How to Invest Alongside the Most Successful Hedge Funds

0:00Recently, I went to Atlanta for a conference. Longtime listeners will know that I got one of my first jobs as a baby reporter and anchor in Atlanta, a girl from L.A. completely on my own, and it felt like the biggest adventure of my life. When I lived in Atlanta, I was a vegan.

0:14Nicole Lapin:And one thing you don't know about Atlanta unless you've lived there is that it has some of the best vegan food in the country. Vegan soul food, vegan tacos, vegan sushi. They have it all. Whenever I go back, I can remember that time in my life when everything felt possible. I wish I could go back in time and give that girl the biggest hug and tell her how much I love her. I also remember how worried she was about money. I don't carry that same fear anymore, but some habits stick, and I still never turn down a little extra cash. That's why I list our space on Airbnb while we travel. It just makes me feel better to know that I am making a little extra money even while off adventuring myself.

0:56Nicole Lapin:And what makes that idea feel much more manageable now is the co-host network. You can connect with a local co-host who has hosting experience and can help take care of the important details. A co-host can help create your listing, manage reservations, and make sure everything runs smoothly for guests during their stay. Honestly, it just feels like a practical way to make better use of our space while also bringing in a little extra cash from time to time. Find a co-host at Airbnb.com slash host. AI has changed so many things in our lives, but one thing we noticed almost right away was the shift in search and how people were actually finding Money News Network.

1:35Nicole Lapin:That meant we needed to redo all our websites stat. And yes, we tried to fight AI with AI, but at the time the technology just wasn't up to it. We have a dedicated web designer, but she needed extra support temporarily to redesign all our show's pages on short notice. So instead of expanding headcount, we expanded our labor pool and turned to Upwork. You can browse profiles, review past work, and get help scoping the role so you can hire with confidence and get started quickly. With Business Plus, you can access the top 1 % of talent on Upwork. AI-powered shortlisting delivers a curated shortlist of top freelancers matched to your goals in under six hours.

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2:55Nicole Lapin:Square brings the tools you need to run and grow your business together in one system. From payments and appointments to staff, inventory, sales, and customer relationships. Whether you're starting something new or looking for a better way to run the business you already have, Square gives you the tools to take payments, manage your day-to-day, and keep growing. And right now, you can get up to$200 off Square hardware at square.com slash go slash MNN. That's S-Q-U-A-R-E dot com slash G-O slash MNN. Run your business your way with Square. Get started today. I'm Nicole Lapin, the only financial expert you don't need a dictionary to understand.

3:38And it's time for some money.

3:46What if I told you you could actually just let a billionaire do your investing for you? Like piggyback on Bill Ackman. Ride shotgun with the guys who have entire research teams and private jets and Bloomberg terminals up 24-7. Well, as of this year, you can pretty much buy a piece of Bill Ackman's brain on the New York Stock Exchange. So today I'm going to show you how to invest alongside some very famous hedge funders, which vehicles actually let you do it, and the number you really need to pay attention to if you do. Option one, the closed end fund. A closed end fund raises a fixed pot of money once, then it trades on an exchange like a stock.

4:25This is a rare option. Bill Ackman, who was on the show just a bit ago, did this with his hedge fund Pershing Square. He basically launched a fund called Pershing Square USA, ticker symbol PSUS, on the New York Stock Exchange. It priced at$50 a share and raised about$5 billion, making it the largest closed-end fund launch in U.S. history. He simultaneously took the management company itself public under ticker PS. The pitch was basically Berkshire Hathaway, but you get in on the ground floor. Buy PSUS and your money rides alongside Ackman's portfolio. Now, Ackman has had years where his fund had returns over 50%, but it is not all sunshine and rainbows 24-7.

5:06PSUS fell 18 % on the very first day of trading. As of mid-July, it was trading around$37 a share, while the actual investments inside the fund were worth almost$48 a share. Bill actually called that out when he was on the show. So why would the same stock sell at a discount? Well, for closed-end funds, there's the share price, and then there's the value of its underlying investments. That's called net asset value or NAV. These two are different numbers. They float independently based on supply and demand. When the share price is below NAV, the fund trades at a discount. When it's above, it trades at a premium.

5:39At the time I'm recording this, PSUS is trading at roughly a 22 % discount. Ackman's older fund, Pershing Square Holdings, which trades over in London and in Amsterdam, has spent years stuck at a similar discount. That discount is basically the market saying, cool portfolio, bro, but we're not paying full price for the risk that you make a bad call and we don't love your management fees. Ackman himself pointed out the PSUS discount adds up to something like 11 years worth of management fees. Option two, buy the manager, not the fund. This is the equivalent of the PS ticker that I mentioned for Pershing Square.

6:13You're buying the actual management company. When you buy a listed asset manager, you're not buying their portfolio, you're buying their fee stream. Every dollar they manage throws off fees, whether their bets go up or they go down. This is why publicly traded giants like Blackstone and KKR have been such monsters over the last decade. My hot take here is for most people, owning the toll booth itself is smarter than owning all the cars going through it. Managers get paid no matter what, in good years and in bad years. But know what you're buying. You're buying a fee machine, not a stock picking genius.

6:45Option three, the insurance float trick. This one is one of my favorites. David Einhorn, legendary short seller, the guy who called Lehman Brothers collapse before it actually collapsed, runs a publicly traded reinsurance company called Greenlight Capital Re, ticker symbol GLRE. An insurance company collects premiums today and pays out claims later on, right? So it's sitting on this giant pile of cash in the meantime called Float. At Greenlight, the Float gets invested by Einhorn's hedge fund. So when you buy GLRE, you're getting insurance profits plus a side of Einhorn stock picks. This is the exact structure Warren Buffett used to build Berkshire Hathaway.

7:21Insurance float as free investment fuel. Speaking of which, option four, VOG. Berkshire Hathaway, ticker symbol BRK.B for the version that normal people can afford. I'm not exaggerating here. Berkshire Hathaway shares are currently trading at over$768 ,000 a share, while B shares are trading at just over$500 a share. And of course, you can also buy them fractionally. Buffett officially handed the CEO roll off to Greg Abel on January 1st, though he is staying on as chairman. Berkshire is now sitting on a record pile of cash, nearly$400 billion, which tells you that the world's best investor is having a lot of trouble finding cheap things to buy right now.

8:04Just saying. I have done a whole episode on the final Buffett chapter, and I'll link that in the show notes, too. And last but not least, the Copycat ETF. There are funds that actually scrape the required quarterly disclosures that big hedge funds have to submit to the SEC. then they buy their most popular positions. The Global X Guru ETF, ticker, single guru, is the best known one that's still standing. Now, it sounds really smart, but here's the giant asterisk. These disclosures come out up to 45 days after the quarter ends, so you're always getting delayed information. And they only show long stock positions in the US, not shorts, not options, not hedges that make a hedge fund a hedge fund.

8:45I'm a little bit more skeptical on this one, but I just want you to know that it does exist. So which one is right for you? Honestly, none of these should be more than a small slice of your overall portfolio. Investing alongside a famous name is fun, but fun and diversified index fund are not in the same financial group. But by the way, you can't spell index fund without funds. Just saying it should be a small slice. The biggest mistake I see people make is confusing a great investor with a great investment. The people, the price, and how their strategy maps onto yours are all separate questions.

9:19For today's tip, you can take straight to the bank. If you're going to buy a closed-end fund like PSUS, hunt for a discount and hunt for it in December. This is a real hot tip here, but closed-end funds routinely trade below the value of what they own, and that discount gets widest at the end of the year when investors are trying to dump their losers for tax write-offs in what's called tax loss harvesting. That artificial pressure can push discounts to their deepest point of the year on funds whose actual holdings haven't changed a bit. Try to swoop in then. And if you do, you're basically buying a dollar of assets for 80 something cents on the dollar.

9:56So you're not just buying the billionaire, but you're buying the billionaire on sale.