Bill Ackman - Polarizing and Profitable
“Baby Buffett.” A Forbes article back in 2015 crowned Ackman, after a few years of solid returns, the next Warren Buffett.?
Ackman himself has said that he aims to build the “modern-day Berkshire Hathaway” with Pershing Square Capital Management, his hedge fund that is also traded as a closed-ended fund on the London Stock Exchange under the ticker PSH.L.?
The Forbes article was published after Pershing Square crushed the market in 2014, delivering more than 40% returns in a single year.?
However, over the past decade, returns have not been so abundant for Pershing Square. Ackman has also become a controversial figure in many ways, famously wrapped up in the Valeant Pharmaceuticals drama that was made into an episode of Dirty Money on Netflix and other public controversies.?
Long story short, Pershing Square was long Valeant as the stock fell more than 90% in the aftermath of accusations that the company was price-gouging customers of life-saving medicine.?
The period between 2015 and late 2017 was challenging for Ackman as, in addition to Valeant, other investments also generated poor returns. Among those, Ackman lost significant money on a Herbalife (HLF) short. Pershing Square delivered negative returns over several years, during which the S&P 500 steadily increased.?
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Long-Term Returns
For partners who invested in Pershing Square (the hedge fund) at inception in 2004, the long-term returns have been fantastic, despite the challenges. Pershing Square Limited Partners has delivered 2,370% returns - about 17% annualized - in just over 20 years. For comparison, the S&P 500 has returned 720% (~11% CAGR) over the same time frame.?
However, Pershing Square Holdings (PSH), the investment vehicle available to individual investors, has not delivered the same market-beating returns. Since Pershing Square Holdings became publicly traded in 2012, the fund is lagging the S&P 500 (366% total returns compared to 431%).?
Permanent Capital Era
The period of disappointing returns led Ackman back to the drawing board.?
In early 2018, Pershing Square announced that it had learned from its mistakes and would be more true to its investment philosophy going forward.?
That includes mainly investing in businesses with certain key characteristics:
In early 2018, Ackman stated, “Growth will come from returns, not asset gathering.” In essence, that meant to focus on finding good businesses instead of being in the media spotlight.?
The renewed focus has paid off.?
Pershing Square Holdings’ NAV (net asset value) has compounded at 22.9% since 2018. Though the share price of PSH fluctuates more as the discount to NAV closes and widens depending on various factors, NAV is the best measurement of the performance of the fund’s holdings.?
Even as Ackman remains a controversial and opinionated figure on X, his improved focus in the public markets has benefited partners and investors.?
Ackman has also avoided some of the losers he encountered during the 2010s, which had a detrimental impact on his fund - there is an important lesson for amateur investors in there.?
Homeruns
Ackman is, despite the controversy, a very competent investor. Over the past two decades, he has had his fair share of winners as well. One of them, which remains in the Pershing Square portfolio today, is Chipotle (CMG).
Starting in 2015, Chipotle stock went south after reports of multiple e-coli outbreaks in its restaurants. As the bad news kept coming, the stock had almost been cut in half from $15 to $8.20 per share by September 2016 when Pershing Square announced that it had acquired a 9.9% stake.
Eventually, helped by the announcement of Brian Niccol as the CEO in 2018, Chipotle stock recovered from the brutal drawdown. Pershing Square still owns the stock, with Chipotle making up ~12% of the portfolio today.?
Since Ackman first invested in Chipotle, the stock has increased from ~$8 to $58 per share - a 25% CAGR over almost 9 years.
Ackman has also had long-term success with another restaurant stock, Restaurant Brands International (QSR).
Even though QSR stock began trading publicly in 2014, Pershing Square has been involved since 2012, when the company’s only asset was Burger King. Today, the company comprises Canadian favorite Tim Hortons, Popeyes, and Firehouse Subs.??
When Pershing Square got involved, Burger King stock traded around $16 per share. With QSR stock valued at ~$65 today, Pershing Square has earned around 12% annually over a decade, and their ownership stake is up to around 5% of the company.?
As Tim Hortons continues to deliver - and signs of life in Burger King’s turnaround - QSR looks like another homerun for Ackman in the fast-casual industry.?
Perhaps Ackman is right that these simple, predictable businesses are the best investments when one can buy them at very reasonable multiples, evidenced by both QSR and Chipotle over the past decade.
Recent Activity
Over the past year, Pershing Square has bought Brookfield (BN) and Nike (NKE), two well-known businesses Ackman believes will be long-term winners.?
While Brookfield (up 60% since early 2024) has gathered more attention from investors, Ackman believes it trades at a discount to peers and that the market undervalues its future earnings potential.?
Nike stock, on the other hand, is down more than 30% over the past year. Ackman’s bet on new CEO Elliot Hill is more of a turnaround case than a consistent, predictable grower, slightly out-of-line from the rest of the Pershing Square portfolio. However, if margins can revert to historical figures, it is a reasonable bet at today’s valuation.
Early in 2025, Pershing Square announced its newest position - Uber (UBER).?
The thesis includes network effects, double-digit earnings growth potential, and substantial capital returns as operating leverage kicks in. Uber also fits the bill when it comes to competent management and barriers to entry in the industry. Ackman believes it is reasonably priced and that competitive fears are overblown.?
For those interested in learning more about Ackman’s Uber purchase, Daniel Pronk covered it in detail on his YouTube channel (link).
Conclusion
While the comparisons to Buffett have dwindled over the past decade, Ackman’s evolution as an investor contains important lessons.
The fact that even a seasoned investor with decades of experience in the markets decided to focus his time and money on simple, predictable businesses tells us that these are the best types of companies to own.
Ackman’s involvement with several companies and as a public figure also highlights many advantages retail investors have over the pros. We do not need to publicly defend or go activist on our holdings, actions that arguably stole Ackman’s focus and contributed to Pershing’s poor performance over several years.?
Ackman remains, and will likely remain, controversial as long as he runs Pershing Square. That is perhaps where he differs the most from Buffett - that comparison was never fair and Ackman likely did not ever want to be known as the “Next Buffett.”
Regardless, investors can learn from some parts of Ackman’s investment philosophy. His biggest winners have compounded for years without disruption - Chipotle and QSR are still among the top 3 positions in Pershing Square’s portfolio a decade later. And, as Buffett also has proven, a handful of outsized performers can have an infinitely bigger impact on a portfolio than a few losers.
Author
This Newsletter's Author
This newsletter was written by J?rgen Pettersen. You can find him on?Twitter/X.
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