Bill Ackman is a hedge fund manager who is the CEO of Pershing Square Capital Management, which he founded in 2003. Before that, he was the founder and CEO of Gotham Partners Management Co. He has been called both a contrarian investor and an activist investor, and he has taken on some of the biggest names on Wall Street. He is aggressive, relentless, and ruthless, often doing things his way despite how everyone else is advising him or what everyone else is doing. Yet, even his detractors can’t ignore his track record of philanthropy: he has donated to such causes as Jewish genealogical preservation, economic development in low-income areas, education and healthcare improvement, human rights, and more.
Ackman’s Early Life and Career
Bill Ackman grew up near New York City before going off to Harvard, where in 1988 he graduated magna cum laude with a BA in history. Ackman followed that up with an MBA from Harvard Business School in 1992.
After Harvard, Ackman went to work for his father’s company, which focused on real estate financing. Bill’s duties included arranging and structuring equity and debt financing for real estate investors and developers. The knowledge and experience he acquired there would prove invaluable about a decade later.
In 1992, Ackman co-founded Gotham Partners, an investment firm that specialized in public companies. Gotham grew quickly, aided by a high-profile bid for the Rockefeller Center that helped attract clients even though the firm didn’t win the bid. A series of losses and contentious interactions led to Gotham’s demise, however, and it was eventually liquidated in 2003 due to bad debts.
Pershing Square Capital
Later in 2003, Bill Ackman created Pershing Square Capital, and, due to relentless fund analysis and value-oriented investing, the company exploded. In its first decade, the fund returned nearly 1200%, excluding fees.
Ackman was among the few who saw the 2008 global crisis coming, and he profited wildly from his shorts of Freddie Mac, Fannie Mae, MBIA (Multiple Bond Insurance Association), and others. Fellow Wall St. insiders and investors disregarded his repeated warnings about the coming crash, and they paid the price. However, Ackman not only avoided losses, he greatly profited. The fund that the Pershing fund was managing at that time grew by $4 billion during the last five months of 2008.
Ackman’s success wasn’t random. The aggressive moves that defined his successes in the 1990s and 2000s were backed by intensive, laborious, and diligent research. The massive profits he made in 2008 were fruits directly resulting from labor that began in 2002. In that year, Ackman began tracking the MBIA when he noticed trends that he knew would cause its failure. Although he was wrong about when the MBIA would collapse – he thought it would happen in 2002 – he knew it was only a matter of time, so he was patient and confident despite all the naysayers.
As often happens, aggressiveness has two sides. As well as it helped Ackman grow his fund, it also caused some spectacular misses. In 2009, after buying up billions of dollars in Target stocks and derivatives, his investment cost his investors nearly $2 billion. Later that same year, Ackman also lost big when the book chain Borders Group was forced to declare bankruptcy.
Though he has employed a variety of strategies to make his big returns, Bill Ackman is often called a contrarian or activist investor. His activist investment predilection is reminiscent of Carl Icahn, though Ackman prefers comparisons to Warren Buffett (in fact, he and Icahn had a dust-up in 2003, which eventually ended in a court ordering Icahn to pay Ackman $4.5 M plus interest owed from a deal the two men had agreed on). Unlike Icahn, who often breaks companies up and sells them off piece by piece, Ackman often wants to preserve the companies he invests in because he believes it’s better for the economy.
He doesn’t see himself as a “corporate raider”; after he acquires enough stock to help a company recover, he gets out when it’s most profitable instead of breaking it up and selling off the pieces. Ackman tends to go after companies that are sensitive to economic changes and don’t have much financial leverage. He doesn’t believe that cheap prices necessarily lead to consistent value creation, and he won’t invest just for the sake of it.
One investment underscoring his aversion to the corporate raider comparison was Pershing’s 2008 investment in ailing commercial property giant General Growth Properties. Ackman cut costs and restructured management, which helped the firm emerge from bankruptcy and see its stock price skyrocket dozens of times over.
The Herbalife Saga and Recent Tough Times
Since 2012, Bill Ackman and Pershing Square have had more downs than ups. In that year, Ackman criticized supplement giant Herbalife in a report. In May of that year, Ackman started selling short the company’s shares. Things heated up even more after he accused the company of taking advantage of low-income people all over the world. In the end (2015), a court dismissed a lawsuit by investors claiming the company was an illegal pyramid scheme. Ackman has claimed since that it’s not over with Herbalife.
In addition to the drama, Ackman’s hedge fund firm lost over 16% in 2015, losing millions of investors and billions of dollars. Pershing’s involvement in Valeant Pharmaceuticals has been a big loss so far, yet Ackman sticks with it. He believes, as he did about the housing bubble in the 2000s, that he’ll eventually profit big.