Yahoo Finance

Yahoo Finance descending on the Milken Conference in California. 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 dollar investment in Howard Hughes. Why make this play?

Uh sure. Well the, 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.

60 years later. Right?

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 investment business and, and I entered the same way he did. Uh I started a hedge fund, uh 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 it with permanent capital. Uh you can follow investment principles and build a business of significance. Uh and that's what Warren has achieved, that's what we hope to achieve with Howard Hughes. We've had a long-standing investment in the company. It came out of investment we made in general growth. Uh we spun out of, uh when that company emerged from chapter 11, uh we spun off a 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 planned communities. I think they're more like cities, but they're not incorporated cities. Uh in the Woodlands, in Houston, Summerlin and 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 there was, you know, consumed a huge amount of cash. Uh today, we generate um, business generates cash. We reinvest that cash at Howard Hughes in the equity of buildings that we need in our various community. So it's a, it's a very good business. Much better business than textile businesses over time.

And you'll be executive chairman.

So, now what we're doing here is, so Pershing, the funds, have a 30, uh 7% 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. We brought in some strategic investors, uh last year. It's that entity that's making investment in the company. I'm returning as executive chairman. Ryan Israel, CEO of Pershing Square, is going to become the CEO of 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.

How much? When could you pull the trigger on the big I guess the elephant sized deal that Warren Buffett will always talk about?

We're going to start not with elephants, not rabbits, but uh small animals.

What are you looking for?

Uh what are we 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 movements and currencies, etc. We look for the kind of super durable growth companies. One businesses, high returns on capital, they can grow as far as the eye can see that are non-disruptible. 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 5 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.

How are you? Essentially, you're building a modern day Berkshire Hathaway. How are you? How would you compare yourself to Mr. Buffett in terms of how you invest?

Uh he's got more experience than I do. Uh he has different approach to health than I do. But I aspire to have his longevity and his mental acuity.

No cans of Coke for you. Right?

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 has, I would say generally been prepared to pay up for them. You know, he's very very disciplined on I, 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've invested in over time didn't look cheap at the time, but they became cheap very quickly by virtue of, uh you know, growth and the earnings cash flow 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.

You, you were in that room. Uh you were in the, at the Berkshire meeting. Correct? What was that?

Yes.

For those not there, take us inside there. What did it, when you heard Mr. Buffett say he would retire at end of the year, what went through your head?

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 a financial perspective. Uh yeah, I don't know how many millionaires, 10 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, built careers in the industry. I'm, I'm certainly one of them. I don't own Berkshire Hathaway stock today, but I still go to Mecca because I want to reset, you know, make sure my investment values uh 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 long time partner Charlie Munger uh passing away obviously a massive blow. Um and uh but you know, he still was remarkable. 94, three and a half hours of Q&A with like a one hour break. I mean, nobody else is doing this.

Nobody else is doing this.

It's amazing.

What are some of the biggest challenges you think his successor Greg Abel will be up against?

So Greg uh, I think is a spectacular operator in my all accounts. Um sure he's 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 dollars 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 in buying businesses that are not currently owned by Berkshire. Right? It's a big, it's a different challenge uh to think about uh buying a new company for 20 billion dollars versus making the incremental decision to invest in this power asset, you know, or this subsidiary of Berkshire today.

Is that elephant deal out there for Greg?

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 to do the 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. Most companies of that kind of scale want to stay independent. If they're underperforming, they replace their management. They replace the board. An activist shows up. They don't really sell themselves. So it's a big challenge.

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.

Yeah. So I, I think they, they're 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 insurance company portfolio in 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 it could still do a lot. But it's very comforting to the share, to the policy holders 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, I don't know that value would be created breaking it apart. The tax benefits, other, other aspects. So I say it stays together.

Do you think he can run it better than Warren?

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 talked about how Warren, you know, the, the taking the truly long-term approach. Um while they watch competitors doing stuff in the short term 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 it's going to certainly remain. Uh is there going to be a little more focus on margins? You know, optimizing businesses, you know, not for the short term, for the long term? You know, I would say that that wouldn't surprise me under uh Greg's leadership.

Ahead of this interview, Bill, I was thinking back to some of your investments that you still have in the portfolio, Chipotle.

Yeah.

I think Nike.

Yeah.

I talked to Chipotle CEO Scott Boatwright. Their business is slowing down because the tariffs, he told us. Nike, their big businesses uh where they make a lot of their ox, Malaysia, and China. Does this worry you as, as an investor in these companies that trade is really starting to have an impact?

So we care about the value of the business. The value of 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 negotiation. They pause the tariffs, or you 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 of 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.

145% tariffs on China. How do you think that impacts a second quarter earnings for companies, third quarter, fourth quarter?

Depends very much on the business. Most of the companies we own are not, are not going to be dramatically affected uh or minimally, or will be minimally affected, other than general economic effects, but not particularly uh pernicious effects on the, on those businesses. Um and uh 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 and 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.

I talked to Apollo CEO Mark Rowan, told me that the trade war is damaging the US brand. Do you agree with that?

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 it will become the only way the US negotiate going forward. I do think it would have issues. Um you know, he's been effective with 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 M.O. Um but I, I, I think uh the United States will still be, uh I think US exceptionalism is, is absolutely true. This is definitely the, 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, the tax reform, uh and the resolution of, of tariffs.

And you're still supporter. Even though the volatility in markets has been there, you're still supporting the President and his initiatives?

Absolutely. I want to see the President succeed, of course.

Lastly, uh Treasury Secretary uh, Secretary Best just gave a speech here, packed house. 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.

Yeah.

I mean, 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?

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. Dozes under way 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 different 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 easy 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, of companies and countries that have committed to build in America. Um and also I would say a inflationary backdrop that's getting a lot more favorable. Energy prices are come way down. You know, egg prices, if you will, the, you know, they the $2 egg is hopefully a thing of the past. Um but uh yeah. So I think we are, absolutely the potential to get there. I'd like to see us through the, the, the, the volatility of the tariffs as promptly as possible. I think that's important.

Fair enough. Bill Ackman, Pershing Square CEO. Good to see you. Uh big news, 900 million dollar investment in uh Howard Hughes. Appreciate it. We'll talk to you soon.

By the way, it's not so much the investment in Howard Hughes, that's important. By the way, we're paying a hundred dollars a share for a stock that's trading at 65. Right? So obviously 40% premium.

40% premium.

We think there's enormous value in the company. And uh we're chain a meaningful, very significant change of strategic direction, while maintaining kind of the core engine of that company today, which is the real estate business.

Do you see yourself as the next Warren Buffett? Do you think like that?

No. No.

No. Okay.

Warren's an icon and uh he deserves his own place in history.

All right, Bill. It was a pleasure to see you. Thank you so much. Appreciate it.

Pleasure.