Backer Bill Ackman Bets Against Another COVID Market Crash

Bill Ackman attends the 2019 Pershing Square Sohn Prize Dinner at the Consulate General of France on May 22, 2019 in New York City. Sylvain Gaboury / Patrick McMullan via Getty Images

Prominent hedge fund manager Bill Ackman is betting the coronavirus pandemic could rock the U.S. stock market again like it did in March at a time when major stock indexes hit an all-time high. The last time he made similar bets, he won and enjoyed $ 2.6 billion, or a 10,000% return, on his investments in less than a month.

At Financial TimesOn Tuesday, Ackman revealed that his hedge fund firm, Pershing Square Capital Management, had purchased a set of credit default swaps, a financial derivative to insure his company against a wave of defaults on Monday.

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Interestingly, it was the same day that Pfizer declared early success with its experimental COVID-19 vaccine, which sent stock indexes to an all-time high. However, Ackman is concerned the news will encourage people to get lazy about preventative measures and make the pandemic worse before the vaccine hits the market.

Ackman warned that investors are underestimating the severity of the pandemic. He sounded a similar alarm in early March, just before states imposed lockdown orders.

“I hope we lose money on this next blanket,” Ackman said during an opening speech at the event, by Financial Times. “What is fascinating is that the same bet we made eight months ago is available on the same terms as if there had never been a fire and on the likelihood that the world will be okay.

The new hedge was about 30% of the size of the bet he placed in the spring, Ackman said.

At the end of February, as the coronavirus epidemic was in full swing in China but had not started its exponential spread to the rest of the world, Pershing Square bought $ 27 million in credit protection on global credit indices from investment quality and high return. insure against $ 71 billion in corporate debt.

A week later, major stock market indices fell due to skyrocketing COVID-19 cases in the United States By the time the market bottomed out in late March, Ackman had finished unwinding those hedges and raised $ 2.6 billion in revenue.

He used the profits to buy shares in several existing portfolio companies, including Agilent Technologies, Berkshire Hathaway, Hilton Worldwide Holdings and Lowe’s and Restaurant Brands International.