“When you go through something like the financial crisis, it makes a psychological imprint on you. It becomes hard to interpret information in a way that is positive. I’m emotionally very neutral about economic things. That’s why I can look at them objectively.” — Bill Ackman
Bill Ackman: Background & Bio
William Albert Ackman, more commonly known as Bill Ackman, has an extensive professional profile.
The founder and CEO of Pershing Square Capital, Bill Ackman was born on May 11 1966. Ackman attended Harvard University and graduated with a Bachelor of Arts degree Manga cum Laude in 1988. Ackman received his MBA from Harvard Business School in 1992.
Gotham Partners
Prior to co-founding Gotham Partners LP in 1992, Ackman worked for his father at Ackman Brothers & Singer Inc., a real estate business, where he was responsible for arranging and structuring equity and debt financing for real estate investors and developers.
From 1993 to 2003, Ackman was the co-investment manager of Gotham LP, Gotham III LP and Gotham Partners International.
Ironically, Ackman began his career in the real estate sector, which ultimately was the sector responsible for the downfall of Gotham and forced Ackman to liquidate the fund due to bad debts in 2003.
Pershing Square Capital
However, Ackman soon re-entered the hedge fund business, creating Pershing Square Capital, a concentrated, long-short value hedge fund, the same year. The fund’s philosophy is devoted to fundamental analysis with a value-oriented approach, and sometimes activist investing as well.
Ackman, with his expertise managed to turn his initial $54 million investment into over $14 billion. From its inception during 2004, through to September of 2014, Pershing Square’s gross return stands at 1,199% excluding fees. 626.7% net of all fees. In comparison, over the same period the S&P 500 gained roughly 100%.
Despite his impressive track record, Bill Ackman has had his share of ups and downs to face in the investment world. Some believe his rather stubborn personality is to blame for his relentless investments.
One of his most recent and prominent investment failures was the loss of $1.8 billion, in 2009, from his investment in Target. He publicly apologized to his clients of Pershing Square Capital.
Predicted Financial Crisis
Ackman was one of the very few people who predicted the financial crisis which hit the globe in 2008. He was also among the very few who benefited and were capable in avoiding losses due to the financial market clash.
Bill Ackman voiced his concerns regarding the market and warned anyone who would listen about the $2.5 trillion bond insurance business, which was in big trouble.
During that period, Ackman shorted some of the major players of the subprime industry which included Freddie Mac, Fannie Mae, MBIA and Ambac, which ended up a major win of billions of dollars. The Wall Street Journal, the SEC,The New York Times and others declared his claims as being fraudulent.
Bill Ackman: Investment Philosophy and Pershing Square
Keeping his investment track record in mind, Ackman is often compared to Carl Icahn due to his activist investment approach. The comparison, though, is regarded as being absurd by Ackman who claims his approach being more similar to that of Warren Buffett.
Despite his few investment missteps, he was one of the prominent hedge-fund managers who successfully benefited from the financial clash in 2008, while many funds were forced into liquidation.
There is another reason for the detested comparison with Icahn; which is the fact that Ackman invests in the bluest of the blue-chip companies.
Bill Ackman opines that his investment philosophy is completely different and what he does is seek to save companies which ultimately benefit the economy as a whole.
However, Ackman is not interested in rescuing dying companies by using the stake in the company to change its operations and cutting costs like some of the ‘corporate raiders’.
What he does is gain a substantial stake in troubled companies by investing enough to help them recover, and quickly leaves after squeezing one-time gains out of the company.
Complex Investment Philosophy
His investment philosophy is rather complex, something which cannot be categorized easily into any existing types of investors. From the analysis of his various investments, it is observed that he prefers middle-sized to large companies with low financial leverage and reserved sensitivity to economic changes.
He does not necessarily consider cheap prices to be a catalyst for value creation. He leaves a large margin of safety and like most value investors Ackman does not hesitate in holding cash when no attractive investment is found.
Ackman’s hedge fund, Pershing Square Capital Management was founded in 2004 by Ackman with initial capital of $54 million. Ackman introduced Pershing Square Capital Management to the world as a concentrated, long-short value hedge fund.
The fund uses fundamental analysis with a value orientation employing extensive research and thoroughgoing due diligence in its decision making process.
Pershing uses an activist approach, although unlike other activists and corporate raiders, Ackman assures his investors that he endeavors to save companies.. A great example is Pershing’s stance and approach to General Growth Properties.
The firm invested in 2008 in the ailing commercial property behemoth and pushed through management changes as well as cost cuts which brought the company out of bankruptcy and increased stock price by 77x.
Positive Returns from Pershing Square
But Ackman does not confine himself to long only bets. His bets against the market during the 2008 financial crisis cemented his reputation as one of the best hedge fund managers around.
Indeed, through the turmoil of 2008, Ackman’s Pershing Square was one of the only hedge funds to achieve positive returns. Pershing saw its funds under management rise from $6.7 billion in August of 2008 to $10.3 billion by year end. Betting against MBIA and New York-based Ambac Financial Group Inc. helped Ackman’s fund.
Ackman first thought MBIA’s stock and bonds would fall in 2002 when he oversaw Gotham Partners, a New York-based investment firm. During May 2007, Ackman presented his short case on MBIA and Ambac Financial at a conference organized by the Ira Sohn Research Conference Foundation. From MarketWatch:
MBIA and Ambac Financial
Ambac has $18.7 billion in subprime exposure through guarantees of MBS or CDOs, according to Ackman’s presentation. That’s a little over 284% of the company’s statutory capital, he noted.
MBIA has $24.7 billion of “high-risk” credit exposure, which includes direct subprime exposure and more indirect exposure through CDOs, Ackman’s presentation said. The company’s exposure to so-called mezzanine CDOs, with underlying collateral rated BBB or lower, was $5 billion at the end of 2006, which is 73.5% of its statutory capital, he added.
The customers of Ambac and MBIA believe they have transferred credit risk to highly-rated guarantors. But when subprime mortgage losses hit, these guarantees “will have no value” and the policyholders will be “left holding the bag,” Ackman’s presentation concluded.
MBIA and Ambac should put more money into their insurance subsidiaries to prepare for possible subprime losses. Executives should be “removed” and MBIA should have an independent board of directors, Ackman added.
Finally, Ackman’s presentation noted that Pershing is meeting with Congressional and regulatory authorities to focus attention on the problem.
Still, Ackman’s views aren’t shared by some analysts.
Ken Zerbe, an analyst at Morgan Stanley, said in a March 21 report that concern about the subprime exposure of the financial guarantors had created a buying opportunity.
Subprime-Mortgage Exposure
Ambac has more than $10 billion of direct subprime-mortgage exposure, while MBIA has a little under $6 billion, Zerbe found. That looks big, but it’s only 2% and 0.9% of the companies’ respective total exposures, he noted.
“While the guarantors have large dollar exposures to the subprime market, high levels of subordination provide significant protection against rising losses,” he wrote in a note to clients.
MBIA’s chief financial officer said in late April that developments in the subprime mortgage market hadn’t caused “any significant concerns regarding our insured book of business.”
MBIA has been “cautious” on the residential MBS and since 2002 has “stepped away” from the market, he added, according to a transcript of a conference call with analysts.
By October 2007, Ambac shares lost roughly half their value, while MBIA stock slumped about 40%. By early 2009, MBIA stock had slumped to a low of $2.50.
Ackman As An Investor
Bill Ackman read through 140,000 pages (no typo), while investigating MBIA. This story shows how much due diligence Ackman does as an investor. What’s more, as is his style, Ackman engaged in a lot of debates with the company, and his story is very similar to David Einhorn’s, as told in Fooling Some of the People All of the Time.
The story of MBIA was elaborated in the spectacular book Confidence Game: How Hedge Fund Manager Bill Ackman Called Wall Street’s Bluff published by Christine S. Richard. He had started shorting the stock as early as 2002, after the muni-bond insurer started dabbling into credit derivatives and synthetic CDOs.
Ackman’s reputation took a hit during 2009 when his investment in the troubled retail giant, Target, ended in a colossal loss of $1.8 billion. Additionally, during the same year Ackman suffered significant loss in his dealings with Borders Group, the bankrupt bookstore chain.
“Bottom line, PSIV [Pershing Square IV, which was established for the sole purpose of betting on the rise of the stock of Target Corp] has been one of the greatest disappointments of my career to date.”
Ackman’s most recent target is Zoetis, the animal vaccines and medications business spun off from Pfizer. Ackman is pushing for Zoetis to be put up for sale, so that a bigger company’s management can strip out costs.
Pershing raised $3 billion by going public during 2014 and trades in Amsterdam, under the ticker PSH.AS.
Bill Ackman: Quotes
“The investment business is about being confident enough to know that you’re right and everyone else is wrong. Yet you have to be humble enough that you recognize when you’ve made a mistake. Earlier in my career, I think I had the confidence part pretty solid. But the humbleness part I had to learn.’’
“We think resources are not allocated efficiently today because this business is not independent. There is just no way to argue against transparency.”
“We are applauding the plan for adopting key strategic initiatives that will create a lot of shareholder value. I am not going to run a proxy contest.”
Books
Confidence Game: How Hedge Fund Manager Bill Ackman Called Wall Street’s Bluff by Christine S. Richard highlights the factors leading up to the most disastrous financial crisis since the Great Depression.
The book elaborates Ackman’s warning regarding the $2.5 trillion bond insurance business leading to a catastrophe. The dissenting campaign by Ackman was declared fraudulent by many publications and regulatory agencies.
The widespread delusion, excessive leverage, dangerous financial models and the blind belief in the AAA credit rating are identified and elaborated in the book as the major contributors which eventually lead to the rightly predicted credit market crash.
Letters
- Ackman Q3 2014 Letter: Recent Developments At Herbalife Ltd. (HLF) Reinforce Our Short Thesis
- Bill Ackman Publishes 3Q 2010 Letter, Commenting On Holdings: KFT, TGT, C, ADP, JCP
- Bill Ackman Bites Back (2009)
- Pershing Square IV Letter to Investors (2009)
- Bill Ackman’s Letter to Rating Agencies regarding Bond Insurers (2008)
- Bill Ackman’s letter to the regulators in full, and his monoline model (2008)
- Pershing Square Q2 2014 Letter: IPO, Herbalife, Reflections
- Bill Ackman’s Letter to Paulson On Restructuring Plan (2008)
- Bill Ackman letter to Securities (2007)
Articles
- William Ackman Forbes Profile
- Bill Ackman’s Pershing Square fizzles on IPO
- Bill Ackman’s Two-Year Herbalife Bet: By The Numbers
- An Exclusive Interview With Pershing Square’s Bill Ackman
- Bill Ackman Has “Come Up With New Stuff” Against Herbalife (HLF)
- The Big Short War
- Bill Ackman’s Soft Power
- McDonald’s Rises on Speculation Ackman Is Building Stake
- Bill Ackman Bought More Shares Of Fannie, Freddie During Slump
- Pershing’s Ackman Says Fannie, Freddie Stocks Are Worth $40-$50
- Lawsuit accuses Ackman, Valeant of insider trading in Allergan stock
- Ackman bets big on cows, chickens, cats
- Einhorn and Ackman Gain as Stock Funds Climb in November
- Transcript of Bill Ackman’s Super Fast Speech at the Ira Sohn Conference
- William Ackman: Targeting Target
- Bill Ackman’s Soft Power
- The Happy Warrior
- 2 Big Investors Get Their Say at J.C. Penney
- Ackman’s Pershing Square Buys 9.9% of Alexander & Baldwin
- Pershing’s Ackman Says He Is Short Simon Property Shares
- Bill Ackman, Meet Howard Hughes
- Ackman gets a deal at the mall (Limited View)
- Ackman argues for Target board bid; ex-director Bill George weighs in on Target’s side
- Bill Ackman Scores $600 Million From CVS-Longs Merger
- Ackman says Buffett’s offer is positive for markets
- Bill Ackman Said He Is Short Fannie and Freddie, Introduces Plan to Reorganize The GSEs (FNM, FRE)
- MBIA says Ackman’s model has major deficiencies
- Ackman buy seen good for Sears regardless of sales
- McDonald’s Says Investor Ackman Plans to Buy Shares
- Investor targeting McDonald’s makeup ; Financier Ackman wants property sold
- Taking on McDonald’s
- AIG obscures significant MBIA story
- IN BRIEF / RESTAURANTS; Shareholder May Seek Wendy’s Restructuring (Limited View)
- Top hedge fund stories of 2005
- Spitzer Turns Attention To Hedge Funds
- Inquiry Reported on Hedge Fund Company
- PRIVATE SECTOR; A Name Is a Name Is a Name
- Gotham Appears To Take Control Preliminary Ballots Indicate Investment Fund Wins Battle To Change Board Of First Union Real Estate
- Rockefeller Center Trust Gets New Plan
- `Rock’ Group Wins Center Bidding
- Zell offers $1.16 billion for Rockefeller Center (Limited View)
- Upstarts Vie for Rockefeller Center
- Fight for Rockefeller Center Joined by David Rockefeller
- The Rookies’ Big Score; Just Out of School, Bill Ackman and David Berkowitz Have a Hit Hedge Fund (Limited View)
- Marketplace; BTR Realty’s Plan to Convert to a REIT Attracts Arbitrageurs.
Bill Ackman: Videos
- Bill Ackman: Herbalife Implosion Coming in 2015
- Ackman: Shorting stocks seen as “un-American”
- Bill Ackman Interview on KFT (1)
- William Ackman on Fannie Mae and Freddie Mac, July 2008
- Bill Ackman Interview on KFT (2)
- Bill Ackman and David Einhorn Talk About Investing on CNBC
- Ackman on Short Selling
- Ackman Talks About Investing
- In Conversation with Bill Ackman at Saïd Business School
- Ackman / Faber on Lehman
- Pershing Square Bill Ackman Herbalife Presentation 2014 (FULL PRESENTATION)
- Bill Ackman Bullish On Freddie Mac/ Fannie Mae & Allergan
- Ackman / Faber on Lehman
- Bill Ackman on Why Board Change at Target is Needed (Part 1 of 3)
- Carl Icahn & Bill Ackman FULL Joint Interview 2014
- Bill Ackman on Why Board Change at Target is Needed (Part 2 of 3)
- Bill Ackman on Why Board Change at Target is Needed (Part 3 of 3)
- William Ackman on Fannie Mae and Freddie Mac, July 2008
- Billionaire Showdown: Bill Ackman vs. Carl Icahn (FULL INTERVIEW)
- Bill Ackman and David Einhorn Talk About Investing on CNBC
- Ackman: Herbalife goes after the poor
- Ackman vs Icahn: CNBC’s All-star Team Provides a Postmortem