Activist investor Bill Ackman, the billionaire CEO of hedge fund Pershing Square Capital, made a huge comeback in 2019.
His publicly-traded hedge fund firm ended the year up 58.1%, massively outperforming the broader market and the average hedge fund.
The 53-year-old activist investor, known for snapping up large positions in publicly-traded companies and pushing for changes from management to unlock shareholder value, has maintained a fairly low profile in the last year. He hasn’t been actively raising capital, or making appearances on financial television. He’s also done very few public speaking events.
At one of those rare appearances, the 13-D Active-Passive Investor Summit in April, Ackman credited his already double-digit turnaround to his “mentor” Warren Buffett.
The investor said that "one of the most instructive things" from his career has been reading the legendary Oracle of Omaha’s letters from the Buffett Partnership — the fund Buffett ran before Berkshire Hathaway and became a world-class authority on making money.
In May 1969, after several years of outperformance, Buffett told his investors that he would close the partnership, pointing to an investing environment that had become "more negative and frustrating." In the letter, Buffett offered the partners the option to take their cash out, or keep their investment for shares in the textile company Berkshire Hathaway.
"I think it's instructive. And, I think what Mr. Buffett realized in 1969 is that being a longterm investor with short-dated capital is just ultimately going to lead to a bad outcome at some point in time,” the hedge fund manager said.
After the ‘rough patch’
Like Buffett, the mission at Pershing Square is to have a permanent capital structure. Ackman said the firm took a step at that direction, launching a publicly-traded fund in 2014 with the long-term plan to have a majority of capital in that vehicle.
After posting a return of 40.4% in 2014, the hedge fund experienced negative performance for each consecutive year — until 2019. At the April conference, Ackman attributed the string of poor performance to a couple of bad investments. Those mistakes that led to significant investor redemptions, or what Ackman characterized as a "rough patch."
Pershing Square Holdings, the public vehicle, is now 80% of the firm's capital, Ackman said at the time.
He said he's returned to a strategy that had been successful, investing in simple, predictable, cashflow positive companies.
Some of Pershing Square’s stock investments include Chipotle (CMG), Restaurant Brands International (QSR), Hilton (HLT), Lowe's (LOW), and Starbucks (SBUX), to name a few. This summer, Pershing Square also disclosed a huge position in Buffett’s Berkshire Hathaway (BRK-B).
Pershing Square also owns common and preferred shares in government-sponsored mortgage giants, Fannie Mae and Freddie Mac.
While 2019 was a success professionally, it also was personally for Ackman. Taking a cue from another important lesson gleaned from Buffett — choosing the right person to marry — the investor married MIT professor Dr. Neri Oxman in January, and welcomed their first child that spring.
"Maybe that has something to do with being in love, getting married. If your manager is getting married, having a child, I highly recommend you add capital with them," Ackman said at the summit.