In March 2020, Pershing Square bought approximately $27 million in investment-grade and high-yield credit default swaps (CDS) as insurance, clearing $2.6 billion on March 23 to increase positions in stocks that were plummeting.

At the end of February, U.S. stocks were still at high levels with very narrow credit spreads. The fund's core holdings were concentrated in Hilton, Starbucks, Lowe's, and Restaurant Brands. Ackman anticipated that lockdowns would lead to a significant pullback in his $7 billion stock portfolio, and he was unwilling to sell off his positions or bear the tax burden and timing risks of buying back later. He also rejected the idea of a short position with a capped upside of 100% and theoretically unlimited downside. Instead, he chose to buy substantial notional amounts of credit protection on CDX IG, CDX HY, and European investment-grade indices. The company publicly disclosed its hedging on March 3.

Credit spreads subsequently widened. On March 9, the contract's market value was approximately $1.8 billion, and on March 12, it was about $2.75 billion, starting to sell off in daily increments. On March 18, he called for a nationwide shutdown on CNBC, stating that without action, Hilton could go to zero and hell would come; the shareholder letter indicated that he had sold slightly over half of the notional amount at that time, realizing about $1.3 billion, with a remaining market value of about $1.3 billion, totaling approximately $2.6 billion. After the live broadcast, the hedge did not appreciate further. On March 23, everything was settled, coinciding with the Federal Reserve's announcement of large-scale liquidity support. The proceeds were used to increase positions in Agilent, Berkshire, Hilton, Lowe's, and Restaurant Brands, and to buy back Starbucks, which had been sold in January, leaving about 17% cash afterward. Timestamped records were listed from March 25 to 26. By the end of March, the fund's net asset value turned positive by about 11%.

The buying was a concentrated long position using convexity insurance to exchange cash to buy discounted core assets during the crisis; the selling was driven by public sentiment treated as a tool for panic selling. The event itself was a shareholder letter clearly outlining the building, peak, reduction, and reinvestment of positions. Beneficiaries were those who survived the liquidity drought with concentrated portfolios; those under pressure were those who misunderstood hedging as a one-sided short position.

The market traded asymmetric insurance and reinvestment, not tears from a live broadcast.

Source: Public Information