William Ackman, founder of hedge fund Pershing Square admits to making certain mistakes, explains the current deleveraging, and gives his market outlook:
Here are some excerpts from Ackman's letter to investors:
"These are extraordinary times particularly for active participants in the capital markets. While I do not normally choose to write about macro and regulatory events, I thought it would be useful for you to understand how we think about recent events and their impact on our portfolio."
"We are currently witnessing the greatest deleveraging event in history. What began as a credit bubble bursting has now spread to the equity markets as... market participants have been forced to liquidate assets by their counterparties, leverage providers, redeeming clients, and as a result of downgrades, other debts or other commitments that need to be funded. "
"As a fund which is generally substantially more long than short, we have also suffered large mark-to-market declines in our long investments."
"When, you might ask, will the selling end?... Unlike the deleveraging that takes place when banks and other financial institutions sell assets to meet regulatory requirements, which is typically a longer term process, the forced deleveraging that is now taking place in the equity markets is being implemented largely by the prime brokerage firms and margin account managers at broker dealers around the world. Prime brokers are not known to be laggardly in their approach to liquidating an account that no longer meets margin requirements. This is likely to be even more true in the current environment. As such, it may be reasonable to conclude that the forced liquidation that is now taking place may not be a prolonged process. "
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