What was wrong for Bill Ackman? The aggressive hedge fund manager from New York, who wanted to raise over $25 billion to become the new Warren Buffett, withdrew his initial public offering on Wednesday. The ominous message: it's difficult to reach the investing public.
In a 45-minute presentation on retailroadshow.com, Ackman states that he has always aspired to manage capital that is forever available, "like Warren." He could have backed companies with his closed-end Pershing Square USA fund, and he resembles his idol just a little bit.
Both billionaires have made their moves: Buffett has Apple, which makes up 40% of Berkshire Hathaway's equity portfolio; Pershing Square has large holdings in Canadian Pacific Railway, Chipotle Mexican Grill, and other businesses where it has pushed for reform. Each of them has also failed: Buffett in planes and newspapers, Ackman in Herbalife and Valeant Pharmaceuticals. Ackman's pitch may be persuasive if historical returns were the only criterion. Since 2004, he claims that even after fees, the returns on his collective funds have over 2,000%, more than double the performance of both the S&P 500 Index and Berkshire during the same period.
There are also important distinctions in other respects. Compared to Ackman's two decades of experience, Buffett has six. Beating the market becomes more difficult as funds get larger and older, which is a disadvantage for $950 billion Berkshire. Like private equity firms, Ackman also discusses changing up management teams, but without assuming as much of the reins or borrowing as much. People power often plays a factor; Pershing Square only employs a few dozen people, but Blackstone employs 5,000.
There are more disparities. Using hedging tactics he refers to as "asymmetric," Ackman has made a fourth of his profit using less than 2% of the available money. For smaller, more agile businesses, these strategies tend to be easier. Buffett also controls risk, but he does it by negotiating good terms for his endorsement and capital, which at the end of March totaled $180 billion in cash and equivalents. In 2019, boss Vicki Hollub of Occidental Petroleum sold $10 billion in preferred shares to Berkshire, which paid an 8% yearly dividend — almost twice as much as the company's 30-year bonds were yielding — when the company considered a risky merger.
Returns are not the only factor in luring in regular investors. Even though Buffett has recently only slightly outpaced the benchmark index, he still has a cult following. His love of Cherry Coke and his simplified approach to investing stand in sharp contrast to Ackman's embrace of financial glitz and his outspoken, controversial comments on social media. The Oracle of Omaha has spent more than 50 years in the same Nebraska residence; in 2018, Ackman spent $23 million on a penthouse in Manhattan. It's an ambitious goal to be the next Buffett, but it requires much more than merely mentioning his name.