Bill Ackman will never be the next Warren Buffett

Herbalife

01/08/2024 14:38

(The author is a Reuters Breakingviews columnist.  The opinions
expressed are her own.)
    By Lauren Silva Laughlin
       NEW YORK, Aug 1 (Reuters Breakingviews) - What went
wrong for Bill Ackman? The pushy New York-based hedge fund
manager, who set out to raise some $25 billion in hopes of
becoming the next Warren Buffett, pulled his initial public
offering on Wednesday. The foreboding message: reaching the
investing masses is hard to do.
    Ackman has long wanted to manage capital that’s available
indefinitely, “like Warren,” according to a 45-minute
presentation posted on retailroadshow.com. His closed-end
Pershing Square USA fund would have enabled him to back
companies, and there are faint similarities with his idol.
    Both billionaires go big or go home: Buffett with Apple
 AAPL.O , which accounts for 40% of Berkshire Hathaway’s
 BRKa.N  equity portfolio, and Pershing Square’s chunky stakes
in Chipotle Mexican Grill  CMG.N , Canadian Pacific Railway and
other companies where it has pushed for change. Each man has
failed, too: Buffett in newspapers and airlines, Ackman in
Valeant Pharmaceuticals and Herbalife  HLF.N . If past returns
were the only benchmark, Ackman’s pitch might resonate. He says
that since 2004 his collective fund returns have surpassed
2,000%, even after fees, more than tripling the performance by
Berkshire and the S&P 500 Index  .SPX  over the same span.
    Other differences are significant, too. Buffett has six
decades under his belt compared to Ackman’s two. As funds get
older and bigger, beating the market is harder, a handicap for
$950 billion Berkshire. Ackman also talks about shaking up
management teams, as private equity firms do, only without
taking control or borrowing as much. People power is often an
ingredient: Blackstone  BX.N , for example, employs 5,000 while
Pershing Square has a few dozen staffers.
    There are other disparities. Ackman has generated a quarter
of his profit with less than 2% of the available capital using
hedging strategies he calls “asymmetric.” Such tactics tend to
be easier for smaller and nimbler firms. Buffett also manages
risk, but by securing favorable terms in exchange for his
imprimatur and his money, $180 billion of cash and equivalents
at the end of March. When Occidental Petroleum  OXY.N  eyed a
risky merger in 2019, boss Vicki Hollub sold Berkshire $10
billion of preferred stock that paid an 8% annual dividend,
nearly twice as much as its 30-year bonds were yielding.
    Attracting everyday investors also involves more than
returns. Buffett retains a cult following despite having only
marginally outperformed the benchmark index of late. His Cherry
Coke habit and simplified investment wisdom contrasts starkly
with Ackman, who embraces financial razzmatazz and spouts off
controversially on social media. The Oracle of Omaha has lived
in the same Nebraska home for more than 50 years; Ackman paid
$23 million for a Manhattan penthouse in 2018. Aspiring to be
the next Buffett is ambitious, but it takes far more than just
invoking his name.
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    CONTEXT NEWS
    Hedge fund manager Bill Ackman on July 31 scrapped the
planned launch of Pershing Square USA, a closed-end fund that
was slated to begin trading on the New York Stock Exchange. A
day earlier, Ackman downsized the initial public offering plans
to $2 billion.

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Berkshire has narrowly beaten the S&P 500 since 2019    https://reut.rs/3AeUd4i
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 (Editing by Jeffrey Goldfarb and Pranav Kiran)
 ((For previous columns by the author, Reuters customers can
click on  SILVA/ 
Lauren.SilvaLaughlin@thomsonreuters.com))