A Wall Street hedge fund manager has turned a US$27 million (A$46 million) bet into a US$2.6 billion (A$4.4 billion) payout, all based on the economy collapsing.
Bill Ackman of Pershing Square Capital Management placed the high-stake bets on the assumption that coronavirus would turn the global economy into a sharp downturn.
“On 23 March, we completed the exit of our hedges generating proceeds of $2.6bn for the Pershing Square funds, compared with premiums paid and commissions totalling $27m,” he wrote in a letter to investors today.
Citing moves by the US government and the Treasury, Mr Ackman said his hedge fund was spending much of their gains on cheap stocks.
“We became increasingly positive on equity and credit markets last week, and began the process of unwinding our hedges and redeploying our capital in companies we love at bargain prices that are built to withstand this crisis, and which we believe will flourish long term,” he said.
The buys include substantial stakes in Starbucks, Hilton and Berkshire Hathaway.
They have also invested heavily in a company that manufactures antibody testing kits for COVID-19.
Mr Ackman’s letter to investors reiterated the importance of a firm lockdown to stop the spread of coronavirus.
“Some have argued that we should fully reopen the economy now, as the coronavirus kills mostly the old and immune-compromised, and a relatively small percentage of those infected,” he wrote.
“Beyond the ethical considerations of such an approach, it has become increasingly clear that the high percentage of younger US citizens with co-morbidities – including obesity, diabetes, and hypertension, as well as those who take medications for other conditions that reduce immunity, and/or who smoke or vape – will have a substantially higher death rate than has been experienced in other countries.”
Overwhelming the health care system would increase the death rate from coronavirus, as well as heart attacks, stroke and car accidents.
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