Bill Ackman

William Albert Ackman (born May 11, 1966) is an American investor, hedge fund manager, and philanthropist. He is the founder and CEO of Pershing Square Capital Management, a hedge fund management company. Ackman is considered a contrarian investor^[1][2] but he considers himself an activist investor.^[3][4] Research published at The University of Oxford characterizes Bill Ackman's activities with Canadian Pacific Railway as paradigmatic of "engaged activism" – which is longer term in nature with correlated benefits to the real economy, as distinct from shorter term "financial activism".^[5]

His investing style and investments have had its fair share of critical praise and criticism from U.S. federal and state government officials, heads of other hedge funds, various retail investors, and the general public. Ackman's most notable market plays include shorting MBIA's bonds during the 2008 financial crisis, his proxy battle with Canadian Pacific Railway, as well as his stakes in the Target Corporation, Valeant Pharmaceuticals, and Chipotle Mexican Grill. Since 2012, he has held a US$1 billion short against the nutrition company Herbalife, claiming the company is a pyramid scheme designed as a multi-level marketing firm.^[6] His efforts were documented in Betting on Zero.

Early life and education

Ackman was raised in Chappaqua, New York, the son of Ronnie I. (née Posner) and Lawrence David Ackman, the chairman of a New York real estate financing firm, Ackman-Ziff Real Estate Group.^[7][8] His family is Jewish.^[9][10]

In 1988, he received a bachelor of arts degree magna cum laude in history from Harvard College. His thesis was "Scaling the Ivy Wall: the Jewish and Asian American Experience in Harvard Admissions."^[11] In 1992, he received an MBA from Harvard Business School.^[12]

Career

Gotham Partners

In 1992, Ackman founded the investment firm Gotham Partners with fellow Harvard graduate David P. Berkowitz. This investment firm made small investments in public companies.^[7] In 1995, Ackman partnered with the insurance and real estate firm Leucadia National to bid for Rockefeller Center. Although they did not win the deal, the bid caused increased interest in Gotham Partners from investors, which led to $500 million in assets by 1998.^[7] By 2002, Gotham Partners had become entrenched in litigation with various outside shareholders who also owned an interest in the same companies in which Gotham invested.^[7]

Despite an ongoing probe of his trading by New York State and federal authorities, Ackman began research challenging MBIA's AAA rating. He was charged fees for copying 725,000 pages of statements regarding the financial services company in his law firm's compliance with a subpoena.^[13] Ackman called for a division between MBIA's bond insurers' structured finance business and its municipal bond insurance business.^[14] He argued that MBIA was legally restricted from trading billions of dollars of credit default swap (CDS) protection MBIA had sold against various mortgage backed CDOs, and was using a second corporation, LaCrosse Financial Products, which MBIA described as an "orphaned transformer". Ackman bought credit default swaps against MBIA corporate debt and sold the swaps for a large profit during the financial crisis of 2008 He reported covering his short position on MBIA on January 16, 2009, according to the 13D filed with the SEC.^[15]

In 2003, a feud developed between Ackman and Carl Icahn over a deal involving Hallwood Realty. They agreed to a "schmuck insurance", which said that if Icahn sold the shares within 3 years and made a profit of 10% or more, he and Ackman would split the proceeds. Carl Icahn paid $80 per share. In April 2004, HRPT Property Trust acquired Hallwood, paying $136.16 per share. Under the terms, Icahn owed Ackman investors about $4.5 million, but refused to pay. Ackman sued. Eight years later, the Court forced Icahn to pay $4.5 million, plus 9% interest per year since the date of the sale.^[16][17][18]

Pershing Square Capital Management

In 2004, with $54 million in funding from his personal funds and from his former business partner, Leucadia National, Ackman started Pershing Square Capital Management.^[7] In 2005, Pershing bought a significant share in the fast food chain Wendy's International and successfully pressured it to sell its Tim Hortons doughnut chain. Wendy's spun off Tim Hortons through an IPO in 2006 and raised $670 million for Wendy's investors. After Ackman sold his shares at a substantial profit after a dispute over executive succession, the stock price collapsed, raising criticism that the sale of Wendy's fastest-growing unit left the company in a weaker market position. Ackman blamed the poor performance on their new CEO.^[7] Pershing Square Holdings amounted to 22.2% in returns since inception (Dec. 2012 – Dec. 2015) under Ackman’s management, 30% below the S&P 500.^[19]

In December 2007, his funds owned a 10% stake in Target Corporation, valued at $4.2 billion^[20] through the purchase of stock and derivatives.^[21] In December 2010, his funds held a 38% stake in Borders Group and on December 6, 2010, Ackman indicated he would finance a buyout of Barnes & Noble for US$900M.^[22]

At a panel meeting discussing Bernie Madoff in January 2009, Ackman defended his longtime friend Ezra Merkin, stating, "Has Ezra committed a crime? I don’t think so,” "I think [Merkin] is an honest person, an intelligent person, an interesting person, a smart investor."^[23][24][25] In April 2009, Merkin was charged with civil fraud by the State of New York, for "secretly steering $2.4 billion in client money into Bernard Madoff's Ponzi fraud without their permission."^[26] A settlement was reached on June 2012 requiring Merkin to pay $405 million to victims including the Metropolitan Council on Jewish Poverty.^[27]

Ackman started buying J. C. Penney shares in 2010, paying an average of $22 for 39 million shares or 18 percent of Penney's stock. In August 2013, Ackman's two-year campaign to transform the department store came to an abrupt end after he decided to step down from the board following an argument with fellow board members.^[28] In a statement dated August 27, 2013 Pershing Square reported that it had hired Citigroup to liquidate the 39.1 million shares the firm then owned of the Plano, Texas-based department-store chain at a price of $12.90 per share, resulting in a loss of approximately $500 million to Pershing Square.^[29] In January 2015, LCH Investments named Ackman as one of the world's top 20 hedge fund managers after Pershing Square delivered $4.5 billion in net gains for investors in 2014, bringing the fund's lifetime gains to $11.6 billion since its launch in 2004 through year-end 2014.^[30]

On April 27, 2016, Ackman along with Valeant Pharmaceuticals' outgoing CEO, J. Michael Pearson, and the company's former interim CEO, Howard Schiller, testified before the United States Senate Special Committee on Aging.^[31] The testifying panel answered questions related to the Committee's concerns for repercussions to patients and the health care system posed by Valeant's business model and controversial pricing practices.^[32] Ackman sold his remaining 27.2 million share position in Valeant to the Investment Bank Jeffries for about $300 million in March 2017. It has been estimated that the total cost of the position, including direct stock purchases and 9.1 million shares that were underlying stock options traded with Nomura Global Financial Products, was $4.6 billion, leading to a loss greater than 100 percent of the original price of the securities.^[33][34]

According to Forbes Magazine, Ackman has a net worth of US$1.4 billion as of February 2017.^[35]

Herbalife short

In December 2012, Ackman issued a research report that was critical of Herbalife's multi-level marketing business model, calling it a pyramid scheme.^[36] Ackman disclosed that his hedge fund, Pershing Square Capital Management, sold short the company's shares directly (not with derivatives) starting in May 2012, which led Herbalife's stock price to drop. In 2014, Ackman spent $50 million on a public relations campaign against Herbalife, which was designed to negatively impact the company's stock price.^[37][38] Ackman pays about $100 million annually to maintain his short position.^[39]

Former Rep. Bob Barr (R-GA) has called on Congress to investigate Ackman's use of public relations and regulatory pressure in his short campaign, and Harvey L. Pitt, a former chairman of the Securities and Exchange Commission, questioned whether Ackman's aims to move the price rather than spread the truth.^[40][41] In 2014, Senator Ed Markey wrote letters to federal regulators, including the FTC and the SEC, demanding they open an investigation into Herbalife's business practices. The day the letters were released, the company's stock dropped 14 percent. Markey later told the Boston Globe that his staff had not informed him that Ackman stood to benefit financially from the Senator's actions but defended the letters as a matter of consumer rights.^[42]

In March 2014, the New York Times reported that Ackman had employed tactics to undermine public confidence in Herbalife to lower its stock price, including pressuring state and federal regulators to investigate the company, paying individuals to travel to and participate in rallies against the company and boosting its spending on donations to non-profit Latino organizations. According to the article, numerous letters were sent to federal regulators by groups such as the Hispanic Federation and the National Consumers League. "Each person contacted by The Times acknowledged in interviews that they wrote the letters after being lobbied by representatives from Pershing Square, or said they did not remember writing the letters at all. Mr. Ackman's team also then started to make payments totaling about $130,000 to some of these groups, including the Hispanic Federation — money he said was being used to help find victims of Herbalife."^[43]

On March 12, 2015, The Wall Street Journal reported that prosecutors in the Manhattan U.S. attorney's office and the FBI were investigating whether people hired by Ackman "made false statements about Herbalife's business model to regulators and others in order to spur investigations into the company and lower its stock price."^[44][45] In March 2015, U.S. District Judge Dale Fischer, in Los Angeles, California, dismissed a suit filed by Herbalife investors alleging the company is operating an illegal pyramid scheme. In response to Fischer's ruling, Herbalife stock surged approximately 13 percent.^[46] Herbalife and the FTC reached a settlement agreement in July 2016, ending the agency's investigation into the company. On the day of the settlement, Fortune estimated that Ackman lost $500 million.^[47]

Ackman's position on Herbalife led to a discussion on live television with Herbalife supporter Carl Icahn for nearly half an hour on CNBC on January 25, 2013.^[48][49][50] During the segment, Icahn called Ackman "a crybaby in the schoolyard" and claimed that going public with his short position would eventually force Ackman into the "mother of all short squeezes." On November 22, 2013, he admitted on Bloomberg Television that Pershing Square's open short position in Herbalife was "$400 million to $500 million" in the red, but that he wouldn't be squeezed out and would hold the short "to the end of the earth".^[51]

Political and economic views

He endorsed Michael Bloomberg as a prospective candidate for President of the United States in the 2016 presidential election.^[52] After Donald Trump became president Ackman told Andrew Ross Sorkin of The New York Times that he was "bullish" on Trump's presidency.^[53]

Philanthropy

Ackman has given to charitable causes such as the Center for Jewish History to preserve Jewish genealogy^[54] where he spearheaded a successful effort to retire their $30 million in debt, personally contributing $6.8 million.^[55][56] This donation made with that of Bruce Berkowitz, founder of Fairholme Capital Management, and Joseph Steinberg, president of Leucadia National, were the three largest individual gifts that the center has ever received.^[57]

Ackman's foundation donated $1.1 million to the Innocence Project in New York City and Centurion Ministries in Princeton, N.J.^[55] He is a signatory of The Giving Pledge, committing himself to give away at least 50% of his wealth to charitable causes.^[58]

In 2006, Ackman co-founded The Pershing Square Foundation, alongside his wife at the time Karen, to support innovation in the areas of economic development, education, healthcare, human rights, arts and urban development.^[59] Since it was founded, the foundation has committed more than $400 million in grants and social investments. In 2011, the Ackmans were among The Chronicle of Philanthropy’s "Philanthropy 50" list of the most generous donors.^[60]

In July 2014, Challenged Athletes Foundation, which provides sports equipment to those with physical disabilities, honored Ackman at a gala fundraiser at the Waldorf Astoria hotel in New York City for helping raise a record $2.3 million.^[61]

Personal life

He married Karen Ann Herskovitz, a graduate of Harvard University and a landscape architect, on July 10, 1994.^[62] She is on the board of directors of Human Rights Watch^[63] and on the board of Friends of the High Line.^[55][64] They have three children.^[7] On December 22, 2016 it was reported that the couple had separated.^[65][66]

Bibliography

• Ackman, Bill. Who Wants to be a Millionaire?. (2014) with Pershing Square Capital Management.^[67]

References

Further reading

• Cheffins, Brian R. (2014). "Hedge Fund Activism Canadian Style". University of British Columbia Law Review. 47 (1): 1–59) (Discussing Pershing Square's activities in Canada, and a unique cultural reluctance to support active value creation by ethical intervening shareholders). SSRN 2204294 . 
• Rojas, Claudio R. (2014). "An Indeterminate Theory of Canadian Corporate Law". University of British Columbia Law Review. 47 (1): 59–128 ("The author's perspective on Berkshire Hathaway's investment philosophy was informed by discussions with Warren Buffett in Omaha, Nebraska": pp. 59, 122–124). SSRN 2391775 . 
• Richard, Christine. Confidence Game (Wiley, 2010) with Bloomberg News.