(Reuters) - Bill Ackman said his new U.S. listed fund, Pershing Square USA, will be dramatically smaller than the $25 billion people initially said he could raise, citing investors' general nervousness about the structure and how to invest the cash.

Ackman told investors this week there will be a "hard cap on size at $10 billion" and that he expects to raise between $2.5 billion and $4 billion.

"There is enormous sensitivity to the size of the transaction," the hedge fund manager wrote in a letter to his investors that was made public in a regulatory filing on Thursday. "The ultimate deal size will depend on how demand builds Thursday, Friday and Monday," he wrote.

Earlier this year, Pershing Square USA, which is expected to start trading on the New York Stock Exchange next week under the symbol PSUS, was said to be on track to become one of the biggest public listings ever and possibly more than double the size of his firm's assets.

Now the billionaire investor, who oversees $19 billion in assets at his New York-headquartered firm Pershing Square Capital Management, is prepared to take in far less new capital. But he is urging investors to commit while there is still time.

"We believe that the most important factor for creating long-term value for Pershing Square Inc. is not the size of the PSUS IPO, but how it trades in the market," Ackman wrote.

"Today would be ideal," he told investors about when to send cash, noting he would be "grateful" if they would participate in the fundraising where his firm already committed $500 million.

Investors have grown wary of closed-end funds which are traded on exchanges but do not issue or redeem new shares and can trade at a premium or discount to the securities they hold. Last year no new closed-end funds were launched after only six were launched in 2022, Investment Company Institute data show.

Ackman is calling Pershing Square USA a U.S.-listed investment holding company but acknowledged that closed-end funds' negative trading history requires investors to make a "leap of faith". Additionally potential investors also had questions for him about how fast the new cash can be put to work and who would do the investing.

The fund manager countered that he and chief investment officer Ryan Israel have an experienced team and many good companies are now trading at attractive lower levels even at a time the broader market was marching higher. Universal Music Group, a big holding for Ackman, for example tumbled nearly 24% on Thursday.

Ackman is marketing to institutional investors and retail investors alike, relying on his fame on social media platform X to get the word out about him and his investments. Mutual fund complex Putnam and pension fund Teachers Retirement System of Texas have already committed to Pershing Square USA, he wrote.