Bill Ackman is the CEO and Portfolio Manager of Pershing Square Capital Management, L.P., a SEC registered investment advisor founded in 2003. Pershing Square is a concentrated research-intensive fundamental value investor in long and occasionally short investments in the public markets. Prior to forming Pershing Square, Bill Ackman co-founded Gotham Partners Management Co., LLC, an investment adviser that managed public and private equity hedge fund portfolios. Prior to Gotham Partners, Mr. Ackman began his career in real estate investment banking at Ackman Brothers & Singer, Inc. Bill Ackman received an MBA from the Harvard Business School and a Bachelor of Arts magna cum laude from Harvard College. Bill Ackman’s board memberships include Chairman of Howard Hughes Corp (NYSE:HHC), Canadian Pacific Railway Limited (NYSE:CP), the Board of Dean’s Advisors of the Harvard Business School, and a number of not-for-profit boards including the Pershing Square Foundation, a charitable foundation that he founded in December 2006.
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Bill Ackman spoke at the IRA Sohn Investment Conference, also see Bill Ackman Makes The Case For Hedge Fund Investing On A Drawdown. Below are notes from his presentation.
Highlights from Bill Ackman’s presentation
3:23 Bill Ackman is up I REALLY hope he does not speak about Herbalife, am hoping for Fannie Mae and Freddie Mac but well see.
3:25 My prayers were answered! Ackman is talking about his stake in common shares of fannie Mae and Freddie Mac. Ackman says 110 slides on Fannie Mae, a reference to Herbalife Ltd. (NYSE:HLF) (although it is unclear if he is joking or not).
Bill Ackman discussing evolution of GSEs he is talking really quickly but we will try our best to cover the main points and hopefully do a follow up on this!
3:30 Ackman says that Fannie and Freddie take assets that are good for banks to own and create the securitization market with guarantees for investors. Ackman says Fannie Mae and Freddie Mac “are more important today in the mortgage market than they’ve ever been”
Ackman says “I really enjoyed Jeff Gundlach’s presentation.” Meaning? Weak housing market is likely to be a headwind for the passage of Crapo-Johnson bill which aims to change the structure of Fannie Mae and Freddie Mac. Many argue that the bill will raise costs for homeowners and hurt the housing market.
3:32 Ackman says that Fannie freddie are similar to owning a royalty on the housing market. Ackman thinks the 30 yr fixed mortgage is essential to preserving the housing market and only Fannie and Freddie can fill that role. He believes that Fannie and Freddie are attractive investments due to ‘very low liquidity risk’
Fixed-income arbitrage, says Ackman a “highly-levered, hedge-fund-like business,” within Fannie Mae and Freddie Mac
Their “core business is a phenomenal business,” says Ackman
3:39 Ackman says he is about to get to the “meat” of his Fannie and Freddie presentation
New, private-label Fannie and Freddie’s that have been proposed by regulators would require the GSEs raise up to $500 billion to capitalize them, Ackman says, but taking a swipe at recent Government actions, Ackman says that the history of the government having “stolen” the dividends makes this proposal unlikely.
Referring to what is likely the Crapo-Johnson bill, Ackman says “we don’t think there’s an investor in the world of any consequence that will invest in the new version of Fannie and Freddie.”
3:43 Ackman notes that private mortgage insurer Essent Group is a lesson on why Fan/Fred replacements won’t work at all and Crapo-Johnson is flawed
Additionally, Bill Ackman argues that the banks “are not likely to step back in” and provide meaningful mortgage investments, leaving Fannie and Freddie as THE essential companies for the economy, argues Ackman.
Ackman, back to the investment case says that “owning a royalty on every mortgage that’s written in America” is a fantastic business.
Ackman wants to stick with the current mortgage market and believes that the 30-year mortgage has to stay
3:48 Basically Ackman is proposing that the Government should conservatively capitalize Fannie and Freddie by 250bps and force them to exit fixed income arbitrage, which will lead to a strong balance sheet for the GSEs.
3:50 Ackman says that Fannie Mae and Freddie Mac are going to recapitalize themselves over the next 7-10 years.
The solution? Ackman says the Government should convert preferred shares of FNMA FMCC to common, undertake a rights offering, which would increase the value of common shares (of which Ackman is the largest holder).
3:51 Ackman ends arguing that if we want to get there more quickly than 7-10 yrs? The solution is for a Sit down with the Government and they should make a deal with investors as they did with AIG. Fannie is currently trading at $4 a share, Ackman says his conservative case for Fannie and Freddie calls for them to be $23 stocks, and can possibly be worth $47.