The investment manager, headed by chief executive Bill Ackman, said after the sale the firm will continue to be CP Rail's largest shareholder and the railway will be one of Pershing Square's largest investments.
"Thanks to Hunter Harrison's and the CP team's performance over the last nearly one year, Canadian Pacific's share price has more than tripled since we first invested in CP," Ackman said in a statement.
"As a result, our stake in CP has grown to approximately 26 per cent of the combined assets of our funds. Given that increased concentration, portfolio management considerations have driven our decision to trim our holdings."
Harrison was hired to replace Fred Green as CP Rail's CEO last summer after Ackman led a bitter proxy fight.
The share sales will begin on or after June 10 and not exceed 10 per cent of the combined New York Stock Exchange and Toronto Stock Exchange volume.
Pershing Square's representatives, Ackman and Paul Hilal, will continue to serve on the company's board of directors.
CP Rail shares were down $2.34 at $135.50 on the Toronto Stock Exchange on Monday, a drop of 1.7 per cent.