By coinnews 
00:00 Speaker A
Yahoo Finance descending on the Milky conference in California. A special guest here with me right now that is Bill Ackman, Pershing Square CEO. Bill, good to see you. Big day for your company. $900 million investment in Howard Hughes. Why make this play?
00:18 Bill Ackman
Uh, sure. Well, you know, the story begins arguably when I began my career. Uh, very early on, you know, Warren Buffett, Berkshire Hathaway letters, beginnings of my investment education. Uh, and the story of Berkshire Hathaway Buffett buying, you know, basically control of a of a textile business, and then transforming it over time into a diversified holding company. We know how that story is, uh, it’s not really ended yet.
00:48 Speaker A
60 years later, right?
00:50 Bill Ackman
60 years later, Mr. Buffett, finally, uh, remarkably at 94 passing the torch. Um, but that was an inspiration for me. That led me to go into the investment business and I entered the same way he did. Uh, I started hedge fund and I became a shareholder activist, which he was. Um, but you know, the business plan was always to get to what we call permanent capital. We took a step in that direction. We took one of our funds public in Europe. Um, but the the kind of ultimate investment dream is to have a public company, uh, where you could build with permanent capital. Uh, you can follow investment principles and build a business of significance. Uh, and that’s what Warren has achieved and that’s what we hope to achieve with Howard Hughes. We’ve had a long-standing investment in the company. It came out of an investment we made in General Growth. Uh, we spun out of, uh, that company emerged from chapter 11. Uh, we spun off company called Howard Hughes Corporation, which owned the real estate development assets, uh, of, um, the General Growth company. And General Growth had acquired a company called Rouse, and Rouse had a business of building small cities, what we call master plan communities. I think they’re more like cities, but they’re not incorporated cities. Uh, in the Woodlands, uh, in Houston, Summerland, in Las Vegas, uh, Bridgeland, in Houston, uh, and, uh, that business is a remarkable business. But it’s not one. It’s a long-term play. Uh, for the first 14 years, uh, it was, you know, consumed a huge amount of cash. Uh, today we generate, um, this business generates cash. We reinvest that cash at Howard Hughes in the equity of buildings that we need in our various communities. So it’s a it’s a very good business, much better business than a textile business.
03:43 Speaker A
And you’ll be executive chairman.
03:44 Bill Ackman
So, now what we’re doing here is so Pershing the funds have a 37% stake prior to today. The Pershing Square Management company, which is the business that managed our our various funds that’s owned by myself and our other partners and the Broadson Strategic investors, uh, last year that’s that entity’s making investment in the company. I’m returning as executive chairman. Uh, Ryan Israel, CIO of Pershing Square is going to become the CEO Howard Hughes. The rest of the team is going to stay in place, David O’Reilly, CEO, uh, and, uh, we’re going to build a company together.
04:58 Speaker A
How much, when could you pull the trigger on the big, I guess the elephant-sized deal that Warren Buffett always talks about?
05:07 Bill Ackman
We’re going to start not with elephants, not rabbits, but, uh, small animals.
05:19 Speaker A
What are you looking for?
05:22 Bill Ackman
Uh, what we’re looking for? We’re looking for businesses that have great durable economic characteristics. It’s an uncertain world, so you want a company that can withstand tariffs, uh, pandemics, volatile interest rates, volatile moves and currencies, et cetera. We look for that kind of super durable growth company. We want businesses that earn high returns on capital, that can grow as far as the eye can see that are non-disruptable. Uh, and we’re going to look for businesses that of a scale that’s appropriate in light of the scale of Howard Hughes. Howard Hughes today, 11, 12 billion of assets, uh, five billion or so of equity. Um, so, uh, and we’re our freely available cash today, call it a billion dollars, uh, and then we’ll work from there.
06:20 Speaker A
How are you, essentially you’re building a modern day Berkshire Hathaway. How are you, how would you compare yourself to to Mr. Buffett in terms of how you invest?
06:33 Bill Ackman
Uh, he’s got more experience than I do. Uh, he’s different approach to health than I do, but I aspire to have his longevity and his mental acuity.
06:47 Speaker A
No cans of Coke for you, right?
06:49 Bill Ackman
No cans of Coke. Uh, I’m not a huge fan of Coke. I think it’s caused a lot of harm. Um, but, uh, you know, I would say I’ve learned a lot from him. Um, I would say we, Warren loves the same kind of business as we do. He hasn’t, I would say generally been prepared to pay up for them. He has very, very disciplined on, I don’t I’m not aware of a business he’s purchased where he paid more than 10 times basically operating earnings. Uh, you know, I would say when we bought Chipotle, it didn’t look cheap. Uh, many companies we invested in over time didn’t look cheap at the time, but they became cheap very quickly by virtue of a, you know, growth in the earnings, cash flow of the business over time. Um, but I would say very similar principles about how we think about capital allocation, how we think about incentives, how we think about, um, you know, the kind of people we want to do business with, the kind of people we want to partner with. So.
08:26 Speaker A
You you were in that room, or you were in the at the Berkshire meeting? Correct? What was that for those not there? Take us inside there. What did when you heard Mr. Buffett say he was retired at end of the year? What went through your head?
08:47 Bill Ackman
So, uh, you’re in a room with 44,000 people or something like this, uh, all of whom or many of whom Warren has completely transformed their lives, uh, from financial perspective. Uh, I don’t know how many millionaires, ten millionaires, hundred millionaires, billionaires he’s created just by virtue of them owning the stock. But, you know, there are also many people there that may not even own Berkshire, but learned from Warren, followed his principles, build careers in the industry. I’m I’m certainly one of them. I don’t know Berkshire Hathaway stock today, but I still go to Mecca because I want to reset, you know, make sure my investment values kind of stay the same. Uh, and, you know, I think all the shareholders have been nervously not looking forward to this day, I would say. Um, but, you know, what a graceful way to pass the torch, uh, you know, an emotional moment. Almost tears in his eyes, I would say. Um, you know, I think the his longtime partner, Charlie Munger, uh, passing away obviously a massive blow. Um, and, uh, but you know, he still was remarkable. 94
10:48 Bill Ackman
three and a half hours of Q&A with like a one hour break, I mean, that’s amazing.
10:54 Speaker A
Nobody else is doing this.
10:56 Bill Ackman
It’s amazing.
10:57 Speaker A
What are some of the biggest challenges you think his successor, Greg Abel, will be up against?
11:03 Bill Ackman
So Greg, uh, I think is a spectacular operator in my all accounts, uh, also an excellent allocator of capital and the businesses that he’s overseen. I would say the challenge for him is he’s got $350 billion in the balance sheet that Warren Buffett couldn’t find a way to spend, right? So that’s going to be important. Uh, and he’s not going to be able to spend it all buying stock back, right? I don’t think he’s going to pay some crazy dividend. Uh, so I think the biggest challenge for him is to find places and ways to deploy that capital, uh, intelligently, uh, and buying businesses that are not currently owned by Berkshire, right? So it’s a different challenge, uh, to think about, uh, buying a new company for $20 billion versus making the incremental decision to invest in this power asset or this subsidiary of Berkshire.
12:25 Speaker A
Is that elephant deal out there for Greg?
12:30 Bill Ackman
Um, well, look, I think, you know, private equity is competitive, you know, 10 billion. They’re not competitive at 50 or 100, um, but you know, the the universe of companies of that scale that are willing to be sold, uh, I think is very, very small. Right? You know, most public companies view it as a failure, particularly one of that kind of scale to be sold. Uh, you know, Burlington Northern, uh, selling itself to Berkshire was kind of a surprise to me. Uh, most companies of that kind of scale want to stay independent. If they’re underperforming, they replace their management, they replace the board and activist shows up. They don’t really sell themselves. So it’s a big challenge.
13:37 Speaker A
Can Greg keep Berkshire intact? And should he? Because I think you would make, one would make the argument, maybe Buffett has put so much trust in so many different executives that he hasn’t necessarily fired people when they should be fired.
14:10 Bill Ackman
Yeah, so I think there are very compelling arguments for why Berkshire should stay one big diversified holding company. The most important of which is insurance is about half of the value of Berkshire. Um, the flexibility that Berkshire has to invest the insurance company portfolio and equities, for example, comes from the fact that it’s part of this, uh, extremely creditworthy enterprise. If, for example, you spun off the insurance company, you know, it’s of enormous scale today, so we could still do a lot. But the it’s very comforting to the shareholder through the policyholders, uh, of, uh, of Berkshire’s insurance operations that there’s a big, huge conglomerate that’s uncorrelated with insurance that’s supporting, uh, that, if necessary, that company. So I think there’s a lot of compelling arguments for it to stay together. Uh, I don’t know that value would be created breaking it apart or tax benefits, other other aspects. So I say it stays together.
15:30 Speaker A
Do you think he could run it better than Warren?
15:34 Bill Ackman
Um, I think to your point, uh, you know, Greg has enormous credibility as an operator, um, and that was really not I don’t think of operations as Warren’s top skill set. Um, I think setting up the conditions for an executive to succeed, creating the right incentives, I think that’s absolutely Warren’s, uh, down the middle what he does. Uh, you know, I’ve talked to, uh, CEOs of Berkshire subsidiaries and they talk about how Warren, you know, that they’re taking the truly long-term approach, um, while they watch competitors doing stuff in the short terms to make earnings look good, Berkshire is prepared for any of its companies. They don’t care what earnings are in the next quarter. They care about, are we building long-term value? That basic principle, I would say, is, uh, is going to certainly remain. Is there going to be a little more focused on margins, you know, optimizing businesses, you know, not for the shorter term or longer term? You know, I would say that wouldn’t surprise me under, uh, Greg’s, uh, leadership.
16:54 Speaker A
Ahead of this interview, Bill, I was thinking back to some of your investments that you still have in the portfolio, Chipotle,
17:02 Bill Ackman
Yeah.
17:02 Speaker A
I think Nike.
17:04 Bill Ackman
Yeah.
17:05 Speaker A
I was just talked to Chipotle CEO, Scott Boatwright. Their business is slowing down because of tariffs, he told us. Nike, their big business is, uh, where they make a lot of products, Malaysia, and China.
17:17 Speaker A
Does this worry you as as an investor in these companies that trade is really starting to have an impact?
17:23 Bill Ackman
So we care about the value of a business. The value of a business is the present value of the future cash flows. What’s going on now certainly could be disruptive in the short term, uh, whether I don’t know that it’s, I don’t think it’s likely to have permanent effects. I do think it’s important that we get through the tariff negotiations quickly. Uh, I think it’s important, uh, that we pause the tariff, negotiate, we pause the tariffs, or we certainly take them down from 145 to 20 or something like this. I think that puts us in a stronger negotiating position, uh, with China, uh, and puts China in a weaker position, uh, stronger for us because our economy will be stronger in that world. You don’t want to be under the gun have the US economy weakening while you’re trying to make a deal with China. Once we take the tariffs down with China, uh, the Chinese are actually highly incentivized to make a trade deal quickly, uh, because if they don’t, they’re going to lose that much many more businesses that are going to move their supply chains elsewhere.
18:43 Speaker A
145% tariffs on China. How do you think that impacts second quarter earnings for companies? Third quarter, fourth quarter.
18:55 Bill Ackman
Depends very much on the business. Most of the companies we own are not are not going to be dramatically affected, uh, or minimally. We’ll be minimally affected other than general economic effects, but not particularly, uh, pernicious effects on those businesses. Um, and I think what you’ll see is that if you’re like a, I don’t know, Best Buy, you know, and everyone’s stocked up on, uh, TVs in anticipation of of tariffs, you know, it’s a bit like the front loading of COVID. You could certainly see, uh, Q2 or Q3, you know, a lot weaker.
19:55 Speaker A
I talked to, uh, Apollo CEO Mark Rowan, told me that the trade war is damaging the US brand. Do you agree with that?
20:07 Bill Ackman
I think the way that it’s been executed has shocked the world. Uh, when you shock the world, it creates volatility, uncertainty. Um, if, uh, you know, Trump has kind of a unique negotiating style. I would say it’s good that it’s unique because if it became the only way the US negotiated going forward, I do think it would have issues. Um, you know, he’s been effective in the course of his life and getting things done operating the way he operates. I think people need to understand this is his sort of MO. Um, but I I think, uh, the United States will still be, uh, I think US exceptionalism is is absolutely true. This is definitely the the best house in the neighborhood. Um, it’s the best place to do business, and I think it’s going to become a better place to do business with deregulation, with tax reform, uh, and the resolution of of tariffs.
21:23 Speaker A
And you’re still support, even though the volatility in markets has been there, you’re still supporting the president and his initiatives.
21:31 Bill Ackman
Absolutely. I want to see the president succeed, of course.
21:35 Speaker A
Lastly, uh, Treasury Secretary, uh, Secretary Beth just gave a speech here packed house.
21:43 Speaker A
I want to get your thoughts on this before we go. He said the US is entering a new golden age of economic prosperity for both Main Street and Wall Street.
21:56 Bill Ackman
Yeah.
21:57 Speaker A
You’re one of the most legendary people on Wall Street in my view for the past 25 years. Do you think we’re entering that golden age?
22:05 Bill Ackman
Uh, I think it’s all depends on execution, but there are lots of reasons why Scott could be right. Uh, you know, we’ve suffered from enormous bureaucratic waste and inefficiency. DOJ is underway to address that. We have a thicket of regulation that’s really holding back growth in the economy. We have, uh, the permitting process in America, uh, federal, state, local, um, and you know, there’s obviously, I think I was in, I was listening to, uh, the Treasury Secretary speak about the difference between doing business today in Texas, trying to build a plant, and doing business in, you know, uh, Illinois. Uh, and we need to make it easier to do business in America, and they’re working very hard at that. I think they’re going to be effective. Yes, we’ve seen the president, you know, use his, uh, influence, uh, to address these kinds of issues, and I think he’s going to help, uh, there. Um, you know, lower taxes for companies that build things in America, the deals that are being made, you know, the trillions announced of companies and countries that are committed to build in America. Um, and also, I would say a inflationary backdrop that’s getting a lot more favorable. Energy prices are coming way down. You know, egg prices, if you will. You know, the $2 egg is hopefully a thing of the past. Um, but, uh, you know, so I think we are absolutely the potential to get there. I’d like to see us through the the the volatility of the tariffs as promptly as possible. I think that’s important.
24:14 Speaker A
Fair enough. Uh, Bill Ackman, Pershing Square CEO, good to see you. Uh, big news, $900 million investment in, uh, Howard Hughes. Appreciate it. We’ll talk to you soon.
24:24 Bill Ackman
And by the way, it’s not so much the investment in our Hughes, that’s important, by the way, we’re paying $100 a share for a stock that’s trading at $65.
24:33 Speaker A
40% premium.
24:35 Bill Ackman
Right? So obviously, we think there’s a lot. We think there’s enormous value in the company. And, uh, we’re changing a meaningful, a very significant change in strategic direction while maintaining kind of the core engine of that company today, which is the real estate business.
24:52 Speaker A
Do you see yourself as the next Warren Buffett? Do you think like that?
24:56 Bill Ackman
No. No. Warren’s an icon, and, uh, he deserves his own place in history.
25:07 Speaker A
All right. Bill, it was a pleasure to see you. Thank you so much. Appreciate it.