Bill Ackman - one of the living legends of Wall Street

William Albert Ackman is one of the fund's most famous headge managers. He is the founder and Managing Director of a hedge fund called Pershing Square Capital Management. Due to making many fantastic investments, he had a reputation as one of the legends of Wall Street for many years. However, his reputation has been tarnished by a series of unsuccessful trades such as Valeant Pharmaceuticals, Herbalife and JC Penny. These transactions ended in losses in excess of $ 5 billion. However, he is still one of the most influential people on Wall Street. In today's article, the history of this outstanding investor will be presented.

Bill Ackman was born in 1966 and grew up in Chappaqua, New York State. He came from a wealthy family of Jewish origin. His father - Lawrence David Ackman - was the head of a real estate firm - Ackman-Ziff Real Estate Group. Growing up in a wealthy family helped William get a very good education. In 1988 he graduated with honors Harvard College. Four years later, he obtained an MBA in Harvard Business School.

The beginnings of a career

In 1992, Bill Ackman and another Harvard graduate David P. Berkowitz founded Gotham Partners. The company specialized in investing in listed companies. Due to their limited funds, they invested rather small amounts. In 1995, Gotham Partners collaborated with Leucadia National to acquire the Rockefeller Center.

Rockefeller Center. Source: wikipedia.org

Although they did not manage to win the race for the building, the same involvement in this acquisition brought the fund greater recognition. Recognition combined with good results encouraged clients to invest capital. As early as 1998, Gotham had over $ 500 million in assets under management (AUM). 

In 2003, it was a seemingly insignificant event. However, years later it took on a completely different meaning. Then it was Bill Ackman as well Carl Icahn they signed the so-called type contract "Shmuck insurance". Under it, if Icahn earns over 10% on the sale of shares in Hallwood Realty for the next three years, he will have to share the profits with Ackman. As early as April 3, Hallwood was acquired by the HRPT Property Trust, which agreed to pay $ 2004 per share. This was over $ 136,16 in earnings per share from Icahna's investment. Under the terms of the deal, Icahn should pay $ 56 million to Bill Ackman. A legal battle that lasted for 4,5 years began. In the end, Icahn had to pay $ 8 million plus nine percent interest. This case caught two investors at odds. The dispute continued over the following years. One of the effects was the famous Herbalife fight that took place since 4,5. 

Pershing Square Capital Management - selected investments

In 2004, Bill Ackman and business partners (including Leucadia National) established a fund with initial capital of $ 54 million. One of the first transactions was the purchase of shares in one of the well-known restaurant chains - Wendy's International. After a year, a buyer was found in the form of Tim Hortons, which carried out a quick IPO. The deal confirmed that Bill Ackman has a nose for finding undervalued companies. In the following years, Bill Ackman invested in companies such as Target Corporation and Borders Group. 

JC Penney

Bill Ackman was known for his pro-investment approach. He liked to acquire large shares in companies and fill seats on the board by his trusted people. This was to pre-empt the transformation of the company. However, the investment was not always successful. An example is JC Penney, whose shares Ackman started buying in 2010. He paid over $ 18 million for an 850% stake in the company. JC Penney is an American chain of department stores that has been part of the company for many years the S&P 500 index. The network had problems after the 2007-2009 crisis. According to Ackman, the company needed a major overhaul. The changes were to concern the management of the goods or promotional offer. Ackman joined the board and pushed through a new CEO, Ron Johnson, who previously worked in Apple Lossless Audio CODEC (ALAC), where he managed the retail sales department. In the opinion of many opponents, the change of the concept of stores went too quickly, which meant that the company discouraged the old regulars, but was unable to attract new customers permanently. By the end of 2013, Ackman had sold all of his shares, ending the investment with a loss of half a billion. 

Herbalife

William Ackman doesn't just invest on the long side of the market. He is also known for his "short" game. One of the most media investments of this type was Herbalife. It is a controversial company for many, selling, among others, a slimming diet that works in the MLM model. In December 2012, Ackman opened a large short position announcing that he believed the company to be a fraud and a financial pyramid. Due to the respectability of the market, his media campaign was widely echoed. Bill Ackman also lobbied with government agencies that regulate Herbalife. However, the investment and the media campaign also attracted the attention of Ackman's competitors. One of them was Carl Icahn on the other side. This well-known investor and Bill's former partner decided to "get back" for the case from a few years ago. As a result, Icahn acquired a stake in Herbalife. As the shares of the company were bought, their price began to rise, which led to a loss for Pershing Square Capital Management fund. In May 2013, Icahn already owned 16,5% of the company's shares.

In the following years, Ackman organized campaigns to present the "true" image of the company. In 2014 alone, it spent $ 50 million on this purpose. However, in March 2015, a Los Angeles court dismissed a lawsuit regarding Herbalife, which found the company to be a financial pyramid scheme. In turn, in June 2016, Herbalife signed a settlement with the government agency FTC. Favorable judgments and settlements have removed the threat of Herbalife's outlawing. Thanks to this, the company's shares began to grow. Ultimately, in 2018, Bill Ackman closed short positions on this company. He lost a billion dollars in total on the transaction. 

Valiant

This is another big mistake of Bill Ackman. The company's business model was based on acquisitions of pharmaceutical companies, a sharp reduction in R&D research and increases in drug prices. The increases also applied to life-saving drugs. It aroused the reluctance of social activists and some politicians. Investors, however, loved the company because of its growing revenues and profits. The group of investors also included the Pershing fund, which invested several billion dollars in the company. However, as a result of the investigation (led, among others, by the short-seller Fahmi Quadir) and political pressure, black clouds have accumulated over the company. Accounting manipulations were detected that inflated revenues and profits. As a result, the share price fell by 90% very quickly. Bill Ackman lost approximately $ 4 billion on this deal. 

coronavirus

When looking at investments in JC Penney, Valeant or Herbalife, some readers may ask:

How could such an investor amass so much wealth?

The answer is simple: it can still make deals that generate stunning rates of return. The best example is its behavior during the onset of the coronavirus pandemic.

With most investors downplaying the risk caused by the coronavirus, Bill Ackman decided to protect himself against the risk of an uncontrolled pandemic at the end of February 2020. He assumed that in the event of a pandemic, panic would prevail on the capital market. Ackman decided to invest $ 27 million in CDS (Credit Default Swap). This instrument generates high rates of return for the CDS buyer in a situation of increased bankruptcy risk. Bill Ackman mainly bought CDSs for bonds at the investment grade and the so-called junk. He made about $ 2,6 billion in this brilliant move. This meant a profit of approx 10%. The aforementioned profit was generated in March 2020, when most investors "licked the wounds" after the market crash. The Ackman Fund used the money in part by investing in Starbucks stocks, Berkshire Hathaway, Hilton or Restaurant Brands. 

CHECK: Bill Ackman's current portfolio

During the coronavirus pandemic, Ackman gave an emotional interview urging Donald Trump to announce "30-day economy shutdown".  He also called for the minimization of human deaths and the protection of the economy from the effects of the pandemic. He believed that many hotel stocks were not secured without financing "It will go to zero." He also warned listed companies against buying stocks, as they would need money to maintain liquidity (famous "Hell is coming"). He also expressed himself in a similar vein in his tweets from March 18, 2020:

Despite his warning statements, he himself believed in the US economy. In the same month, Ackman bought, among others discounted stocks of hotel companies. 

2020 was a very good year for Pershing Square Holdings as investment returns were 44%. For comparison, at the same time, the S&P 500 index gained less than 8%. It is worth mentioning that Pershing also had a very good 2019, when it generated a profit on investment of 58% (vs 31% of the S&P 500). These were very good years after the very poor 2015-2018 period.

Philanthropy

Bill Ackman donates part of his fortune to charity. An example is dedication of approximately $ 7 million to the Center for Jewish History. In 2006, Ackman and his wife Karen founded the Pershing Square Foundation, which supports various educational, health and life-enhancing projects for the poor part of the society. Since 2006, she has donated over $ 400 million to charity. It is also worth mentioning that he intends to donate 26,5 million Coupnag shares to charity. At the time of announcement, the value of the grant was in excess of $ 1,3 billion.