Hedge Fund Manager Bill Ackman

///Hedge Fund Manager Bill Ackman

Hedge Fund Manager Bill Ackman

William Albert Ackman, more commonly known as Bill Ackman, has an extensive professional profile working for many firms before starting his own. The founder and CEO of Hedge Fund Pershing Square Capital. Bill Ackman was born on 11th May 1966 in New York. 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.
Prior to his co-founding of 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. Since 1993, he has been the co-investment manager of Gotham LP, Gotham III LP and Gotham Partners International. Ironically, Ackman began his career in the real estate sector but that ultimately became the sector responsible for the downfall of Gotham which forced Ackman into liquidation of the fund due to bad debts in 2003. However, he re-entered the hedge fund business by founding 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 is initial $54 million investment into over $10 billion. Pershing’s flagship fund has returned 290.8 percent net of fees since the fund’s inception, crushing the S&P500.

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 publically apologized to his clients of Pershing Square Capital. Recently, he declared a loss of $125 million on his investment in Ann Arbor.
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 loss due to the financial market clash.  Bill Ackman voiced concern regarding the market and warning anyone who would listen about the $2.5 trillion bond insurance business, which was in big trouble. During the period Ackman shorted some of the major players of the subprime industry which included Freddie Mas, Fannie Mae, MBIA and Ambac, which ended up allowing him to make billions of dollars. The Wall Street Journal, SEC, New York Times and others declared his claims as being fraudulent. 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. Bill Ackman read through 140,000 pages (no typo), while investigating MBIA. This story shows how much due diligence Ackman does as an investor. The stock reached a high of over $70 in 2007 and went as low as ~$2.50 in early 2009. 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.
For a period of almost one year, from 2009 till 2010, Ackman served as a director of General Growth Properties Inc. He rescued GGP from a near-collapse situation, which earned Pershing Square Capital a net return of 29% in 2010. He bought GGP at $0.50 and sold at $15!  In early 2011, he became director of J.C Penny Company Inc. and Justice Holdings Limited.
Keeping his seven and half years of investment track records in mind, he 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 had forced liquidation.

Bill Ackman with his wife Karen Ackman

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 ascertains his investment philosophy is completely different and what he does is seek to save companies which ultimately benefit the economy as a whole. The fact can be illustrated by his investment of $60 million for a 25% stake in the troubled General Growth, one of the largest malls present, the bankruptcy of which would have further deteriorated the health of the commercial real estate sector. He was successful in driving the stock prices up and turning his $60 million investment value into $1.6 billion. 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 substantial stake in troubled companies by investing enough to help them recover, and quickly leaves after squeezing one-time gains out of the company.
His investment philosophy is rather complex, something which cannot be categorized easily in 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.
 Victory over Canadian Pacific

The chief executive of Canadian Pacific, Fred Green, announced  that he would resign from his position as chief executive, president and director. Five other Canadian Pacific directors, including the board’s chairman, John E. Cleghorn, also announced that they would not stand for re-election to the Canadian Pacific board in the face of an activist campaign by William A. Ackman’s Pershing Square Capital. This clears the way for Mr. Ackman’s seven director nominees to be elected at the Canadian Pacific annual meeting on Thursday in Calgary.
It’s a huge victory for Pershing Square, already one of the most prominent of the shareholder activist hedge funds.
To put this in perspective, Mr. Ackman met with Canadian Pacific executives in December to discuss a settlement in lieu of a contest by Pershing Square to replace directors. The details of the discussions held at that meeting remain murky, but it appears that Mr. Ackman asked for two representatives to be placed on the Canadian Pacific board and for Mr. Green to be replaced because of poor performance.
Canadian Pacific offered one board seat and asked for Pershing Square to agree to a standstill.
In an e-mail in January, Mr. Ackman stated that their “border skirmish” could turn into a “nuclear winter.” If his demands were not met, Pershing Square would seek “to replace a greater number of the existing directors.”
Canadian Pacific ignored this statement to its regret. Mr. Ackman will have write large to make additional changes at the $13 billion railroad company.

It is not just a stunning victory for Mr. Ackman, but a blow at what even Canadian commentators called the “clubby” culture at Canadian boards.
Mr. Ackman’s victory could very well spur a change in attitude at Canadian boards generally.
The Canadian Pacific board members may have felt that being part of Canada’s elite would preserve their position, but the market and a number of other factors worked against them.


Ackman Wins Proxy Fight  Ackman’s Proxy Battle
Mr. Ackman is one of the biggest and best of the shareholder activists. Although his rhetoric was at times overheated, he played his A game by putting forth a solid proposal for change at the company. And it appeared change was needed. In the five years before Pershing Square acquired its stake, the company had a return of negative 18 percent, according to the proxy advisory service Institutional Shareholder Services.
Mr. Ackman also put up an alternative executive to Canadian Pacific in the form of E. Hunter Harrison, who had run Canada’s largest freight railroad, the Canadian National Railway.
Canadian Pacific will now take up the decision of who will run the company. It may be Mr. Harrison, but Mr. Ackman may show flexibility on that choice and the board may pick another person to run the company, but the important thing was for an alternative to be offered.
He also offered choice in the directors that Pershing Square nominated. Pershing Square nominated two nominees from his firm, Mr. Ackman and Paul Hilal, and five independent Canadian directors.
Mr. Ackman greatly benefited from the universal ballot. In the United States, opposing sides normally put up separate ballots that list all of the director nominees for each side. This effectively means that shareholders vote for the entire slate and not individual directors. But Canada allows for all candidates to be put on a single ballot. This allows shareholders to mix and match easily from each side.
Pershing Square used the universal ballot to its advantage, matching each of its director nominees against a Canadian Pacific one.
I.S.S.- the proxy adviser, also adopted this approach in its analysis, matching up the candidates and selecting individual director nominees who were more suited. I.S.S. recommended all of Mr. Ackman’s nominees.
In the United States, there has been a halfhearted push toward use of the universal ballot, including in Mr. Ackman’s failed activist campaign at Target. Pershing Square’s success will make the activists only push harder for Broadridge, the company in charge of proxy distribution services, to make this happen.

This is also a sign that hedge fund shareholder activism against large, capitalized companies not only works but is on the rise. According to Factset Sharkrepellent, 36 percent of all activist campaigns so far this quarter have been against companies with a market capitalization of more than $1 billion.
More than 60% of Canadian Pacific’s shareholders are based in the United States. But by the end of Mr. Ackman’s campaign, it was not just the Americans who went for Pershing Square’s slate; Canadians, including the Ontario Teachers’ Pension Plan, turned to support  Ackman.
This is a story of intransigence. Mr. Ackman appeared to have the advantage in February. By fighting him tooth and nail to the end, Canadian Pacific’s board and chief executive have been brought to defeat, something they would have experienced at the ballot box. These directors and the chief executive could have had a much more graceful exit.

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.”

“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.”

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 on the account of Bill 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.

2012-09-15T14:48:35+00:00

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