Reputational risk prominent in Pershing Square investor letter

In his third quarter letter to investors in Pershing Square Capital Management, William Ackman inlcudes seven paragpahs on "reputational and regulatory risks." Citing reputation risk as a "key risk factor" in the industry, he writes about the steps the fund is taking to preserve its reputation in this volatile environment. "Our approach to assessing reputational risk is to apply the New York Times test. We ask ourselves whether we would be comfortable having our family and friends read a front page New York Times story about actions taken by Pershing Square written by a knowledgeable and intelligent reporter who has access to all of the facts. If we are comfortable with such an article being read by our close friends, our families, and the public at large, our action passes the test. If not, we reconsider our potential action."

He also writes that he has recently decided to take public positions about issues affecting the hedge fund industry (see previous posting on this blog). He writes that it is "important for the hedge fund industry to come out of the shadows and defend the importance of our work." He continues, " If we and others (that includes hedge fund investors in addition to the managers) don’t do so, the industry, in my view, is at even greater risk of further regulatory, tax, and other legal changes that will materially harm our business models and industry."

Ackman cites the short-selling ban as one example of misplaced regulation that the industry was powerless to stop.

Mr. Ackman, if more hedge fund managers follow your lead on reputation management, this blog will be out of business. Until then, we salute you.