In an attempt to better understand the potential discount or premium to NAV for the Fundrise Innovation Fund, I wanted to examine Pershing Square Holdings, ticker PSHZF, listed on the London Stock Exchange.
Pershing Square manages over $18 billion and is run by American, Bill Ackman. Meanwhile, the fund currently trades at about a 25% discount to its NAV. When it first listed in 2014, it traded at as small as a 9% discount. The NAV discount widened to about 40% in 2022, and then traded at a 30%–35% discount in 2023 and 2024.
As an investor, you can take this -9% to 40% historical discount-to-NAV range as a datapoint for when to invest. Obviously, the greater the discount to NAV, the better value you are getting. Not only could the NAV rise in value if Ackman invests in winners, but the discount to NAV could narrow as well.
If the Innovation Fund lists on the NYSE, could it trade at a similar discount to NAV as Pershing Square? It’s possible, but I highly doubt it for the reasons I highlight in this post.
Why Does The Pershing Square Fund Trade At Such A Large Discount?
Here are four main reasons for such a persistent discount to NAV.
1) Core Holdings Are Public Equities
Pershing takes concentrated positions in 8–12 holdings and actively engages with management to effect change. Past holdings include Chipotle, Restaurant Brands International, Hilton Worldwide, Alphabet, Canadian Pacific Kansas City, and Amazon.
The issue with owning public equities is that you and I can construct the same portfolio ourselves. In other words, there is no barrier to entry to owning public equities. Fund investors must rely on the acumen of Ackman and his analysts on when to buy and sell.
Despite most of the positions being public equities, Ackman did use credit protection to hedge downside risk during the early 2020 COVID volatility. So if you are investing in a hedge fund and want downside protection, Pershing can provide that capability. But it usually doesn’t seem to, going 90% – 100% long.
2) Closed Structure + European Listing
PSH is a closed-end fund listed in London, not a ETF listed on a U.S. stock exchange.
That creates:
- No daily redemption mechanism to arbitrage price back to NAV
- A limited natural U.S. investor base that doesn’t invest in LSE stocks or funds
- Less index inclusion versus U.S. funds
- Some institutional mandates that cannot own foreign-listed Closed-end Funds (CEFs)
If this were a U.S. ETF holding the exact same portfolio, the discount likely would not nearly be as large. Maybe 0-5% instead. Closed-end funds can trade at discounts for decades if there is no catalyst to close the gap.
Unlike an ETF, there is no simple mechanism forcing convergence, as I wrote in my post on how different fund types trade.
3) Fee Structure (1.5% + 16% Performance Fee)
PSH charges:
- 1.5% management fee
- 16% performance fee above a high-water mark
That is cheaper than traditional 2/20 hedge funds, but it is expensive relative to passive equity exposure. Meanwhile, investors mentally discount future returns because fees compound.
When you discount expected future NAV growth by fees, some investors demand a structural discount.
4) Concentration Risk And Volatility
With usually only 8–12 stocks in the portfolio, there is significant concentration risk in PSH that warrants a discount. During good times, returns can be great. But during bad times, like in 2022, returns can be terrible, hence the 40% discount to NAV.
If you are investing in a hedge fund, your goal is usually to reduce volatility and protect downside risk through hedging (shorting some names). But if the fund does not hedge meaningfully or consistently, and instead creates additional volatility for holders who are not suited for it, a discount to NAV is demanded.
With manager risk, key-man risk, and strategy cyclicality, a discount to NAV is only natural.
Fundrise Innovation Fund Comparison To Pershing Square Holdings
Trading at a 25% discount to NAV after a NYSE listing would be a terrible scenario for Fundrise Innovation Fund (VCX) holders. However, I do not think it will happen given the following differences compared to Pershing Square Holdings:
1) VCX Owns Private, Hard To Invest In Assets
VCX owns highly coveted private company shares in names such as OpenAI, Anthropic, Databricks, Anduril, SpaceX, Canva, and more. Unlike public equities, very few people can invest directly in these companies during their next private fundraise. As a result, it is logical that investors would pay a premium to own these names, not a discount.
2) VCX Will Trade On A Much Larger U.S. Exchange
VCX will try to list on the NYSE, not the London Stock Exchange. The NYSE is 8–9 times larger than the LSE in terms of total market capitalization. Trading volume on the NYSE is typically $50–$100+ billion per day versus only $5–$10+ billion per day on the LSE.
As a result, the natural demand pool is larger. VCX would be available to every U.S. retail brokerage account and could potentially attract institutional flows.
3) VCX Charges A Much Lower Fee
VCX plans to charge a 2.5% annual management fee and 0% carried interest (a percentage of profits). PSH charges only a 1.5% management fee, but 16% of profits after a high-water mark, which is part of the reason Ackman is so wealthy. I would much rather pay 2.5%–3% of AUM than 1.5% and 16% of profits for companies that have the potential to growth tremendously.
Hypothetically, if your $100,000 position doubles to $200,000 in one year, you would pay an approximately $3,750 fee to VCX and keep $96,250 of the profits. In contrast, you would pay a $2,250 fee to PSH plus 16% of the $100,000 profit, or $16,000, for a combined total fee of $18,250. Clearly, paying a $3,750 fee is preferable to paying an $18,250 fee.
4) VCX Manages A Smaller, More Nimble Fund With More Holdings
VCX is a ~$550 million fund versus PSH at $18+ billion. As a result, it is sometimes harder to outperform with such a large amount of assets under management.
For example, investing $55 million (10% of VCX) in a private growth company that performs well can make a bigger difference to VCX than to PSH (0.3%). Taking a similar 10% position, or $1.8 billion in PSH, would tend to move the stock significantly or even be impossible if Ackman wanted to invest in a smaller company due to limited float.
VCX owns at least double the number of companies as PSH. However, about 75% of VCX is concentrated in OpenAI, Anthropic, Databricks, Anduril, dbt Labs, Vanta, Canva, and Ramp. So I would say the concentration risk is similar to PSH’s 8–12 companies.
Conclusion About the PSH Case Study
I highly doubt the Innovation Fund will trade at a similar discount to Pershing Square Holdings. They are fundamentally different vehicles, with different asset bases, fee structures, investor audiences, and structural dynamics. Although both are closed-end funds and lack the redemption mechanism of ETFs, the similarities largely end there.
Pershing’s discount is primarily a function of its public equity exposure, closed-end structure without a redemption mechanism, European listing frictions, performance fees, and concentration risk. VCX, by contrast, provides access to scarce private assets, intends to list in the United States, and does not have a performance fee drag.
While no listed vehicle is immune from trading at a discount, applying Pershing Square’s historical discount range directly to the Innovation Fund is likely the wrong framework.
Destiny Tech100 (DXYZ) and Robinhood Venture Fund (RVI)
A more appropriate comparison may be DXYZ, which is currently trading at roughly a 140% premium to its approximately $11.50 NAV, and the soon-to-be-listed RVI, the Robinhood Venture Fund.
Both hold similar hard-to-access private growth companies that are in high demand. It will be telling to see whether RVI also trades at a premium to NAV following its $1 billion offering. If it does, the chances of VCX trading at a premium goes up, and I will invest more in VCX pre-listing.
As we get closer to RVI’s listing, I plan to publish a follow-up analysis examining how its performance may inform expectations for the Innovation Fund. I am doing this work primarily because I have approximately $770,000 invested in the fund, which could realistically swing down by $150,000 or rise by as much as $385,000 simply based on listing dynamics.
Because my wife and I do not have day jobs, we rely heavily on our investments to fund our lifestyle. As a DIY investor, I need to conduct deeper due diligence to improve the odds of making sound, long-term investment decisions.
Anyone here investing in Pershing Square Holdings? If so, what are your thoughts on how to approach the fund given its discount to NAV? Wouldn’t it be better to just invest in an S&P 500 ETF with minimal fees, given that performance has been similar over the past 5–7 years?
Fundrise is a long-time sponsor of Financial Samurai, as our investment philosophies are aligned. Please do your due diligence before making any investment and only invest an amount you can afford to lose. There are no guarantees when investing in risk assets, and you can lose money.
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