LTCM Collapse

We in turn are reducing the management fees we receive from PSH dollar-for-dollar by the fees paid to PSCM by HHH that are attributable to the HHH common stock held by the Company. We had previously communicated that our first initiative for HHH would be for the company to acquire a diversified property casualty insurance company whose assets we will manage. To that end, in December 2025, HHH signed a definitive agreement to acquire Vantage Group Holdings Ltd. (“Vantage”), a leading specialty insurance and reinsurance company backed by Carlyle and Hellman & Friedman, for $2.1 billion. The transaction is expected to close in the second quarter of 2026, subject to customary regulatory approvals and closing conditions. We believe the acquisition of Vantage is an ideal transaction to begin HHH’s transformation into a diversified holding company. The addition of a higher-return, faster-growing insurance operation accelerates HHH’s overall growth profile and increases and diversifies HHH’s sources of long-term value. HHH’s holding-company ownership of Vantage provides long-term capital support which will materially strengthen Vantage’s credit profile and underwriting flexibility. In our view, an emphasis on underwriting profitability—driven by disciplined risk selection, pricing, and portfolio optimization rather than growth—will improve Vantage’s ability to effectively navigate the insurance cycle.will

Pershing Square Holdings, Ltd. 33 Report of the Directors We present the Annual Report and Financial Statements of the Company for the year ended December 31, 2025. PRINCIPAL ACTIVITY The Company was incorporated in Guernsey, Channel Islands on February 2, 2012. It became a registered open-ended investment scheme under Guernsey law on June 27, 2012, and commenced operations on December 31, 2012. On October 1, 2014, the Guernsey Financial Services Commission (“GFSC”) approved the conversion of the Company into a registered closed- ended investment scheme. Please refer to Note 11 for further information on the various classes of shares (any reference to “Note” herein shall refer to the Notes to the Financial Statements). INVESTMENT POLICY The Company’s investment objective is to preserve capital and seek maximum, long-term capital appreciation commensurate with reasonable risk. For these purposes, risk is defined as the probability of permanent loss of capital, rather than price volatility. In its value approach to investing, the Company seeks to invest in long (and occasionally short) investment opportunities that the Investment Manager believes exhibit significant valuation discrepancies between current trading prices and intrinsic business (or net asset) value, often with a catalyst for value recognition. The Investment Manager may also seek short sale investments that offer absolute return opportunities.

We can probably trace the era of low interest rates back to the so- called Greenspan Put which became evident in the 1990s as low interest rates were utilised as the palliative in periods of market volatility such as the Asian Crisis of 1997 and the Russian default and LTCM collapse in 1998. As the new millennium arrived so did new crises which seemed to warrant even easier money. It started with the Dotcom meltdown in 2000 and was followed by the Credit Crunch of 2008–09 which started in the US housing market and quickly became a full-blown international banking crisis.rates:

but also both its management company’s propensity to move managers around, sometimes seemingly at the drop of a hat. Turnover costs can cut your long-term returns by a meaningful amount, so do your best to find funds both with portfolio holdings and portfolio managers that will stay the course. 3. Realize that Taxes are Fund Costs, Too There is yet a third croupier in the fund casino. And in this bull market era, it happens to be the greediest croupier of them all: The Federal Government. Make no mistake about it, Uncle Sam loves the mutual fund industry. For as impatient, aggressive fund managers buy and sell stocks at a furious rate, they pay virtually no attention whatsoever to the taxes such activity will require you to pay. They can ignore taxes, but you can’t. There is awesome value in deferring taxes—and deferring them for as long as you can. When you pay taxes today, that money can’t compound to your benefit tomorrow. Deferring a capital gain for 15 years reduces the present value of each one dollar of taxes to just 41 cents; in 25 years, to 23 cents. Yet fund managers not only require you to pay the 20% tax far too early, realizing long-term capital gains far too prematurely. They also have been realizing some one-third of all capital gains on a short- term basis, thus forcing you to pay taxes at rates up to the 40% maximum on dividend income.

This was followed by the Asian crisis of 1997, Russian default and Long Term Capital Management collapse in 1998 which all looked scary, but ironically they made the Federal Reserve hesitate to raise rates which gave the bull market a new leg which lasted until 2000. Maybe the possible trade war with China and market jitters will have a similar effect. 5. Bull markets do not broaden as they age — they narrow. The current bull market started in 2009 when shares rose indiscriminately. Then amongst developed markets, the US took the lead. Then the technology sector in the US. Then just the ‘FAANGs’ (Facebook, Amazon, Apple, Netflix and Google). The idea that in the late stages of a bull market investors can make gains by switching into the stocks which have lagged the market flies in the face of experience.

In fact, the amount of capital formation that Wall Street finances has totaled some $270 billion per year. Today: 99.5% Speculation, 0.5% Investment But capital formation has become, well, the tail of the Wall Street dog. The numbers tell the story. $56 trillion per year in trading volume, as investors buy from and sell to one another, minute after minute, day after day, year after year. That $56 trillion of trading volume dwarfs the capital formation total of $270 billion. Result: short-term trading in the Wall Street Casino represents 99.5 percent of the market’s activity; long-term capital formation 0.5 percent. But it is only capital formation that adds value to our society. Trading, by definition, subtracts value. Indeed, the casino mentality remains in the catbird seat of finance. Is that good or bad for investors and for our society? As Nobel Laureate in Economic Sciences and New York Times columnist Paul Krugman recently put it, “society is devoting an ever-growing share of its resources to financial wheeling and dealing, while getting little or nothing in return.” I might go even further, and suggest that we are getting less than nothing in return. More broadly, be warned by these words of wisdom from the great British economist John Maynard Keynes in 1936: “When enterprise becomes a mere bubble on a whirlpool of speculation, the position is serious.the

I don’t think a company’s stock can do well for long if its bonds don’t (given the implication of serious fundamental problems). But the long run doesn’t matter when unexpected difficulties arise in leveraged portfolios. The effect on staying power can be very negative. Other things we’ve seen recently that “couldn’t happen”: GM and GMAC being downgraded simultaneously, and intermediate and long rates down substantially while short rates rose more than 200 basis points. As Long-Term Capital Management said in explaining its meltdown, “the convergence trades diverged.” In this case, I absolutely am not saying the arbs were foolhardy in putting on their GM positions. I simply want to point out that nothing in the investment world can be counted on to work 100% of the time. Allowance must always be made for the unexpected. 3BURule Number Three: Piling In Is Dangerous One of the phenomena we’ve witnessed lately – and it was particularly pronounced in the events surrounding Long-Term Capital Management – is the tendency of funds of a given type to flock to the same situations. The General Motors trade described above, for example, was particularly common among arbs. Thus, when it went wrong, they all suffered losses, and they all faced illiquidity when they went to unwind it. There’s little mystery surrounding the reason particular trades become widespread.

At the 2003 Berkshire annual meeting, Buffett and Munger issued what Buffett later called a wake-up call on derivatives. The ballooning and thoughtless use of risky derivatives contracts had, in their joint view, become a systemic danger. Munger's phrasing was characteristically blunt: he told the audience that the derivatives market had become a gathering place for weapons of financial mass destruction. The phrase was deliberately inflammatory, and Munger meant it to be. The argument was structural. Derivatives, in Munger's framing, did not just transfer risk - they magnified it, because the counterparty web was opaque and the mark-to-market process was unreliable. A financial system in which large institutions owed each other enormous notional sums, recorded at model prices rather than transactable prices, was a system in which the failure of one node could cascade unpredictably through the rest. The 1998 LTCM collapse had already shown the pattern; Munger and Buffett were telling the room that the pattern would recur at larger scale. The prescription was avoidance. Berkshire itself used derivatives sparingly and only when it could price them honestly - the equity put writtings of later years were a deliberate exception, undertaken only when the premiums and the structural terms were clearly attractive. For most institutions, Munger's view was that the right answer was to stay out of the contracts entirely, to refuse the short-term earnings boost they offered, and to accept that the apparent opportunity was a fee-generation mirage that would, in some future crisis, become a loss-generation machine.

Our current leverage is small and, over the next few weeks, I will be completely eliminating use of leverage in all the funds. We have a couple of appreciated positions that are near intrinsic value and would prefer to get long term capital gains treatment since we’re under 8 weeks away from it. The impact of being fully unleveraged is significant from a performance perspective.9

So it is with corporations and the shareholder constituency they seek. You can't be all things to all men, simultaneously seeking different owners whose primary interests run from high current yield to long-term capital growth to stock market pyrotechnics, etc. The reasoning of managements that seek large trading activity in their shares puzzles us. In effect, such managements are saying that they want a good many of the existing clientele continually to desert them in favor of new ones - because you can't add lots of new owners (with new expectations) without losing lots of former owners.