Over the past few weeks, Avis Budget Group Inc. had a short squeeze. (We talked about it a couple of weeks ago.) Two hedge funds, SRS Investment Management LLC and Pentwater Capital Management LP, owned about 69% of its stock, or 108% (!) if you include derivative positions. Other invetors were at one point short something like 49% of its stock. This apparently became unsustainable, some short sellers capitulated and had to buy back the stock, and the stock ripped up.^[1] And then it ended. The stock closed at $99.90 on March 20, got all the way to $713.97 on April 21, and closed yesterday at $182.

On paper, the winners of this short squeeze, at its peak last week, were (1) Avis, which became vastly more valuable over the course of a few weeks, and (2) Pentwater and SRS, who had billions of dollars of paper profits on their Avis positions. But what could they do about it? The obvious answer, when your stock is up 600%, is to sell some stock. But Avis, Pentwater and SRS were all legally constrained from selling during the squeeze:

1. Avis was in a blackout period: Its quarter ended March 31, it announced earnings this morning, and for the entire short squeeze it had material nonpublic information and could not legally trade. (Companies traditionally don’t trade in their stock between the end of a quarter and the earnings announcement, on the theory that they know a lot about last quarter’s earnings but the market doesn’t.) So, although Avis actually announced an at-the-market stock offering on March 27, it has not sold any shares yet.^[2]
2. SRS, which owns about 49% of Avis and has a board seat, was in the same boat: It had inside information about the quarter, and has an agreement with Avis not to trade during Avis’s blackout periods. (Also it is presumably a long-term investor and might not want to sell.)
3. Pentwater is not exactly an insider — no board seat, just a big outside shareholder — and so could theoretically sell. But a different sort of insider trading law constrains Pentwater, the “Section 16 short-swing profit rules.” Section 16(b) of the Securities Exchange Act restricts stock trading by certain “insiders,” including not just directors and officers but also 10% shareholders, which Pentwater is. “For the purpose of preventing the unfair use of information which may have been obtained by such beneficial owner,” says the law, “any profit realized by him from any purchase and sale, or any sale and purchase, of any equity security of such issuer … within any period of less than six months … shall inure to and be recoverable by the issuer, irrespective of any intention on the part of such beneficial owner.” That is: If you own 10% of a company’s stock, and you buy stock and then sell it at a profit within six months (or sell it and then buy it back at a profit), you have to give up all your profits to the company. The rules for this are notoriously fiddly, “matching” transactions in punitive and unintuitive ways, and there is an industry of lawyers who sue hedge funds that mess it up. Pentwater became a 10% holder in February, and acquired millions of Avis shares in March, so if it sold them in April it would have to give back all of its gains.

Ah well! What can you do? I’ll tell you. From Avis’s chief executive officer on this morning’s earnings call:

Our second-largest shareholder, Pentwater Capital who filed as a 9% owner of our Company as of December 31st, 2025, crossed the 10% ownership threshold on February 20th and became a Section 16 insider. On that day, Pentwater disclosed they held an economic interest of 39% of our Company through stock and cash-settled swaps. By March, they disclosed that economic interest increased to 51%. So in the span of a month, Pentwater's public filings showed their economic interest increased substantially. We believe that this significant increase in ownership, combined with the high short interest in our name, resulted in a short squeeze. That much is well-understood.

Here's what we're absorbing just now. After-market close yesterday, Pentwater disclosed the sale of 4.3 million shares for gross proceeds of $1.75 billion on April 22nd and April 23rd. Given the quantum of shares sold in such a short span of time, our stock price experienced a significant decline. It is important to note that Avis has not bought or sold a share since 2024. Our largest shareholder, SRS, has not bought or sold a share since 2023. So it seems the only insider active during this period of excess volatility was Pentwater Capital. Pentwater has acknowledged that its sale of Avis stock, at least in part, was violative of the SEC Section 16 short swing profit rules. Avis has requested Pentwater to furnish it all relevant information concerning the trades, and Avis will aggressively pursue all rights on behalf of our stockholders. 

Here are Pentwater’s disclosures from yesterday. (There are six of them: a lot of trades.) It did sell a ton of stock,^[3] largely late last week, at prices in the $200s to $700s; Avis seems right to conclude that Pentwater’s selling is what popped the balloon. “I have not gone through all the math extensively,” noted an analyst on the earnings call, “but it does look like this is an incredible trade; they may have made $1 billion of profit or something like that.” 

But they have to give it back. Or, rather, they have to give some of it back. Pentwater, the hedge fund firm, manages various funds and separately managed accounts. For Section 16 purposes, it treats them separately: If one account bought in February, and another sold in April, it doesn’t match those purchases and sales under the short-swing profit rules. Or so it argues in the footnotes to yesterday’s disclosures.^[4]

Some of Pentwater’s sales came out of accounts that had recently bought stock; those sales create Section 16 liability, and Pentwater has to give back its profits to Avis. Pentwater knows this and, rather than wait for Avis or enterprising Section 16 lawyers to come after it, Pentwater has gone to Avis with the money: The funds “are engaged in discussion with the Issuer and have agreed to voluntarily disgorge to the Issuer any short-swing profits realized from these matchable transactions.” Again, the rules are fiddly, and Pentwater has done complicated options trades, so there is room for interpretation here and Avis might ask for more than Pentwater is offering. But the basic idea — “we are not allowed to profit from these sales, and have to give our profits to the company” — is clear.

But many of Pentwater’s sales came out of other accounts that it manages, funds and SMAs that had not bought stock recently, and so don’t have to give up their profits. This is a bit odd: Pentwater’s disclosures of its buying don’t mention which funds it was buying for — just “certain funds” — and its disclosures of its sales do, so you can’t exactly trace through which accounts bought and sold when, or why.^[5] You have the odd situation that Pentwater bought some Avis stock in some of its funds, the stock ripped up, and then Pentwater sold Avis stock out of its other funds. The investors in the selling funds (who got as much as $700 per share) must be thrilled; the investors in the buying funds (who presumably still own the stock at like $182) might be less thrilled.

But the overall result is:

1. Pentwater, as a fund complex, has realized a huge profit and will keep a lot of it,^[6] and
2. Avis will get a nice chunk of change from Pentwater’s sales.

Avis had a short squeeze, there were legal restrictions preventing Avis and Pentwater from selling stock at the peak of the short squeeze, and Pentwater found a way to dance through those restrictions such that (1) it got money and also (2) Avis got money.

On the earnings call, Avis seems a bit flummoxed by all of this, but to me it looks like pure windfall upside for the company. Pentwater got Avis a nice little gift. Pentwater’s buying (and disclosure of its buying) caused Avis’s stock price to soar, Avis couldn’t take advantage by selling into that rising market, and then Pentwater’s selling — which caused Avis’s stock price to return more or less to normal — generated cash for Avis. It’s sort of a non-dilutive equity capital raise: Someone else sold some existing Avis stock into the short squeeze, and Avis got the money. (Also life got pretty hot for Avis’s short sellers, which many companies enjoy.) “Short squeeze as a service,” one reader called it in an email. Great trade!

Bill Ackman’s double initial public offering, of Pershing Square Inc. (PS, his hedge fund management firm) and Pershing Square USA Ltd. (PSUS, his closed-end fund), priced yesterday. “Priced” is sort of the wrong word. Investors in the double IPO paid a fixed price of $50, for which they got a fixed package of (1) one share of PSUS (with a $50 net asset value) and (2) 0.2 shares of PS. Traditionally, in an IPO, the price is negotiable, and the underwriters adjust the price to get enough demand. For a closed-end fund, that doesn’t quite work: You need to sell $50 of net asset value at $50. I suppose Ackman could have offered a variable number of free PS shares for every PSUS share, but that would have been a mess. Instead it was one free PS share for every five PSUS shares, take it or leave it.

People took it, more or less. Bloomberg’s Bailey Lipschultz and Georgie McKay reported this morning:

The funds raised for Pershing Square USA Ltd. came at the low end of a fundraising target of as much as $10 billion, and the majority of the cash was already spoken for before the process began.

The $5 billion haul was the bare minimum to keep the early investors who signed up to buy $2.8 billion locked into the deal, and fell well short of the lofty $25 billion that Pershing Square sought to bring in about two years ago.

Sweeteners including free shares of asset manager Pershing Square Inc. and no performance fee for Pershing USA increased interest from investors but didn’t do enough to stoke pandemonium.

Pershing Square USA shares are indicated to open at $37.50 to $42.50 each, below the $50 per share IPO price, while Pershing Square shares are indicated at $22 to $25 each, as of 11:54 a.m. on Wednesday in New York.

I am writing this before the stocks open for trading, and indicative pre-open prices of just-IPOed companies don’t always tell you all that much, but on those numbers your $50 investment got you (1) $37.50 to $42.50 of PSUS plus (2) $4.40 to $5 of PS (one-fifth of a share worth $22 to $25), for a total of $41.90 to $47.50 of stuff. 

A private equity sponsor will typically raise a fund from a group of institutional investors (called limited partners, or LPs), use the fund to buy some companies, gussy the companies up, and then resell them after a few years to strategic acquirers or the public markets. In recent years, private equity sponsors have had a hard time reselling their companies, which has led to various workarounds.

An important one is the “continuation vehicle,” where the sponsor will raise a new fund from a new group of LPs^[7] and use the new fund to buy a company from the old fund. This is obviously and notoriously conflicted: Every dollar that the old fund gets comes out of the new fund, and the sponsor might favor one fund over the other depending on which LPs are more important, which fund has more of the sponsor’s own money, etc. There are various procedural safeguards but ultimately the sponsor is selling to itself at a price it sets.

One safeguard is that private equity funds normally have limited partner advisory committees, where representatives of a few of the fund’s big LPs get to review what the fund is up to, consider conflicted transactions, etc. In general, if you worry that the sponsor might try to put one over on the LPs, it is useful to have an LP committee to keep an eye on the sponsor. But in the specific case of continuation funds it is only a partial solution, because the conflicts involved in continuation funds are not so much “sponsor vs. LPs” as they are “some LPs vs. other LPs.” Anyway the Financial Times reports:

Big private equity backers have raised concerns that some of their peers may be waving through controversial deals where buyout firms sell companies to themselves, adding a fresh twist to worries about conflicts of interest inherent in the transactions. ...

Some institutional investors are demanding that a wider group of fund backers be required to approve selling assets to continuation vehicles, the private equity executive said. Backers of buyout funds “don’t love [continuation vehicles] as a way of exit”, the person said, adding that “they want greater consultation”.

The US pension plan told the FT that “limited partner advisory committees are becoming increasingly conflicted”, referring to the industry term for backers of buyout funds. They added that when committee members’ employers also had strategies dedicated to backing continuation vehicles, “it’s hard to know which interest they’re serving”. 

In a continuation fund, the sponsor is both a buyer and a seller, but some of the LPs might be as well.

The way books work is roughly that a publisher gives an author some money (an “advance”) for the rights to publish a book, and then the publisher tries to sell as many copies of the book as possible, and the publisher and the author split the profits from those sales. That is: The book is a business with a speculative stream of future cash flows, and the publisher invests cash in that business in exchange for a claim on those cash flows. The book is like a securitization, or at least a security. The book is a startup, the author is an entrepreneur and the publisher is a venture investor; if it works out then both the entrepreneur and the publisher get rich. If not, well, 90% of startups fail.

Normally a book gets exactly one advance from one publisher, but if you really wanted to you could imagine applying, you know, the whole apparatus of finance. Syndicated investment rounds in which a dozen publishers take stakes in the book. A liquid secondary market for book stakes. The New York Book Exchange Individual investors buying stakes in books they like. Short selling. Zero-day options. Index funds. Whatever, man.

Most authors and publishers would not put things in these terms because they are in, you know, the book business. But here’s a proposed book titled We Should Own the Economy, by Elle Griffin, which is about, you know, more people owning more stuff. She thinks of books in these terms. So she’s pitching a securities offering for her book:

Instead of pitching this idea to publishing houses, securing a book advance, writing it in secret over the next several years, then hoping people read it when it comes out; I’m pitching it to you. You can listen in on my interviews as I have them, read chapter drafts as I write them, contribute comments and help me crowdsource my research as I go, and even earn a share of the profits when it sells.

In other words: I’m giving you ownership in a book project about creating more owners.

I'll be researching and writing this book live over the next couple years, gathering pre-sales as I go. Once I've finished the book, 40% of sales will be distributed among investors as an annual distribution. I will donate the remaining 10% as an annual donation to GiveDirectly. If the project goes on to sell to a traditional publisher or becomes an audiobook, podcast, or documentary, we will retain that same profit-sharing split. 

My description above is loose in several ways: The advance is traditionally not just equity but also kind of debt (if you never write the book you have to pay it back), and of course the publisher is not really a passive investor but instead does a lot of work to edit, print, market and distribute the book. Selling shares to retail is not a perfect replacement for the publishing industry, but it is fun to think about.

Probably most people’s first day at an investment bank is relatively pleasant, filled with inspirational speeches and carefully vetted human resources trainings, and it’s only in like week two when they start thinking “oh no what have I signed up for?” In some ways it’s nice that JPMorgan Chase & Co.’s London office just front-loaded this:

JPMorgan’s human resources team was alerted after [former head of investment banking Vis] Raghavan made inappropriate comments in front of dozens of juniors on their first day at the bank’s Canary Wharf offices, according to people familiar with the remarks.

Raghavan allegedly recounted a story about an attractive woman he had been distracted by while he was a student. Now, he told them, “she was fat”, while he was an executive at JPMorgan. Multiple people present complained about the comments, which Raghavan denied he had made when approached by HR.

When that’s the first-day inspirational speech from your boss’s boss’s boss, you know what you’re getting into, you know? Anyway that’s from a Financial Times article about how Raghavan’s days were numbered at JPMorgan, but he managed to secure a job at Citigroup Inc. before his departure was announced. Citi “told shareholders his $52mn pay package was needed to ‘incentivise’ Raghavan ‘to leave his prior employer’ and join Citi’s leadership team as head of banking”; the FT suggests that might not have been entirely true.

Junior Bankers Sick of Grunt Work Build $2 Billion AI Tool to Do the Job. Elon Musk Testifies of AI Risk at Trial, Says OpenAI Tried to ‘Steal’ a Charity. UBS Says Rich Clients Lost Some Interest in Private Credit. Ken Griffin suggests retail investors do not understand private credit. Brown-Forman Plunges After Jack Daniel’s Maker Ends Deal Talks. Lululemon founder casts doubt on new chief as proxy fight escalates. Cyberattack on NJ School Forces Debt Sale to Cover Stolen Funds. The Plywood Smuggling Ring That Ensnared a Building-Products Giant.

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