Bill Nye the Science Guy. Bill Bellichick the Football Guy. Bill Ackman the… Investment
Guy?
Nye earned his moniker through enlightening countless kids with his acclaimed PBS Show
that ran six years, Belichick won six Super Bowl rings as a head coach and Ackman amasses
well over six figures routinely. The latter enjoys an estimated net worth of 2.2 billion,
according to Forbes, placing him in the Forbes 400.
How did Ackman acquire his fortune? The $2.2 billion-dollar question resolves at the intersection
of opportunity and relentless persistence.
Regarding opportunity, Ackman won the genetic lottery before his earnings equated to winning
several money lotteries. Ackman hails from a multi-generational line of multi-millionaires.
His father, Chairman Emeritus, of The Pershing Square Foundation Lawrence D. Ackman, won
The Real Estate Board of New York's 2003 Most Ingenious Deal of the Year Award for the $43.625
million recapitalization and renovation loan for a 13-story former printing industry building
in Manhattan's Far West Midtown area, 50% leased to the Planned Parenthood Federation
of America. The deal was one of three times the Ackman-Ziff Real Estate Group LLC won
the Most Ingenious Deal of the Year Award in a four-year span. It is the most highly-coveted
and hotly contested award in the industry, establishing Lawrence Ackman’s sizeable
stature as a premiere real estate titan.
The Ackman acumen runs deeper. Lawrence’s father/Bill’s grandfather Herman Ackman
won the Most Ingenious Deal of the Year award in 1953 and founded the Pershing Square Foundation
in 1926.
Although the green apple doesn’t fall far from the tree, money doesn’t grow on trees
and financial fortitude doesn’t nurture itself. Bill began blazing his own business
path, graduating magna cum laude from Harvard with a degree in history. The seemingly irrelevant
choice makes great sense, considering legendary investor and heavy influence on Ackman, Warren
Buffett famously warned investors “In the business world, the rearview is always clearer
than the windshield.” Bill Ackman sharpened his business vision by earning an MBA from
Harvard at age 26. Afterwards, Lawrence wanted young Bill to work for acclaimed hedge fund
managers Michael Steinhardt or George Soros.
Bill’s babyfaced bravado rejected the experienced advice of his father and Bill quickly started
the investment firm Gotham Partners with Harvard classmate David Berkowitz. The two proved
Batman and Robin are not the only dynamic duo to navigate Gotham. Like Batman gracefully
gliding across the ebony skyline, Gotham’s assets smoothly sailed from $3 million to
over $500 million in five years.
One event spearheads the gargantuan growth. The Rockafellers wished to get a loan over
$1 billion dollars on the Rockefeller Center. Of course, not even Scrooge Mcduck could afford
that, so without a bank to turn to, the Rockafellers attempted to get their ducks in a row by establishing
a public company structured as a real estate investment trust named Rockefeller Center
Properties in 1985. High hopes and high dividends that initially attracted many investors sank
when the market crashed between 1987 and early 1991, including a record 22.61 percent single-day
drop in the Dow Jones Industrial Average. As such, Rockefeller Center Properties’
dividend was removed and the stock price entered a spiral. Bill Ackman saw upside in the downswing,
figuring there is highly appreciable value in the $8 million dollars of premium office
and air space. Ackman and President of Leucadia National Corporation Joe Steinberg bought
a sizable portion of the Rockefeller Center, alongside $150 million of equities. Ultimately,
Ackman was defeated by Goldman Sachs in his bid for Rockefeller Center ownership. Though
he lost the center, Ackman gained arguably more valuable respect and contacts, including
Jack Nash giving Ackman $1 million dollars for investing and even David Rockafeller invested
in Gotham Partners.
Riding high off high visibility and a record-setting economy, Gotham Partners peaked in 2000 with
a $568 million value. The peak quickly sank to vicious valleys. A company that was sinking
financial hole-in-ones at the level of Tiger Woods found its shot at golf course investments
sinking in woeful waterways. Gotham Golf eventually accounted for 20 percent of the fund's assets,
but proved to be the investment equivalent of a triple bogey. From 2000 to 2002, Gotham
Partners llent Gotham Golf $15.4 million at 25.3 percent interest.
The foreseen high-reward to this high-risk, high-interest endeavor was a planned merger
between First Union and Gotham Golf that Gotham Partners anticipated would give $33 million
dollars of additional cash that could be used to pay back investors that were paranoid over
illiquid investments. However, a New York State court blocked the merger.
Additional failures included millions invested in Giftcertificates.com, a website that didn’t
launch properly. The negative news certainly wasn’t music to Ackman fans’ ears. The
sympathy of deal destruction crescendoed with investor reimbursement requests. Ackman and
Berkowitz announced in 2003 that portfolios were going down and assets needed to be sold
at essentially fire sale prices.
Persistence shined through the darkness. Decimated but not deleted, Ackman pursued a major business-world
comeback in 2004, establishing Pershing Square Financial Capital Management. The time spent
in the financial fire during Gotham Partners’ downfall forged a new philosophy for Ackman:
keep things small and simpler.
Ackman’s performance proved better than ever. As of April 2020, Pershing Square achieved
a return of 770 percent total return since starting, far exceeding the S&P 400’s 225
percent in the same timeframe.
Tim Hortons catered the sweet taste of early victory. The struggles of Wendy’s dominating
the attention span of the market, translated to the value of Wendy’s Shareholder Inc
being undervalued. Ackman felt that netting the value of Tim Hortons and its potential
growth prospects in the face of a far better business model and practices led to “paying
negative for Wendy’s.” As such, he successfully convinced Wendy’s to spin off Tim Horton’s
by 2006. Ackman subsequently sold Pershing Square’s stake at a mammoth profit.
A few years later, Ackman consistently beat the stock market’s yearly returns during
the tumultuous times of the financial crisis. Ackman soon switched from chugging along figuratively
to literally in one of his biggest deals. Canadian railroad Canadian Pacific was trading
at the lowest valuation relative to earnings. Shareholders and the stock price was unhappy
at management. Ackman hired venerable railroad executive Hunter Harrison as a consultant
to learn the industry and later named him President and CEO of Canadian National upon
successfully winning a proxy contest and driving out former CEO Fred Green. Harrison’s leadership
generated far more greenbacks than Green’s. In 16 months, Canadian National became one
of the most profitable in America, the stock rose from $46 to $151 per share and market
capitalization exploded from $1 billion to $25 billion.
At its peak, Pershing Square flexed impressive financial muscle, boasting a return on investment
of 40.4 percent in 2014 and managing a total of around $20 billion at its 2015 peak, following
massive success in the railroad industry and obtaining a nearly $2.2 Billion dollar profit
on Pershing Square’s investment in Botox innovator Allergan, when the company sold
itself to Actavis PLC for $66 billion dollars.
Following massive losses betting on drug company Valeant and a losing five-year short position
on nutrition supplement designer Herbalife (a situation that was as brutally public as
it was unsuccessful for Ackman), the muscular $20 billion peak atrophied to approximately
$8.3 billion in 2019.
That year served as another monumental Ackman comeback. He returned to simplicity, steering
away from the unforeseen obstacles that blocked investment success in the past and instead,
electing to invest in predictable, solid companies. His personal life echoed the professional
direction. Ackman married MIT media lab professor Neri Oxman in January and welcomed a new daughter
that spring. Joys continued throughout the year. Pershing Square yielded a mean-shattering
58.1 percent return for 2019. The gain was largely achieved by a sizable stake in Berkshire
Hathaway, as well as investments in well-known businesses Starbucks, Chipotle, Lowe’s,
Hilton Hotels and Restaurant Brand International.
Ackman largely credits following Warren Buffet’s advice and the positive changes in his personal
life to his resurgence.
"Maybe that has something to do with being in love, getting married,” Ackman said at
the 2019 13-D Active-Passive Investor Summit If your manager is getting married, having
a child, I highly recommend you add capital with them.”
Anyone who has followed that advice by investing in Ackman’s 2020 endeavors has been handsomely
rewarded. In March, Ackman made a gargantuan bet against credit markets, buying a $27 million
dollar credit default swap via investing in credit protection on investment-grade and
high-yield bonds. The $27 million-dollar bet paid off, turning $2.6 billion dollars. As
of December 1, Pershing Square holdings are up 62.8 percent on a year that Ackman proclaims
is the company’s “Best ever.”
Long story short: Persistence pays and Pershing isn’t perishing anytime soon. I thank everyone
for watching, encourage all of you to like this video and hit the subscription button
as well. Stay sharp and stay safe everyone!