Pershing Square Holdings (PSH) Investor Presentation summary

Background and evolution of Fannie Mae and Freddie Mac

• Fannie Mae was created in 1938 to provide liquidity, stability, and affordability in the secondary mortgage market, evolving into a for-profit, shareholder-owned enterprise by 1968, with Freddie Mac established in 1970 to securitize mortgages from savings and loans institutions.

• The GSEs (Fannie and Freddie) have become vital in providing access to mortgage credit, now guaranteeing or holding a significant share of outstanding U.S. residential mortgages.

• The 30-year fixed-rate mortgage, largely enabled by the GSEs, is a cornerstone of U.S. housing finance, offering affordability and stability for homeowners.

• The GSEs convert long-term, illiquid mortgages into highly liquid mortgage-backed securities (MBS), insuring credit risk and facilitating global capital market access.

Pre-crisis business model and financial crisis impact

• Fannie and Freddie operated two main businesses: a high-quality, low-risk guarantee business and a high-risk, low-quality fixed-income arbitrage (FIA) business, the latter of which has since been wound down.

• The guarantee business, focused on single-family and multifamily mortgages, is inherently low-risk due to diversified portfolios, strong borrower equity, and conservative underwriting.

• Losses during the financial crisis were primarily due to subprime and Alt-A loans, which are no longer guaranteed; core guarantee portfolios proved resilient with limited losses outside the crisis.

• The GSEs' minimum capital levels were nearly sufficient to withstand actual losses during the crisis, excluding subprime and Alt-A exposures.

Conservatorship and government intervention

• In 2008, the government placed the GSEs into conservatorship, with Treasury investing up to $200bn in each via senior preferred stock, later amended to the Net Worth Sweep, requiring nearly all GSE earnings to be paid as dividends to Treasury.

• Treasury has received $301bn in dividends, exceeding its investment and earning an 11.6% IRR, making the GSE bailout the most profitable among all crisis-era interventions.

• Capital retention began in 2017, allowing the GSEs to rebuild capital, with $131bn now held, up from near zero.

• A 2025 PSPA amendment restored Treasury's right to consent to a release from conservatorship and committed to a market impact assessment before any release.