According to information presented to the Financial Times by people "familiar with the matter" Bill Ackman, who manages the billionaire investment fund Pershing Square, earned around $200 million by investing against the 30-year bonds of a U.S. treasury in August.

 

Investing "against" any stock in the stock market implies that the investor will make a profit if the stock declines in value. A multitude of methods can be used to invest against any stock, Ackman used the "options" method which does not involve borrowing shares and selling them to make money.

 

As for the assets he invested against, bonds are obligations to pay debts owed by agencies, such as governments or corporations. Buying a bond implies that the investor owns a portion of the debt of the body to which they belong and therefore they will receive money from interest payments and the return of the value of your bond when it matures. Ackman made brief comments on this in X.

 

We covered our bond short.

— Bill Ackman (@BillAckman) October 23, 2023

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In Ackman's case, he invested against 30-year U.S. Treasury bonds. Bonds work in the opposite way to normal investments, their price is inversely proportional to the interest they offer. According to statements made on social networks by Ackman when making this investment, the interest on them could rise from 4.16% to around 5.5%, so it was a propitious time to invest against them.

 

Part of his success in this investment comes because Ackman, in addition to investing against, he paid what is known as a "premium" which means paying a larger amount of additional money to, in theory, receive better interest when selling.

 

Ackman's career highlights

 

Ackman has famously made decisions similar to this in the past. For example, in 2022 the investor made $2.3 billion on a similar investment against bonds, in that case for two years.

 

Ackman also made noise in 2020 when he was one of the first entrepreneurs to notice the crisis that COVID-19 would cause. At that time Ackman put on a "hedge," a type of investment that focuses on reducing losses caused by the plummeting value of the stocks in which it is invested. This hedge prevented Ackman from losing $2.6 billion.