has been
allocated to the Management Shares.
The accompanying notes form an integral part of these Financial Statements.
Annual Report 2021
71
Pershing Square Holdings, Ltd.
Share
Capital
Treasury
Shares
Retained
Earnings
Total
Equity
As of December 31, 2020
(1)
$ () $
Total profit/(loss) attributable to equity shareholders – –
Dividend distribution to equity shareholders – – () ()
As of December 31, 2021
(1)
$ () $
As of December 31, 2019
(1)
$ () $
Total profit/(loss) attributable to equity shareholders – –
Share buybacks
(2)
– () – ()
Dividend distribution to equity shareholders – – () ()
Conversion from Management Shares to Public Shares –
As of December 31, 2020
(1)
$ () $
(1) Total equity of the Company is comprised of the aggregate net asset values of Public Shares and the Special Voting Share. Under IFRS, Management Shares are classified as
financial liabilities rather than equity. See Note 2 on pages 78-79 for further details.
(2) Between June 20, 2019 and September 3, 2020, the Company repurchased Public Shares as part of a series of share buyback programs. Any repurchased Public Shares were
subsequently cancelled or held in Treasury. As of December 31, 2021 and December 31, 2020, 11,835,868 Public Shares were held in Treasury, respectively. See Note 11 for
further details. This amount includes the accretion relating to the share buyback program that has been allocated to the Public Shares and the Special Voting Share.
(3) The Company converted all outstanding Management Shares to Public Shares on December 31, 2020 and issued Public Shares to these shareholders from Treasury. 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, 2021 and December 31, 2020
(Stated in United States Dollars)
Annual Report 2021
72
Pershing Square Holdings, Ltd.
Notes 2021 2020
Cash flows from operating activities
Profit/(loss) for the year attributable to equity and management 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 () –
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 unrealized 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 net debt reconciliation related to the Company’s Bonds is further detailed in Note 18.
(2) Includes cash paid for fractional shares related to conversions.
The accompanying notes form an integral part of these Financial Statements.
STATEMENT OF CASH FLOWS
For the years ended December 31, 2021 and December 31, 2020
(Stated in United States Dollars)
Annual Report 2021
73
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 2, 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.
The latest traded price of the Public Shares is available on
Reuters, Bloomberg, Euronext Amsterdam and the LSE.
A copy of the Prospectus of the Company is available from the
Company’s registered oce and on the Company’s website
(www.pershingsquareholdings.com).
Investment Policy
Please refer to “Investment Policy” in the Report of the
Directors for the Investment Policy of the Company.
Bonds
Bond Offerings
On June 26, 2015, the Company closed on the oering of $1
billion Senior Notes that mature on July 15, 2022 (the “2022
Bonds”). The 2022 Bonds were issued at par with a coupon
rate of 5.50% per annum.
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 issued €500 million of
Senior Notes maturing on October 1, 2027 (the “2027 Bonds”
and together with the 2022 Bonds, 2039 Bonds, 2032 Bonds,
2030 Bonds and 2031 Bonds, “the Bonds”). The 2027 Bonds
were issued at 99.869% of par with a coupon rate of 1.375%
per annum.
The Bonds rank equally in right of payment and contain
substantially the same covenants. The Bonds’ coupons are
paid semi-annually, with the exception of the 2027 Bonds,
which are paid annually. The Bonds are listed on Euronext
Dublin under the symbol of PSHNA.
Tender Offer
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. Following the cancellation, the aggregate principal
amount of the 2022 Bonds outstanding is $630,623,000. Bond
holders participating in the tender received consideration
from the Company of $1,032.82 per $1,000 of principal,
equating to a payment of $381,499,953. The consideration
paid in excess of principal resulted in a total one-time
extinguishment expense of $12,122,953 to the Company.
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
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Pershing Square Holdings, Ltd.
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.
Other than the Risk Committee, all Committee members are
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
Pursuant to prime broker agreements, Goldman Sachs & Co.
LLC and UBS Securities LLC (the “Prime Brokers”) both serve
as custodians and primary clearing brokers for the Company.
Administrator
Pursuant to an administration agreement, Northern Trust
International Fund Administration Services (Guernsey)
Limited (the “Administrator”) has been appointed as
administrator and the 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
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, 2023 and do not consider there to be any
threat to the going concern status of the Company. For
these reasons, they have adopted the going concern basis in
preparing the Financial Statements.
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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.
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.
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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
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
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.
(iii) Initial Measurement
Bonds are measured initially at their par values minus
the original issue discount, if any, and any costs directly
attributable to their issuance, which is considered to
approximate fair value.
(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 and 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.
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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 where no external pricing sources are available
(i.e. Level 3 investments) are fair valued using valuation
methodologies as determined by the Investment Manager.
Additionally, 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.
See Note 8 for the oset of the Company’s derivative assets
and liabilities, along with collateral pledged to or received
from 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
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
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.
Dividend income and withholding tax (dividends) on the
statement of comprehensive income includes any gains or
losses due to foreign currency translation.
Amounts Due To and Due From Brokers
Due from brokers consists of cash balances held at the
Company’s prime brokers, cash held and collateral pledged
at futures commission merchants, cash collateral pledged to
counterparties related to derivative contracts and amounts
receivable for securities transactions that have not settled at
the reporting date, if any. Cash that is 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 money market
funds which are invested in U.S. Treasury obligations.
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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 purchase amount and disposal amount, or cash
payments due on, 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.
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.
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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.
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. 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 -
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
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Pershing Square Holdings, Ltd.
(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.
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 TH Sponsor, LLC
(“PSTH Sponsor”), a Delaware limited liability company, as
non-managing members and are its only source of funding.
The business and aairs of PSTH Sponsor are managed
exclusively by its non-member manager, PSCM. PSTH
Sponsor is the sponsor entity for Pershing Square Tontine
Holdings, Ltd. (“PSTH”), a Delaware corporation, which is
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. As of December 31, 2021 and
December 31, 2020, 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 has assessed whether PSTH Sponsor
should be classified as a structured entity. The Company
has considered the terms of the limited liability company
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 is a structured 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, 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
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 Pershing Square Funds wholly own Pershing Square
SPARC Sponsor, LLC (“SPARC Sponsor”), a Delaware
limited liability company, as non-managing members and
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Pershing Square Holdings, Ltd.
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. As of 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.
SPARC and SPARC Sponsor are the successor entities of
SPARC Sponsor Cayman and SPARC Cayman, which the
Investment Manager intends to dissolve in 2022.
Pershing Square SPARC Sponsor Cayman, LLC (“SPARC
Sponsor Cayman”), a Delaware limited liability company,
is wholly owned by the Pershing Square Funds as non-
managing members. The business and aairs of SPARC
Sponsor Cayman are managed exclusively by its non-
member manager, PSCM. SPARC Sponsor Cayman is
the sponsor entity for Pershing Square SPARC Holdings,
Ltd. (“SPARC Cayman”), a Cayman Islands exempted
company, 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. As of
December 31, 2021, the Company held an investment in
SPARC Sponsor Cayman. 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 SPARC Sponsor and
SPARC Sponsor Cayman should be classified as structured
entities. The Company has considered the terms of the
governing 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.
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 2021 and 2020,
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/
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
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As of December 31 2021 2020
Investments in securities
Derivative financial instruments
Financial assets at fair value
through profit or loss
As of December 31 2021 2020
Derivative financial instruments
Financial liabilities at fair
value through profit or loss
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 4, IFRS 7, IFRS 9, IFRS 16 and IAS 39, and has
determined that they do not aect the Company’s Financial
Statements. The Company has also assessed the impact of
amendments made to IFRS 1, IFRS 3, IFRS 9, IFRS 17, IAS
1, IAS 16 and IAS 37, which have been issued but are not yet
eective, and has determined that they are unlikely to aect
the Company’s Financial Statements.
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.
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:
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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. The assets and liabilities in this category will
generally include equities listed in active markets, U.S.
Treasurys (on the run) and listed options.
For the years ended
December 31 2021 2020
Realized Unrealized
Total
Gains/(Losses) Realized Unrealized
Total
Gains/(Losses)
Financial assets at fair
value through profit or loss
Financial liabilities 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:
Level 2 – Inputs (other than quoted prices included in Level
1) are obtained directly or indirectly from observable market
data at the measurement date. The assets and liabilities in
this category will generally include fixed income securities,
interest rate swaptions, OTC options, total return swaps,
credit default swaps, equity forward contracts, foreign
currency forward contracts and certain other derivatives.
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. The assets and liabilities in this
category will generally include warrants and certain other
derivatives.
Annual Report 2021
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Pershing Square Holdings, Ltd.
As of December 31 2021 2020
Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total
Financial Assets:
Equity Securities:
Common Stock:
Financial Services – – – –
Hospitality – – – –
Life Science Tools/Industrials – – – – – –
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 (Held for Trading):
Currency Call/Put Options – – – – –
()
–
Foreign Currency Forwards –
()
– –
()
–
Forward Purchase Units:
Special Purpose Acquisition Company –
–
()
–
–
()
Interest Rate Swaptions –
()
– –
()
–
Total Return Swaps:
Financial Services – – – – –
()
–
Total
Recurring Fair Value Measurement of Assets and Liabilities
(in thousands)
Annual Report 2021
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Pershing Square Holdings, Ltd.
As of December 31 2021 2020
Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total
Financial Liabilities:
Derivative Contracts (Held for Trading):
Credit Default Swaps:
Financial Services $ – –
– – –
()
–
Equity Forwards:
Transportation –
()
– – – – –
Equity Options Written:
Real Estate Development and Operating – – – – –
()
–
Foreign Currency Forwards –
()
– – – – –
Forward Purchase Units:
Special Purpose Acquisition Company – –
()
– – – –
Index Credit Default Swaps – – – – –
()
–
Total $ – – –
(1) Level 2 financial instruments include OTC currency call/put options, equity options, interest rate swaptions and foreign currency forward contracts 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. The most frequently applied valuation techniques include forward pricing and option models, using present value calculations
(2) Level 2 financial instruments include total return swap contracts, equity forward contracts, credit default swaps and index credit default swaps 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, expiration date, fixed and floating interest rates, credit spreads, index factors, payment schedules and/or dividends declared.
(3) These figures relate 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) This figure relates to the Company’s investment in PS VII Master as of the year ended 2021, as discussed in Note 16. The instruments underlying the Company’s investment in
PS VII Master included 98.7% of Level 1 financial instruments, 0.9% of Level 2 financial instruments and 0.4% of other assets and liabilities that are outside the scope of IFRS
13 as of the year ended 2021. 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.
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 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.
Many factors aect the price that could be realized for
large investments and the Investment Manager believes it
is dicult to accurately estimate the potential discount or
premium to quoted market prices that the Company would
ultimately receive.
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 as of December 31, 2021 include the
Company’s investments in PSTH Sponsor, SPARC Sponsor,
SPARC Sponsor Cayman and the Forward Purchase Units
(each as disclosed in Note 16). As no external pricing sources
are available for these investments, each is fair valued using
valuation methodologies as 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 employs an independent third-
party valuation firm to conduct valuations for the Forward
Purchase Units and the Sponsor Warrants held by PSTH
Sponsor. The independent third-party valuation firm provides
the Investment Manager with a written report documenting
their recommended valuations as of the determination date.
The valuation committee of the Investment Manager considers
the appropriateness of the valuation methods and inputs, and
may request that alternative valuation methods be applied
to support the valuation arising from the method discussed.
Any material changes in valuation methods are discussed
and agreed with the Board of Directors and the Investment
Manager’s valuation committee. The following table
summarizes the change in the carrying amounts associated
with Level 3 investments for the years ended 2021 and 2020.
Forward
Purchase Units
PSTH
Sponsor Total
Balance at December 31, 2019 $ – – $ –
Purchase of Sponsor Warrants –
Purchase of Class B common stock –
Funding of PSTH Sponsor loan –
Repayment of PSTH Sponsor loan – () ()
Net gain/(loss)
Balance at December 31, 2020 $ $
As disclosed in the table above, the Company had a net loss of $588,927,039 for the year ended December 31, 2021 from Level
3 securities and a net gain of $694,217,768 for the year ended December 31, 2020. The loss in 2021 and gain in 2020 were
primarily driven by changes in the market value of the Company’s investments in PSTH Sponsor and the Forward Purchase
Units due to decreases and increases, respectively, in the price of PSTH’s publicly traded Class A common stock. PSTH Class
A common stock was initially oered at $20.00 on July 22, 2020, and closed at $27.72 on December 31, 2020 and $19.72 on
December 31, 2021.
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 () – –
Annual Report 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 and
December 31, 2020:
As of December 31, 2020
Financial Assets/
Liabilities Fair Value
Valuation
Techniques Unobservable Input Input
Forward Purchase Units:
Committed Forward Purchase Units Financial Asset $ 387,563,628
Black-Scholes
pricing model
Discount for Lack of Marketability %
Additional Forward Purchase Units Financial Asset $ 148,876,614
Black-Scholes
pricing model
Discount for Lack of Marketability
%
Discount for Probability of Exercise %
Investment in PSTH Sponsor:
Sponsor Warrants Financial Asset $ 216,762,909
Black-Scholes
pricing model
Volatility 25%
Illiquidity Discount 17%
Probability of Warrant Renegotiation 24.5%
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Pershing Square Holdings, Ltd.
Sensitivity Analysis to Significant Changes in Unobservable Inputs with Level 3 Hierarchy
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 and December 31, 2020:
The significant unobservable inputs listed above are reflective
of the rights and obligations associated with each investment.
The Discount for Lack of Marketability (“DLOM”) for the
Committed Forward Purchase Units relates to an embedded
lock-up (the “FPA Lock-Up”), whereby the securities
underlying the Committed Forward Purchase Units may 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 (2020: 3%).
The Additional Forward Purchase Units are subject to the
same FPA Lock-Up and have embedded optionality such that
they may be 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 (2020: 8%). The
Discount for Probability of Exercise is a direct result of the
embedded option component. It is modelled to reflect the
possible exercise of values between nil and $2 billion, resulting
in a discount of 79.8% as of December 31, 2021 (2020: 79.8%).
The Sponsor Warrants have three significant unobservable
inputs: (i) Volatility, (ii) Illiquidity Discount and (iii)
Probability of Warrant Renegotiation. The volatility of 25%
as of December 31, 2021 (2020: 25%) reflects 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 (2020:
17%) relates to an embedded lock-up, whereby the securities
underlying the Sponsor Warrants may not be sold for three
years post the completion of PSTH’s IBC. The Probability of
Warrant Renegotiation is a discount based on the probability
that the Sponsor Warrants will be restructured at the time of
PSTH’s IBC. The discount of 18.8% as of December 31, 2021
(2020: 24.5%) was representative of the average of sponsor
incentive restructurings and founder stock forfeitures in
completed SPAC transactions.
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
Annual Report 2021
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Pershing Square Holdings, Ltd.
2020
Financial Assets/
Liabilities Unobservable Input
Sensitivity
Used
Effect on
Fair Value
Forward Purchase Units:
Committed Forward Purchase Units Financial Asset 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% $31,752,000 / $(32,659,200)
Illiquidity Discount +5%/-5% $(12,700,800) / $12,700,800
Probability of Warrant Renegotiation +1%/-1% $(3,150,172) / $3,150,172
8. DERIVATIVE CONTRACTS
In the normal course of business, the Company enters into
derivative contracts for investment purposes 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.
Total Return Swaps
Total return swap contracts represent agreements between
two parties to make payments based upon the performance
of a certain underlying financial instrument. The Company is
obligated to pay or entitled to receive as the case may be, the
net dierence in the value determined at the onset of the swap
versus the value determined at the termination or reset date of
the swap. The amounts required for the future satisfaction of
the swaps may be greater or less than the amounts recorded in
the statement of financial position. The ultimate gain or loss
depends upon the prices of the underlying instrument(s) on
settlement date. In addition, a total return swap requires one
party to pay the other party a floating amount that reflects an
interest carrying cost; the party that receives the performance of
the underlying financial instrument will typically pay the floating
amount to the other party.
Credit Default Swaps
A credit default swap contract represents an agreement that one
party, 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 relating to an underlying reference
obligation. 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.
Equity 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 at a fixed price, either
at a fixed future date or at any time within a specified period.
The Company purchases and sells put and call options through
regulated exchanges and OTC markets. Options purchased by
the Company provide the Company with the opportunity to
Annual Report 2021
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Pershing Square Holdings, Ltd.
purchase (call options) or sell (put options) the underlying asset
at an agreed-upon value either on or before the expiration of
the option. 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 either on or before the expiration of the option. In writing
an option, the Company bears the market risk of an unfavorable
change in the financial instrument 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 security at the exercise date. At
December 31, 2021, the Company had no written options. At
December 31, 2020, the Company had a maximum potential loss
of $564,492,880 relating to written equity put options, assuming
the underlying stock price of such options decreased to nil. The
fair value of these written put options as of December 31, 2020
was ($47,711,572).
Interest Rate Swaptions
An interest rate swaption is an option to enter into an interest
rate swap. In exchange for premiums, the buyer gains the right
but not the obligation to enter into a specified swap agreement
with the issuer on a specified future date. A payer swaption
is an option to enter into a swap as a fixed-rate payer, while a
receiver swaption is an option to enter into a swap as a fixed-
rate receiver.
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 Options
Currency options operate as described under “Equity Options”
with the underlying asset being a notional amount of a currency
that will be bought or sold in the future for a specified amount of
another currency (the strike price).
Foreign Currency Forwards
A foreign currency forward contract is a commitment to
purchase or sell a non-USD currency on a future date at a
negotiated forward exchange rate. Foreign currency forward
contracts are used for trading purposes and may hedge the
Company’s exposure to changes in foreign currency exchange
rates on its non-U.S. portfolio holdings.
The following table shows the fair values of derivative financial
instruments recorded as assets or liabilities as of December
31, 2021 and December 31, 2020, 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.
Annual Report 2021
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Pershing Square Holdings, Ltd.
As of December 31 2021 2020
Fair Value Average Notional Fair Value Average Notional
Derivatives primarily held for trading purposes
Assets
Currency Call/Put Options $ – $ $
Equity Forwards – – –
Forward Purchase Units
Interest Rate Swaptions
Total Return Swaps – –
Total Assets $ $ $
Liabilities
Equity Forwards $ $ – $
Equity Options – –
Forward Purchase Units – –
Total Liabilities $ $ $
Derivatives primarily held for risk management purposes
Assets
Foreign Currency Forwards $ $ $
Liabilities
Credit Default Swaps $ – $ $
Foreign Currency Forwards – –
Index Credit Default Swaps –
Total Liabilities $ $ $
Fair Value of Derivative Financial Instruments
The table below summarizes gains or losses from the
Company’s derivative trading activities for December 31,
2021 and December 31, 2020 that are included in investment
gains and losses.
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.
Derivatives for
Trading Activities
Year Ended 2021
Net Gain/(Loss)
Year Ended 2020
Net Gain/(Loss)
Credit Default Swaps () ()
Currency Call/Put Options () ()
Equity Forwards () ()
Equity Options ()
Foreign Currency Forwards ()
Forward Purchase Units ()
Index Credit Default Swaps ()
Interest Rate Swaptions ()
Total Return Swaps () ()
Total Net Gain/(Loss)
Annual Report 2021
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Pershing Square Holdings, Ltd.
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 presentation purposes if the Company did not
include collateral amounts in due from/to brokers in the statement of financial position.
As of
December 31, 2020
Gross
Amounts
(1)
Gross
Amounts
Offset in the
Statement
of Financial
Position
Net
Amounts
Offset in the
Statement
of Financial
Position
Offsetting
Permitted
Under ISDA
Master
Agreements
Cash
Collateral
Pledged/
(Received)
(3)
Net
Amount
Derivative Assets – () () –
Total – () () –
Derivative Liabilities () – () –
Total () – () –
(1) The gross amounts include derivative assets and liabilities which the Company has entered into with an ISDA counterparty and are collateralized. As of December 31, 2021,
derivative assets and liabilities not subject to ISDA Master Agreements totaled $3,663,520 and $26,320,444, respectively. As of December 31, 2020, derivative assets and
liabilities not subject to ISDA Master Agreements totaled $536,662,994 and $525,879,190, respectively.
(2) The Company received total collateral of approximately $840.7 million and pledged total collateral of approximately $222.8 million from/to its ISDA counterparties.
Additionally, the Company had a receivable of approximately $1.0 million due from its ISDA counterparties. Included within the collateral available for offset shown above are
amounts offset against balances due from/to brokers as disclosed in Note 13.
(3) The Company received total collateral of approximately $61.7 million and pledged total collateral of approximately $199.3 million collateral from/to its ISDA counterparties.
Included within the collateral available for offset shown above are amounts offset against balances due from/to brokers as disclosed in Note 13. Additionally, the Company has
posted collateral of approximately $271.4M to its futures commission merchant where the Company’s credit default swaps and index credit default swaps are held. This amount
is not expressed in the above table and is not subject to an ISDA Master Agreement.
As of
December 31, 2021
Gross
Amounts
(1)
Gross
Amounts
Offset in the
Statement
of Financial
Position
Net
Amounts
Offset in the
Statement
of Financial
Position
Offsetting
Permitted
Under ISDA
Master
Agreements
Cash
Collateral
Pledged/
(Received)
(2)
Net
Amount
Derivative Assets – – ()
Total – – ()
Derivative Liabilities () – () – –
Total () – () – –
Offsetting of Derivative Assets and Liabilities
Annual Report 2021
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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 31, 2021, money market fund investments
in Goldman Sachs Financial Square Treasury Instruments
Fund and BlackRock Liquidity Funds Treasury Trust Fund
had fair values of $1,223,175,876 (2020: $1,135,121,890) and
$544,600,673 (2020: $744,517,219), respectively.
As of December 31 2021 2020
Trade and other payables
Performance fees payable
Other payables
Interest 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.
As of December 31, 2021 and December 31, 2020, the
Company had 199,120,882 Public Shares and the Special
Voting Share outstanding. The Company also held 11,835,868
Public Shares in Treasury for a total of 210,956,750 Public
Shares in issue as of December 31, 2021 and December 31,
2020. All Management Shares converted to Public Shares on
December 31, 2020.
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 2021 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 2021 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 next year’s Annual General Meeting.
As of December 31 2021 2020
Trade and other receivables
Dividends receivable
Prepaids and other receivables
Interest receivable
As of December 31 2021 2020
Cash and cash equivalents
U.S. Treasury money
market funds
Annual Report 2021
94
Pershing Square Holdings, Ltd.
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
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.
The Investment Manager waived the management fee and the
performance fee with respect to Management Shares at the
time of the IPO. Management Shares were issued to certain
members, partners, ocers, managers, employees or aliates
of the Investment Manager and certain other shareholders.
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, 2021 and December
31, 2020.
Share Conversion
Subject to the terms of the Lock-Up Deed, holders of
Management Shares are entitled to convert into Public
Shares. Public Shares acquired by persons who are
otherwise eligible to hold Management Shares can be
converted into Management Shares, on a NAV-for-NAV
basis at each month end.
During the year ended December 31, 2021, there were
no conversions between share classes. During the year
ended December 31, 2020, holders of Management Shares
converted all of the remaining 5,160,225 Management Shares
into 6,175,883 Public Shares.
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 each 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.
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Pershing Square Holdings, Ltd.
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.
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 remains
unchanged. Please see “Dividends” in the Report of the
Directors for further information regarding the dividend.
For the year ended December 31, 2021, the Company paid
dividends of $79,650,896 (2020: $81,137,646).
Capital Management
The Company’s general objectives for managing capital are:
• To continue as a going concern;
• To maximize its total return primarily through the capital
appreciation of its investments; and
• To minimize the risk of an overall permanent loss of capital.
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 2021 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 outstanding.
There were no shares repurchased for the year ended
December 31, 2021.
The Company announced share buyback programs in April
and June of 2020, each of $100 million and each for up to 6
million of the Company’s outstanding Public Shares. Jeeries
International Limited was appointed as the buyback agent.
As part of the share buyback programs announced in 2020
and 2019, the Company repurchased 13,732,785 Public Shares
for a total of $286 million at an average discount of 32.0%
for the year ended December 31, 2020. All Public Shares
repurchased were held in Treasury. 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 50,834,239 Public Shares for $837 million at an average
discount of 26.5%.
The Company intends to propose that shareholders renew
its general share buyback authority at the 2022 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 other
considerations, the Company may decide to utilize the share
buyback authority to make further acquisitions of Public
Shares in the market.
As discussed on page 94 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.
The Public Shares, Management Shares and Special Voting Share transactions for the years ended December 31, 2021 and
December 31, 2020 were as follows:
Management Shares Public Shares Special Voting Share
Shares Outstanding as of December 31, 2019
Share Buybacks* – () –
Conversion Out** () – –
Conversion In – –
Shares Outstanding as of December 31, 2020 –
Shares Outstanding as of December 31, 2021 –
* All Public Shares repurchased were held in Treasury. The Company holds 11,835,868 Public Shares in Treasury which are excluded from Public Shares outstanding.
** All Management Shares were converted to Public Shares as of December 31, 2020.
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
2021
Year Ended
2020
Interest earned on collateral balances
Interest earned on securities lending –
Cash –
Interest Expense
Year Ended
2021
Year Ended
2020
Bonds coupon expense
Amortization of Bonds issue costs
incurred as finance costs
Interest expense on collateral
balances
Amortization of Bonds original issue
discount incurred as finance costs –
Cash
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.
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Pershing Square Holdings, Ltd.
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 have materially dierent risk and reward
characteristics. These investments in complex securities or
derivatives, or in companies – because of the circumstances
surrounding the companies at the time of the investment,
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
funds. 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, 2021 are presented in the Condensed Schedule
of Investments on pages 112-113 (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. In December
2020, the Company initiated a position in interest rate
swaptions and added to its position throughout 2021, as the
Investment Manager identified an attractive investment
opportunity to hedge the risk of rising interest rates with a
potential asymmetric payo.
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Pershing Square Holdings, Ltd.
The following table illustrates the Company's exposure
to U.S. interest rates from its investment in interest rate
swaptions as of December 31, 2021 and December 31, 2020.
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.
As of December 31, 2021 and December 31, 2020 cash
and cash equivalents equaled $1,767,776,549 and
$1,879,639,109, respectively. The Company did not perform
a sensitivity analysis on cash and cash equivalents as any
change would be immaterial.
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
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 () -% ()
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, though it may
invest in such instruments for other purposes. Increases or
decreases of the Company’s investments due to currency
risk are partially oset by gains and losses on the economic
hedging instruments. Also refer to the Condensed Schedule
of Investments on pages 112-113 (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, 2021
and December 31, 2020 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.
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 -% ()
Interest Rate (2020) 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. 10 Year Treasury -% ()
Currency
(2020)
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 -% ()
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Pershing Square Holdings, Ltd.
As of December 31 2021 2020
Europe % –
North America % %
Total % %
% Change in Net Assets
Attributable to all Shareholders
Change in Equity Price (2021)
+% +%
-% -%
As of December 31 2021 2020
Restaurant % %
Media % –
Retail % %
Hospitality % %
Real Estate Development and Operating % %
Financial Services % %
Special Purpose Acquisition Company % %
Transportation % –
Special Purpose Acquisition Rights Company – –
Life Science Tools/Industrials – %
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 17-25 and
the Condensed Schedule of Investments on pages 112-
113 (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 (2020)
+% +%
-% -%
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:
Where the Company holds a short position, securities sold,
not yet purchased, represent 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, these 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. The following tables summarize the liquidity
profile of the Company’s financial assets and financial
liabilities, cash and cash equivalents (including due to/
from brokers) and trade receivables and payables based on
undiscounted cash flows:
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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 Note 14 for further details.
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Pershing Square Holdings, Ltd.
Although a majority of the Company’s portfolio is comprised
of liquid, large-capitalization securities, there may be
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. Although these limitations are
considered in connection with the portfolio liquidation
analysis, these restrictions are not taken into consideration
when calculating the overall liquidity in the table above 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. On a monthly basis,
this metric 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.
As of December 31, 2020 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 excluding
net assets attributable to
shareholders
Net assets attributable to
shareholders – – – – – –
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 Note 14 for further details.
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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 has negotiated its ISDA agreements
to include bilateral collateral agreements. Thereafter
the Investment Manager monitors exposure, performs
reconciliations, and posts/receives cash or U.S. Treasury
collateral to/from each of the Company’s counterparties on
a daily basis. The Company invests substantially all cash
collateral received into U.S. Treasurys or short-term U.S.
Treasury money market funds. In addition, from time to
time, the Company purchases credit default swap contracts
on the Company’s counterparties as a form of credit
protection. The Investment Manager prepares daily reports
that set forth the Company’s exposure (along with that of
the other PSCM-managed funds) to each counterparty. Such
reports include the credit default swap notional exposure,
the net unhedged/(over hedged) exposure, the initial margin
posted and the net counterparty exposure. In addition,
the Investment Manager reviews credit ratings reports on
its counterparties on a weekly basis. Please refer to the
Condensed Schedule of Investments on pages 112-113 (which
is explicitly incorporated by reference into these Notes to
Financial Statements) for additional details regarding the
Company’s financial assets and financial liabilities.
After taking into eect the osetting permitted under IAS
32, the Company views its aggregate credit exposure to
be $210,774,355 and $156,794,838 at December 31, 2021
and December 31, 2020, respectively, representing the fair
value of derivative contracts in net asset position net of
derivative contracts in net liability position and net of any
collateral received by or given to ISDA counterparties. The
Company did however, utilize index credit default swaps and
credit default swaps referencing unrelated counterparties
during 2021 and 2020 to hedge its portfolio against market
downturns as a result of the global pandemic.
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, 2021 and December 31, 2020, cash was primarily invested
in U.S. Treasury money market funds 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 (2021: $1,767,776,549, 2020: $1,879,639,109,
2020), due from brokers (2021: $158,421,029, 2020:
$955,676,624) and financial assets portfolio (2021:
$13,871,878,198, 2020: $9,697,025,818) 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 which
the Company excluded for purposes of this calculation. For
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Pershing Square Holdings, Ltd.
As of December 31 2021 2020
AAA % %
A % %
BBB+ % %
Total % %
cash held at the Company’s futures commission merchant
(“FCM”) as of December 31, 2020, the Company had
exposure to both the FCM and the clearing house at which
securities are cleared. This calculation only considers the
credit rating of the FCM.
The following tables reconcile the Company’s due from
brokers and due to brokers balances from a gross basis to a
net basis under which they are presented on the statement of
financial position.
As of December 31 2021 2020
Due to brokers
Gross ISDA collateral received () ()
Netting of collateral allowable
under ISDA agreements
() ()
As of December 31 2021 2020
Due from brokers
Cash held at prime brokers
Gross ISDA collateral posted
Cash/collateral held at FCM –
Netting of collateral allowable
under ISDA agreements () ()
14. COMMITMENTS AND CONTINGENCIES
As of December 31, 2021 and December 31, 2020, the
Company had commitments relating to its purchase of the
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 and December 31, 2020.
15. INVESTMENT MANAGEMENT
AGREEMENT — 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 fees paid by Public Shares
held by PSCM employees, partners and their aliated entities are
refunded to such shareholders by the Investment Manager.
For the years ended December 31, 2021 and 2020, the Investment
Manager earned management fees from the Company of
$146,070,348 and $95,794,204, 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.
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Pershing Square Holdings, Ltd.
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).
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 2021, the
Potential Oset Amount was reduced to $41.6 million as of
December 31, 2021 (2020: $52.4 million).
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. For the year ended December
31, 2020, the Investment Manager earned performance fees
of $3,522,993 in connection with the payment of the quarterly
dividend and an annual performance fee of $692,171,565.
Performance fees paid by Public Shares held by employees,
partners and their aliated entities are refunded to such
shareholders by the Investment Manager.
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
Pershing Square Tontine Holdings, Ltd.
Registration Statement
PSTH, a Delaware corporation, is 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 SEC on June
22, 2020 and subsequently consummated its IPO on July 24,
2020. The Company’s investments in PSTH and PSTH Sponsor,
both aliates of PSCM, are described below.
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. The number of votes carried by
each share of Class B common stock is such that the 100 shares
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Pershing Square Holdings, Ltd.
of Class B common stock, in the aggregate, hold 20.0% of the
voting power of the Class A common stock. The shares of Class B
common stock will automatically convert into shares of Class A
common stock at a one-to-one ratio at the time of PSTH’s IBC.
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. The loan is unsecured,
accrues interest on a monthly basis at the applicable federal
rate, and is payable no later than the end of the 24-month (or
30-month, as applicable) period from PSTH’s IPO in which
PSTH must complete its IBC.
From May 26, 2020 to July 2, 2020, the Company made
contributions to PSTH Sponsor totaling $957,355, all of
which PSTH Sponsor loaned to PSTH under the 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 and December 31, 2020, $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 Warrant agreement filed as an exhibit
to the PSTH S-1, the Sponsor Warrants will be 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 will
have a term of 10 years from PSTH’s IBC and will generally not
be 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 of December 31,
2021 and December 31, 2020.
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 provides 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 has a purchase price of $20.00
and consists of one share of PSTH Class A common stock and
one-third of one warrant.
The purchase of the Committed Forward Purchase Units and
the elections to purchase the Additional Forward Purchase
Units will take place in one or more private placements in such
amounts and at such time or times as the Pershing Square
Funds determine, with the full amount of the Committed
Forward Purchase Units and the elected amounts of Additional
Forward Purchase Units to have been purchased no later than
simultaneously with the closing of PSTH’s IBC. The obligation
to purchase the Committed Forward Purchase Units may not be
transferred to any other parties. However, the Pershing Square
Funds’ right to purchase the Additional Forward Purchase
Units may be transferred, in whole or in part, to any entity that
is managed by PSCM, but not to third parties. PSTH and the
Pershing Square Funds may determine, by mutual agreement,
to increase the number of Additional Forward Purchase Units
at any time prior to the IBC.
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. As of December 31, 2021, the Pershing Square
Funds have not purchased any Forward Purchase Units.
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Pershing Square Holdings, Ltd.
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 and
December 31, 2020.
PSTH’s Proposed IBC and Cancellation
On June 20, 2021, PSTH announced that it had entered into a
definitive agreement with Vivendi S.E. (“Vivendi”) to acquire
approximately 10% of the outstanding ordinary shares of
Universal Music Group B.V. (“UMG”) for approximately $4
billion. Under the terms of the agreement with Vivendi, PSTH
shareholders, including the Company, would have received a
distribution of UMG shares from a liquidating trust following
(i) UMG’s separation from Vivendi, (ii) its listing on Euronext
Amsterdam and (iii) the registration of UMG shares with the
SEC. Prior to the consummation of the UMG share acquisition,
the Pershing Square Funds would have exercised their right to
purchase $1.6 billion Forward Purchase Units pursuant to an
amended forward purchase agreement.
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,
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 further in “PS VII” within
this Note.
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 the independent
directors of PSTH, PSTH Sponsor, PSLP, PSTH, PSINTL and
the Company alleging, among other things, that PSTH is an
investment company under the Investment Company Act of
1940 (“ICA”) and seeking a declaration to that eect along
with rescission of certain agreements that the plainti contends
would not be appropriate under the ICA, and damages in an
unspecified amount. The Company believes the allegations are
without merit.
PS VII
On August 9, 2021, the Company, PSLP and PSINTL made
capital contributions of $2,510,274,953, $202,475,922 and
$87,249,125, respectively, to PS VII Master, for a total of
$2,800,000,000. 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.
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
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Pershing Square Holdings, Ltd.
and cash of $12,484,432, 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 $2,820,120,137 with an unrealized gain of
$510,548,632 as reflected in the statement of comprehensive
income. 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. As of December 31, 2021,
the Company had a capital balance of $273,045,403 in PS VII
Master, representing 28% of the fund.
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.
Pershing Square SPARC Holdings, Ltd.
SPARC is a newly incorporated 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. SPARC is the successor to SPARC Cayman, which the
Investment Manager intends to dissolve in 2022.
SPARC remains subject to SEC review. The listing and trading
of SPARC warrants on the New York Stock Exchange (the
“NYSE”) is subject to the SEC’s approval of a new listing rule
proposed by the NYSE on March 1, 2022. No assurance can be
given that the new listing rule will be approved or that SPARC
will be eectuated.
On November 9, 2021 and November 22, 2021, the Pershing
Square Funds made capital contributions of $10,000 and
$226,600, respectively, to SPARC Sponsor to fund its
acquisition of 1,000 and 22,660 shares of common stock
(“Sponsor Shares”), respectively. The Company’s capital
contributions totaled $205,880. As of December 31, 2021, the
Company owned 87% of SPARC Sponsor. SPARC Sponsor
is the successor to SPARC Sponsor Cayman. The Pershing
Square Funds made capital contributions to SPARC Sponsor
Cayman on June 14, 2021 and November 17, 2021 of $20,000
and $1,696,420, respectively, to fund its acquisition of 1,000
and 84,821 SPARC Cayman ordinary shares, respectively.
The Company’s capital contributions totaled $1,493,740. As
of December 31, 2021, the Company owned 87% of SPARC
Sponsor Cayman. The Investment Manager intends to dissolve
SPARC Sponsor Cayman in 2022.
Refer to Note 7 for additional detail on the valuation
methodologies and fair market value associated with SPARC
Sponsor and SPARC Sponsor Cayman as of December 31, 2021.
There are important dierences between SPARC and a typical
SPAC. Please review the SPARC S-1 Registration Statement
available on the SEC’s website, which can be viewed here.
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 aliated entities
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 net proceeds of any
outstanding long-term debt, including the current portion
thereof (which in the case of the Company, includes the net
proceeds from the Bonds as further discussed below in Note
18). Rebalancing transactions involve either the Company
purchasing securities or other financial instruments held by one
or more aliated entities or selling securities or other financial
instruments to one or more aliated entities.
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 its aliates 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
Annual Report 2021
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Pershing Square Holdings, Ltd.
transactions due to the ownership interest in the Company
or an aliated entity 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. In 2020, the Company, PSLP and PSINTL
engaged in rebalancing transactions with an aggregate fair
value of $8,119,333.
Directors’ Fees
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. For the year ended December 31, 2020,
the Company’s independent Directors’ fees in relation to their
services for the Company were $331,525 of which none were
payable as of December 31, 2020.
Management and Performance Fees
The relationship between the Company and the Investment
Manager and the fees earned are disclosed in Note 15.
PSH Ownership
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.
The net economic share ownership of approximately 25% of
the Company by William Ackman, Nicholas Botta and other
aliates of PSCM remained unchanged from December 31,
2020.
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, 2021 and December 31, 2020, the Company
and the other Pershing Square Funds beneficially owned in
excess of 10% of the outstanding common equity securities of
The Howard Hughes Corporation and Class A common stock of
PSTH, assuming full election of the Forward Purchase Units.
Additionally, as of December 31, 2021, the Company and the
other Pershing Square Funds, through their ownership of
SPARC Sponsor and SPARC Sponsor Cayman, are the sole
shareholders of SPARC and SPARC Cayman, respectively.
William A. Ackman is the chairman of the board of The Howard
Hughes Corporation.
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 calculated
for the Public Shares and the Special Voting Share were
199,120,882 and 1, respectively, for the year ended
December 31, 2021 and 197,168,930 and 1, respectively, for
the year ended December 31, 2020.
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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
2022 Bonds June 26, 2015 100% 5.500% Semi-Annual July ,
2027 Bonds October 1, 2021 99.869% 1.375% Annual October ,
2030 Bonds November , 100% % Semi-Annual November ,
2031 Bonds October 1, 2021 99.670% 3.250% 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 issued the following Senior Notes, which are listed on Euronext Dublin with a symbol of PSHNA.
The Company used the net proceeds of the Bonds’
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 any and all of the 2022 Bonds, which had an
original principal amount of $1,000,000,000. The tender
was finalized on October 4, 2021, resulting in the partial
cancellation of $369,377,000 of the original principal
amount. Bond holders participating in the tender received
consideration from the Company of $1,032.82 per $1,000
of principal, equating to a payment of $381,499,953. The
consideration paid in excess of principal resulted in a
total one-time extinguishment expense of $12,122,953
to the Company, which is reflected in the statement of
comprehensive income. The Company also paid interest
accrued from the immediately preceding interest payment
date, to (but excluding) the tender settlement date of
October 4, 2021, in respect of the 2022 Bonds purchased by
the Company pursuant to the tender oer.
The Bonds rank equally in right of payment with each
other and contain substantially the same covenants. The
Company has the option to redeem all or some of the 2022
Bonds prior to June 15, 2022, at a redemption price equal to
the greater of (1) 100% of the principal amount of the 2022
Bonds to be redeemed or (2) the sum of the present values
of the remaining scheduled principal and interest payments
(exclusive of accrued and unpaid interest to the date of
redemption) on the 2022 Bonds to be redeemed, discounted
to the redemption date on a semi-annual basis using the
applicable U.S. Treasury rate plus 50 basis points, plus
accrued and unpaid interest.
Each of the other Bonds are callable at par plus a customary
make whole premium until a certain date (the “Par Call
Date”) and thereafter become callable at 100% of Par. The
Par Call Date for each of these 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 ,
Until July 15, 2022, each of the Bonds has the same key man
provision, which requires the Company to make an oer to
acquire the Bonds at 101% of par plus accrued interest if a
key man event occurs. After July 15, 2022, the maturity date
of the 2022 Bonds, the covenant is modified to provide that
if a key man event occurs, the specified debt to capital ratio
in the debt covenant 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 has a one-
time obligation to reduce its debt to a 1.0 to 4.0 ratio within
180 days. In the event a reduction is required, a portion of
each Bond becomes callable at 101% of par in the amount
necessary to achieve the required debt repayment.
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Pershing Square Holdings, Ltd.
The fair value of the Bonds as of December 31, 2021 and
December 31, 2020 is summarized in the table below:
As of December 31 2021 2020
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
In accordance with IFRS 9, the Bonds’ carrying value on the
statement of financial position as of December 31, 2021 and
December 31, 2020, is $3,009,416,881 and $2,122,787,844,
respectively. Such amount includes $3,055,718 of original
issue discount, if any, and $35,055,718 of capitalized
transaction costs, which are amortized over the life of the
Bonds using the eective interest method.
19. DEFERRED TAX EXPENSE
As a foreign corporation holding a beneficial ownership
in a U.S. real property interest (The Howard Hughes
Corporation), 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 and equity forward
contracts purchased, if any, which resulted in a deferred tax
expense of $59,098,133 and $38,938,005 for the years ended
December 31, 2021 and December 31, 2020, respectively.
2020
At December 31, 2019
Write-o of 2039 Bonds issue costs
2030 & 2032 Bonds issued
2030 & 2032 Bonds issue costs ()
Finance costs for the year
Bonds coupon payments during the year ()
At December 31, 2020
Finance costs for the year:
Bonds coupon expense
Amortization of Bonds issue costs
incurred as finance costs
Interest expense
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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.
On March 28, 2022, the Company announced that
beginning with the second quarter dividend and for the
remainder of the calendar year 2022, the Company will
increase its quarterly dividend by 25% to $0.125 per
share. The Company’s intended policy in future years will
be to pay quarterly dividends in an amount determined
by multiplying the average PSH NAV of all trading days
in December of the prior year by 0.25%, subject to a cap
whereby the total dividend for the year is not to exceed
125% of the average total dividend paid in each of the
previous three years so that PSH does not make an excess
distribution under the PFIC rules. Once the dividend is set
for a specific year, the Company does not intend to decrease
it from that level even in the event that NAV were to decline
in a future year.
Annual Report 2021
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Pershing Square Holdings, Ltd.
Supplemental U.S. GAAP Disclosures
CONDENSED SCHEDULE OF INVESTMENTS
(Stated in United States Dollars)
Shares/
Notional 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
Total Canada (cost $933,484,861)
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.
Domino's Pizza, Inc.
Retail:
Lowe’s Companies Inc.
Total United States (cost $3,439,120,628)
Total Common Stock (cost $6,682,176,993)
Preferred Stock
United States:
Financial Services (cost $40,835,283)
Total Equity Securities (cost $6,723,012,276)
Annual Report 2021
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Pershing Square Holdings, Ltd.
CONDENSED SCHEDULE OF INVESTMENTS (CONTINUED)
Shares/
Notional Description/Name Fair Value Percentage of Net Assets
Investment in Aliated Entities
Europe:
Media:
PS VII Master, L.P.
9,551,416 Universal Music Group N.V., Common Stock %
Foreign Currency Forwards
Other Assets and Liabilities
Total Europe (cost $208,714,974)
United States:
Special Purpose Acquisition Company:
Pershing Square TH Sponsor, LLC
Sponsor Warrants
(1)
Class B Common Stock
(1)
Special Purpose Acquisition Rights Company
(2)
– –
Total United States (cost $60,687,696)
Total Investment in Aliated Entities (cost $269,402,670)
Total Investments in Securities (cost $6,992,414,946) %
Derivative Contracts
Equity Forwards
Canada:
Transportation () ()%
Foreign Currency Forwards
Currencies () ()
Forward Purchase Units
United States:
Special Purpose Acquisition Company:
Pershing Square Tontine Holdings, Ltd.
Committed Forward Purchase Units
(3)
() ()
Additional Forward Purchase Units
(3)
Total Forward Purchase Units () ()
Interest Rate Swaptions Purchased
3,658,144,000 U.S. 10 Year Treasury Payer Swaption, 1.50%, 07/15/2022 107,888,637 0.95
88,654,000,000 U.S. 2 Year Treasury Payer Swaptions, 0.925% - 1.425%, 07/20/2022 -
08/04/2022 732,212,727 6.42
Total Interest Rate Swaptions (cost $156,649,423)
Total Derivative Contracts (cost $156,649,423) %
(1) Figures relate to the Company’s investment in Pershing Square TH Sponsor, LLC which holds Sponsor Warrants and Class B Common Stock referencing Pershing Square
Tontine Holdings, Ltd. Refer to Note 16 for further details.
(2) Figures relate to the Company’s investment in Pershing Square SPARC Sponsor LLC and Pershing Square SPARC Sponsor Cayman, LLC. Refer to Note 14 for further details.
(3) Figures relate to the Company's investments in the Committed Forward Purchase Units and the Additional Forward Purchase Units as discussed further in Note 14.
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Pershing Square Holdings, Ltd.
FINANCIAL HIGHLIGHTS
For the year ended 2021 Public Shares
Per share operating performance
Beginning net asset value at January 1, 2021
Foreign exchange gain/(loss) on bond translation
Change in net assets resulting from financing:
Bond extinguishment ()
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, 2021
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, management fees, interest expense, professional fees, other expenses and
withholding tax (dividends) as shown on the statement of comprehensive income.
Annual Report 2021
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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, 2021 is shown below.
Gross method:
Commitment method:
The amounts disclosed in the calculation above are
substantially higher than in the previous year due to
the Company’s large notionally sized investments in the
ownership of interest rate swaptions.
The Company generally does not expect to use a significant
amount of 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 either
to the Third Party 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
Annual Report 2021
116
Pershing Square Holdings, Ltd.
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,
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 2021
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 2021 by PSCM staff. All other remuneration earned in 2021 is considered to be variable
remuneration.
(2) Total remuneration reflects salaries, bonuses and performance fees/allocations earned by PSCM staff in 2021 for services provided to PSCM, the Company and/or other funds
managed by PSCM.
(3) Remuneration earned in 2021 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 2021
117
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, 2021 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 2021
118
Pershing Square Holdings, Ltd.
ENDNOTES TO CHAIRMAN’S STATEMENT
i
Calculated with respect to Public Shares only and as of
December 31, 2021. 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
Total shareholder return and discount to NAV for 2021 is
calculated based on PSH’s Public Shares traded on Euronext
Amsterdam. The total shareholder return over the same
period for Public Shares listed on the LSE in Sterling and
USD was 18.7% and 16.4%, respectively. Total shareholder
return for Public Shares includes dividends paid with
respect to such shares.
iii
Please see Endnote 3 in “Endnotes to Company
Performance and Investment Manager’s Report.
iv
Assets reflect the Company’s net assets calculated on
February 4, 2021 in accordance with IFRS without deducting
amounts attributable to accrued performance fees, while
adding back the Company’s value of its debt outstanding
($2.1 billion).
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), (iii)
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 on April 28, 2017
and March 22, 2022. The discount to NAV of the Company’s
Public Shares listed on the LSE was 33.8% on March 22, 2022
for both Sterling and USD. The Company did not have an LSE
listing as of April 28, 2017.
vii
Holdings of aliates of the Investment Manager have not
been aggregated for regulatory reporting purposes.
ENDNOTES TO 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, has not invested in Tranche G, 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. Depending on
Endnotes and Disclaimers
Annual Report 2021
119
Pershing Square Holdings, Ltd.
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.
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, except that
the performance of the tranche of interests subject to a
30% performance allocation and a 5% hard hurdle (non-
cumulative) issued on January 1, 2017 is not reflected
in PSLP’s returns. 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. © 2021 S&P
Dow Jones Indices LLC, its aliates and/or its licensors.
All rights reserved.
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. NAV performance is presented as net returns. Please also
refer to Endnotes i and ii of the Chairman’s Statement.
6. Please refer to Endnotes 1, 3 and 4.
7. 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.
8. 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.
9. Equity under management reflects the Pershing Square
Funds’ net assets calculated on July 31, 2015 in accordance
with U.S. GAAP without deducting amounts attributable to
accrued performance fees.
10. Assets 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 ($2.43 billion and €500
million translated into USD at the prevailing exchange rate
at the reporting date, 1.10).
11. Amount includes investments in the Pershing Square private
funds by charitable entities associated with Pershing Square
employees and/or aliates.
12. The contributions and detractions to performance presented
are based on net returns. Please refer to Endnote i of the
Chairman
’s Statement
.
Annual Report 2021
120
Pershing Square Holdings, Ltd.
13. For the purpose of determining the equity portfolio
percentages, investments are valued as follows: (a) equity or
debt is valued at market value, (b) options referencing equity
or debt are valued at market value, (c) long call options and
short put options (or vice-versa, short call options and long
put options) held on the same underlying issuer and with the
same strike and same expiry are grouped together and treated
as synthetic equity positions, and are valued at the market
value of the equivalent long equity position (or vice-versa, the
equivalent short equity position), and (d) swaps or forwards
referencing equity or debt are valued at the market value of
the notional equity or debt underlying the swaps or forwards,
except for positions referencing Pershing Square Tontine
Holdings, Ltd., which are valued at market value.
14. Whether and when a distribution of SPARC warrants
(“SPARs”) may take place remains subject to the approval of
amendments to the stock exchange listing rules permitting
the listing of the SPARs and the SEC review process and
declaration of eectiveness of an SEC registration statement
registering the SPAR distribution under the Securities Act
of 1933. The decision to make the SPAR distribution as well
as the final terms and conditions of any SPARs is subject to
the review and approval of the Board of Directors of Pershing
Square SPARC Holdings. The terms, if any, of SPARs that
are ultimately distributed may be materially dierent from
those described in or implied in this report. No assurance
can be given that SPARC will be ultimately eectuated on
the outlined terms in this report or at all. This material is for
informational purposes and does not constitute an oer of
any securities. The receipt of this document by any recipient
is not to be taken as investment advice and all recipients are
strongly advised to consult their own independent advisors
on any investment, legal, tax or accounting issues relating to
these materials.
15. This report reflects the contributors and detractors to
the performance of the portfolio of the Company. Other
than bond interest expense, 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 performance allocation/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
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. For all other currency
derivatives, the long/short classification is determined
by the non-USD leg of the derivative. For example, a long
USD call/GBP put option position would be considered a
short exposure, and a long USD put/GBP call option would
be considered a long exposure.
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.
Annual Report 2021
121
Pershing Square Holdings, Ltd.
16. While the Pershing Square Funds are concentrated and
often take an active, engaged role 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 2021. 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