Long Bill Ackman Interview.

[tede02]

I really enjoyed this. Covered a lot of subjects. The story about crossing swords with Icahn in the 90s was surprising. If Ackman's side of the story is true, that was a really B.S. play by Icahn, just blatantly breaching a contract and trying to outlast him in the courts. I don't understand why people would want to do business like that. Also was interesting to hear Ackman mention that Elliot tried to push his public vehicle into liquidation for their own profit when things were going bad with Valeant and Herbalife. That is pretty brutal. 

 

 

 

[Blake Hampton]

Indeed, it’s a great interview.

 

I have heard people in the past mention that they don’t like Ackman and I never understood why. I know at least he’s a great investor, not quite sure as a human being though.

[Gmthebeau]

Ackman is no saint so I would not feel sorry for him because some other cutthroats went after him.  This is the same guy who went on TV, cried hell is coming, while trying to crash the markets to profit.

[thepupil]

16 minutes ago, Gmthebeau said:

Ackman is no saint so I would not feel sorry for him because some other cutthroats went after him.  This is the same guy who went on TV, cried hell is coming, while trying to crash the markets to profit.

 

the timeline of this incident is inaccurate.

 

the narrative around the "hell is coming" interview is false. 

 

Ackman was aggressively getting longer of stocks in March and monetizing his hedge (half of which already had been sold by the time of the CNBC interview). as someone who was buying his fund monitoring the net exposure,  I was a little taken aback at how quickly and aggressively long of restaurants and hotels he had gotten in March and April. 

 

The 28 minute interview , where he talks about buying stocks can be found here

https://www.cnbc.com/2020/03/18/watch-the-full-interview-with-bill-ackman-on-the-coranvirus-threat-to-economy-shut-it-down-now.html?__source=twitter|main

 

Quote

minute 9 ish: I've been super bearish but i got bullish...I've been buying today...all the way down...the only answer for the world is to shut the world..

 

 

The details regarding the hedge monetization here. 

Quote

https://www.ft.com/content/f8f352d4-1526-4716-86ef-080b2055768b

Pershing Square started to unwind its CDS contracts on March 12 after their value had increased to $2.7bn, by selling some each day until exiting completely on March 23. At the time of the CNBC interview on March 18, Mr Ackman had cashed in $1.3bn and the value of the remainder was $1.3bn. “Our hedge had already paid off prior to my going on CNBC,” he wrote. “The hedge did not increase in value during or after I went on CNBC. It stayed at approximately the same value until we exited.”

 

 

At March 31st 2020, PSH  was long and strong

 

Bill's story that he didn't make much more money after his interview. This is corroborated in the data by the spread on CDX IG which widened from 40-60 bps in February to 140 on the 18th. It peaked at 152. on 3/20/2020 and ended the month at 113. 

 

He made the bulk of his money on the move from 40 to 140 (and had already taken off over half of it) before the interview, not from 140 to 155, even if you think he widened out CDX with that interview. . 

 

 

Edited February 26 by thepupil

[Gmthebeau]

2 hours ago, thepupil said:

 

the timeline of this incident is inaccurate.

 

the narrative around the "hell is coming" interview is false. 

 

Ackman was aggressively getting longer of stocks in March and monetizing his hedge (half of which already had been sold by the time of the CNBC interview). as someone who was buying his fund monitoring the net exposure,  I was a little taken aback at how quickly and aggressively long of restaurants and hotels he had gotten in March and April. 

 

The 28 minute interview , where he talks about buying stocks can be found here

https://www.cnbc.com/2020/03/18/watch-the-full-interview-with-bill-ackman-on-the-coranvirus-threat-to-economy-shut-it-down-now.html?__source=twitter|main

 

 

 

The details regarding the hedge monetization here. 

 

 

At March 31st 2020, PSH  was long and strong

 

Bill's story that he didn't make much more money after his interview. This is corroborated in the data by the spread on CDX IG which widened from 40-60 bps in February to 140 on the 18th. It peaked at 152. on 3/20/2020 and ended the month at 113. 

 

He made the bulk of his money on the move from 40 to 140 (and had already taken off over half of it) before the interview, not from 140 to 155, even if you think he widened out CDX with that interview. . 

 

 

well maybe he did it to drive prices down as he was buying, either way there was a profit motive.  to think otherwise is foolish.

[ValueArb]

Hanlons Razor: Never attribute to malice that which is adequately explained by stupidity carelessness.

 

No reason to assume he was trying to move markets by talking his book when he could just have been honestly venting about things he had been thinking intensely about for the month. 

[thepupil]

curious way to drive the stocks down...by saying he's buying in that very same interview. 

Quote

Still, Ackman said he grew optimistic that world leaders including Trump will move immediately to save the global economy.  

“I’ve been aggressively buying stocks including Hilton today. And I’ve ben buying all the way down — Hilton, Restaurant Brands and Starbucks,” Ackman said.

 

I don't know man...Isn't the alternative explanation (that he actually believed what he was saying) the simplest and most consistent.

 

- he thought lots of people would die (lots of people died)

- he thought we should shut down for 30 days (we ended up shutting down for longer, probably a big mistake, but idk if 30 day shutdown was a mistake for society, was reasonable view to take at time w/ facts known).

- he thought the turmoil he foresaw in february 2020 was not priced into credit markets, put on a huge position in them, and made money when it got priced into credit markets.

- he thought his highs quality restaurant and hotel stocks would see it through and recover. they recovered. 

- within reason, all of this was communicated in commercially reasonable real time to his limited partners for whom he tonned it. 

 

I have zero ethical concerns with this fact pattern; everything seems quite rational and in the interest of both society and his LP's. Is he a drama queen? sure. but I still don't understand why people give him shit for this call. he was pretty much right on everything. I'm not saying he's infallible, but just don't see anything wrong with this episode. 

 

I mean we've all got better things to do than debate what Bill ackman said 4 years ago, but for whatver reason, this is a "perception becomes a reality" thing that just seems completely inconsistent with he facts and where people extrapolate one one sound byte  to draw sweeping conclusions. 

 

 

March 18th 2020

https://www.cnbc.com/2020/03/18/bill-ackman-pleads-to-trump-to-increase-closures-to-save-the-economy-shut-it-down-now.html

 

 

 

 

 

Edited February 26 by thepupil

[Saluki]

20 hours ago, thepupil said:

curious way to drive the stocks down...by saying he's buying in that very same interview. 

 

I don't know man...Isn't the alternative explanation (that he actually believed what he was saying) the simplest and most consistent.

 

- he thought lots of people would die (lots of people died)

- he thought we should shut down for 30 days (we ended up shutting down for longer, probably a big mistake, but idk if 30 day shutdown was a mistake for society, was reasonable view to take at time w/ facts known).

- he thought the turmoil he foresaw in february 2020 was not priced into credit markets, put on a huge position in them, and made money when it got priced into credit markets.

- he thought his highs quality restaurant and hotel stocks would see it through and recover. they recovered. 

- within reason, all of this was communicated in commercially reasonable real time to his limited partners for whom he tonned it. 

 

I have zero ethical concerns with this fact pattern; everything seems quite rational and in the interest of both society and his LP's. Is he a drama queen? sure. but I still don't understand why people give him shit for this call. he was pretty much right on everything. I'm not saying he's infallible, but just don't see anything wrong with this episode. 

 

I mean we've all got better things to do than debate what Bill ackman said 4 years ago, but for whatver reason, this is a "perception becomes a reality" thing that just seems completely inconsistent with he facts and where people extrapolate one one sound byte  to draw sweeping conclusions. 

 

 

March 18th 2020

https://www.cnbc.com/2020/03/18/bill-ackman-pleads-to-trump-to-increase-closures-to-save-the-economy-shut-it-down-now.html

 

 

 

 

 

 

He's obviously a bright guy, but sometimes his actions contradict his supposed operating manual, as with Valeant.  More recently, HHH, which has been disappointing, paid $50 million for a minority interest in a celebrity chef's company. In this interview he says that he likes restaurant brands like Chipotle and Burger King because they have a system, and the system is very efficient and not prone to human error.  That's the exact opposite of how a high end/ celebrity chef restaurant operates.  The workers at a place like that need a LOT more training, and the menu changes constantly, which is why Chipotle with a limited menu that stays the same and where you can train a high school to make the dishes in a few hours is so good. 

 

He says he likes companies that generate a lot of cash, since when have minor league sports teams been known for their cash generation?  Even Ryan Reynolds is losing money on his soccer team.  

 

And the anti-woke college stuff and buying into Twitter seems like he is setting himself up to run for office. 

[Gmthebeau]

Yes, Bill is a Saint.  ROFLMAO.  It was proven that shutdowns were in fact the dumbest thing ever, and greatly damaged far more it helped.   In line with his Valeant call I suppose.  

Edited February 27 by Gmthebeau

[thepupil]

@Salukii will agree with you on those

 

@Gmthebeau I'm not saying he's a saint, just  that your characterization (which fits the popular narrative of that interview) does not, in my opinion, have any consistency with the facts. He's done like 20% gross/year for 20 years.  It may not be luck. Guess that's what makes a market. 

Edited February 27 by thepupil

[ValueArb]

Matt Levine on Ackman being forced to pull PSUS offer to restructure it, essentially no one wants to buy a fund that is almost certain to trade at a discount as soon as it floats. I wonder if he can offer some kind of call option to IPO participants to overcome their concerns. 

 

While I think closed end funds are the perfect structure for the long term investment manager since you don't have to deal with investor turnover and can just stick to your knitting, but I question how well Ackman's will do. He's obviously incredibly talented but the more money he manages the tougher the game gets.  And he's clearly had good luck to go with his skill and history shows as the portfolios get larger the manager's alpha gets smaller. Buffett being the number one proof of that.

 

Quote

 

Oh PSUS

Generally the way an initial public offering works is that a company decides to sell, say, 10 million shares, representing 10% of the company, and then there is a negotiation about price. “This company is great and worth $5 billion, so you should pay $50 per share,” its bankers will tell investors.[1] “Ehh the company is fine and worth $4 billion, so I’ll pay $40,” the investors will say. There’ll be debates and negotiation and posturing, the bankers will take orders at different prices, and eventually they will come to the company and say “we have orders for 20 million shares at $43 per share, and we think you should price the IPO there. That way, we’ll sell 10 million shares at $43,[2] and a lot of people will be left wanting more and will buy shares in the aftermarket and the stock will trade up and everyone will be happy.” And the company will say “sure” and the deal will price at $43.

Sometimes, in the marketing process, the banks and the company will decide to upsize or downsize the deal (sell 12 million shares, or 8 million). But the main point of the IPO process is to figure out the price. Some people think the company is worth a lot, some people think it’s worth less, and you want a price where enough investors think they’re getting a good deal. The IPO is launched with a range of prices — the prospectus will say “10 million shares at a price between $42 and $45” or whatever — and the final price will be set by supply and demand. The IPO is a process for discovering the value of a company.

Pershing Square USA, Bill Ackman’s proposed US-listed closed-end fund, is — was? will be? was to have been? — a pot of money. You give Bill Ackman the money, he invests it, you get the returns.[3] If you give him $50, he invests $50, and you get the returns on $50. If you give him $73, he invests $73, and you get the returns on $73. It is, in some sense, meaningless to talk about the valuation of Pershing Square USA. The valuation of a pot of money is the amount of money in the pot. The valuation of an empty pot of money is the money you are about to put into the pot.

In another sense, it is quite meaningful to talk about the valuation of Pershing Square USA, and lots of people — particularly Ackman — do. These conversations take forms like:

• Skeptics say: “Closed-end funds typically trade at a discount to net asset value, and Bill Ackman’s own European-listed closed-end fund currently trades at a discount to net asset value, so Pershing Square USA will probably trade at a discount to net asset value, so if you put $50 into the pot it will be worth $45.”
• Ackman says: “It requires a significant leap of faith and ultimately careful analysis and judgment for investors to recognize that this closed end company will trade at a premium after the IPO when very few in history have done so,” but it will, because “everyone appreciates our track record (36 times vs. 7 times for the S&P 500 over 20 years), our unprecedented $500m investment, the low fees, the liquid profile of the company, the firm’s brand and our large global base of institutional, retail, and media interest in the firm.” That is, there is so much demand for Bill Ackman to invest people’s money, and he is so good at it, that people would pay $55 to let him invest $50 for them.[4]

So you can argue about whether $50 in a pot of money invested by Bill Ackman should be worth $45 or $50 or $55 or some other number.

But here’s what you can’t do: You can’t negotiate the price. Pershing Square USA was going to fill its pot of money by doing an IPO. The IPO launched with a fixed price of $50 per share. If you put in $50, Pershing Square USA would invest the $50 for you. But $50 is an arbitrary number; the point is not that you’re putting in $50, but rather that you are investing at the net asset value, because your money is the net asset value: You’re filling up the pot. If you put less money in the pot, the pot will have less money. If you called up the bankers and said “hey look I like Bill Ackman but I don’t like the valuation, I think this fund will trade at a discount, I only want to pay $45 per share,” what would that even mean? You could give Pershing Square USA $45, but then it would invest $45 for you, and you’d still be buying at 100% of net asset value.[5] 

Now, it is not quite right that the IPO investors have to invest at 100% of NAV. For one thing, Pershing Square USA has to pay some underwriting expenses out of the money it raises: If you put in $50, in fact Pershing Square will invest $49 or so for you, and the underwriters will get the rest.[6] So the investors are actually paying a bit more than 100% of NAV. 

Conversely, you could imagine ways for investors to invest at less than 100% of NAV. If shareholders put in less than the amount of money in the pot, somebody else has to put in the rest. Here’s one way:

1. Investors put in $4 billion at $50 per share (80 million shares).
2. Bill Ackman puts in $1 billion, from his personal account, at $100 per share (10 million shares).

That leaves 90 million shares outstanding and a $5 billion pot of money. The net asset value per share (ignoring underwriting fees) is $55.56 per share; the outside investors buy at a discount to net asset value. Ackman himself buys at a premium to net asset value. You can probably spot the objections to this structure.

If you have a buzzy tech startup and you launch an ambitious IPO and investors say “this startup is cool but your valuation is too high, we want to pay less,” you can just do that. You can sell them the shares at a lower price; you will raise less money than you wanted and be less rich than you expected and be a bit disappointed and perhaps embarrassed, but you’ll go public and try to improve from there.

If you have a closed-end fund and you launch an ambitious IPO targeting institutional investors and those investors say “you are cool but I want to pay less for these shares,” there is just not a lot you can do. You can’t raise a fund by letting everybody invest at 90% of net asset value. Where will the other 10% come from? If you can’t get enough people to pay 100% — or a bit more — then there’s just no deal.

Anyway!

Billionaire Bill Ackman’s Pershing Square has withdrawn an initial public offering for a US closed-end fund, after sharply downsizing a $25 billion fundraising target and facing difficult questions from investors.

Pershing Square USA Ltd. will reevaluate its structure based on investor feedback, Ackman wrote in a statement Wednesday. “We will report back once we are ready to launch a revised transaction,” Ackman wrote.

The withdrawal comes after Pershing Square slashed the anticipated size twice in just over a week. The hedge fund manager had floated a potential size of $25 billion during the marketing of the offering earlier this month, which took place in a series of one-on-one meetings and larger town halls. Pershing Square USA was scaled back to a range of $2.5 billion to $4 billion in a July 24 letter, and finally $2 billion — a hefty drop off from what would’ve been the biggest US closed-end fund ever.

Here is Ackman’s statement:

Over the last seven weeks, we have met with many institutions and family offices, and held numerous town halls for Pershing Square USA, Ltd. While we have received enormous investor interest in PSUS, one principal question has remained:

Would investors be better served waiting to invest in the aftermarket than in the IPO?

This question has inspired us to reevaluate PSUS’s structure to make the IPO investment decision a straightforward one. We will report back once we are ready to launch a revised transaction.

Ackman has spent the IPO process arguing that the shares are worth more than $50, and therefore you should buy them in the IPO at $50, because they will trade up to $55 or whatever in the aftermarket. Investors, meanwhile, argued that the shares are worth less than $50, and therefore they should wait to buy them in the aftermarket at $45 or whatever. But if everyone thinks that, there is just no deal: The shares can’t trade to $45 unless Pershing Square USA sells them at $50 first. 

Now, if some people think the shares are worth $50 and others don’t, then Pershing Square USA could price a small deal, sell to the people willing to pay $50, and then let the shares trade down in the aftermarket. There are two problems with that:

1. It limits Pershing Square USA’s ability to raise more money later. If the stock trades below net asset value, then selling more shares will dilute existing shareholders. As Ackman told investors: “If PSUS achieves a sustained premium to NAV which I believe it will achieve, it will enable us to access low-cost equity capital when we have good uses for that capital. As a result, PSUS will compound its AUM from both performance and accretive equity issuances. … This transaction is therefore all about a successful IPO from the first day and successful trading at a premium thereafter.” Trading at a discount would be a failure.
2. Ackman has been weirdly public about all of these dynamics — I keep quoting from a letter he sent to investors about them, which Pershing Square USA made public last week — so it was not hard for investors to figure out that there was not enough demand at $50. If you think everyone else is waiting to buy in the aftermarket at $45, then you should too.

I guess I’m excited to see what the reevaluated structure looks like? (Bill Cohan reported yesterday: “‘All good,’ Bill texted me this afternoon. ‘Better actually.’” Okay!) Here’s an idea:

Traditionally, US funds had a distribution component which helped reduce discounts and give capital back to investors at the net asset value, according to John Cole Scott, president of CEF Advisors.

“It might sound silly, but he should offer 2% — a quarter of NAV — to investors,” Scott said. “It’s what most other equity funds do. This tends to lead to narrower discounts.”

Eh. My idea — buy some shares yourself at a huge premium to NAV, to subsidize everyone else — is free.[7] We’ll see what they come up with.

 

 

[Gregmal]

Yea I was approached about the IPO and those were exactly my words. These things never trade at a premium to NAV and always trade at a discount, why would I be in a rush to own this, despite really wanting to own this?

[thowed]

@Gregmal Curious to know if you did buy this, would you swap your PSH for it, or have both?  Just trying to get a sense of what US-based PSH holders might do.

 

It's quite fascinating - I don't know how hard it is for US people to own PSH tax-wise, and how the combination of that + different fee structure will affect the relative discounts of the two funds.

[Gregmal]

Id just hold both. Different profiles but same general investment. 

[thowed]

Thanks.

 

Separately, UMG has been very disappointing.  I mean, I get that these big drops can happen, & it's a concentrated portfolio.  But I still think that the concentration of UMG was insane - and felt like it was purely because he screwed up the SPAC.  I feel like for portfolio management purposes he could have sold a little every quarter and signalled it was for concentration purposes.  i'm sure there's a smarter way to do it, but along those lines.  Apart from that no complaints - well, apart from wishing he'd shut up on Twitter.