Who is Bill Ackman?
Bill Ackman is one of the most famous US investors. He is the CEO and founder of Pershing Square Capital Management, one of the most successful hedge fund companies. He has had a prolific career as a hedge fund manager with his fair share of controversy along the way. Let’s have a look into his life to see the impact he has made in the financial industry.
Bill Ackman's Story
University
Ackman graduated with a MBA at Harvard Business School in 1992. From there, he started his first hedge fund with David Berkowitz called Gotham Partners.
Career
Gotham Partners
Gotham Partners was Ackman’s first business venture. The investment firm focused on investing into public companies. The significant act that caused large investor interest in Gotham Partners happened in 1995. They attempted to invest in Rockefeller Center Properties and while the deal didn’t go through, the investor interest more than doubled the company’s assets to $500 million in 1998. However the downfall of Gotham Partners occurred when a bad investment in a golf course caused them to amass a large amount of debt. Ackman attempted to merge a real estate company and a mortgage company with Gotham Golf to pay back to debts. However he found himself unable to pay back the debts to the golf operator due to the merger being cancelled by a judge lawsuit causing the Gotham Partners to close down.
Pershing Square Capital Management
Not being deterred by his previous failure, Ackman founded Pershing Square Capital Management in 2004 through loans and his own capital. He implemented primarily a shareholder activist strategy. A shareholder activist strategy involves having a minority stake in a company to influence a company’s decision and bring about change and increase its market value. This is contrary to a passive shareholder. They would advocate changes in management to be more efficient and effective driving up the stock price. The activist shareholder would then sell their shares at a profit. One of their most successful ventures was using this strategy on The Wendy’s company, a fast food chain where they influenced management through buying company shares. They cashed out their stock investments after it grew in value.
Herbalife
In December 2012, Ackman accused Herbalife of being a Pyramid Scheme. A Pyramid Scheme is a unsustainable and sketchy business model that recruits members through the promise of payment rather than company sales or investments. Businesses that operate under a pyramid scheme have zero intrinsic value. This benefitted Ackman’s short position (which is betting against the company, selling high and buying low) when Herbalife’s stock dropped. This caused Ackman to be a controversial investor through this strategy of undermining a business. He had to quickly exit his short position when the stock bounced back.
The Big Short
One of the best trades ever conducted was done by Ackman at the beginning of of COVID-19 pandemic. In February 2020 fearing the effects of the virus on the US economy, he decided to protect Pershing Square’s portfolio with credit default swaps (CDS). At this time, the CDSs bonds were very cheap and cost 50% of the insured value. In March, the following month where the threat on the US economy became very real, investors started buying CDS but by then, the price had risen dramatically. Ackman sold his 27 million dollar insured monthly position in only one month and made 2.6 billion from selling CDS.