Morning folks, and welcome to today's episode called Bill Ackman: 1966–2008. I’m breaking up Ackman’s story into three, maybe even four parts because, like him or loathe him, Ackman is a very interesting character. I’ll kick it off with a quote from Carl Icahn, the legendary Wall Street investor who has tussled with Ackman on more than one occasion, and this kind of encapsulates the core of Ackman’s character:
“I would be a very happy man in life if I could be as certain of just one thing as he is certain about everything.”
And really, that’s Ackman in a nutshell—supremely, annoyingly confident, to the point of arrogance. Yet it is this confidence, combined with intelligence and persistence, that has resulted in the Ackman we know today—sticking his nose into everything from college admissions, to DEI, to Israel and Ukraine, while also building up a fortune estimated to be $9.6 billion at the time of recording.
So in this episode, I dig into how he started off. It’s a fascinating story. Enjoy.
Bill Ackman was born in May 1966 in Chappaqua, New York. The family lived in a sprawling, stately house. His father, Lawrence, or Larry, was chairman of Ackman Brothers & Singer, a very prominent commercial real estate mortgage brokerage, and he’s credited with financing major projects that changed the city’s skyline. Today it’s still going and is called Ackman Ziff. It appears he got his activism gene from his mother Ronnie, as she was one of the key people who pushed for the electrification of the Metro-North Railroad in New York.
Ackman had one sister. She was very good academically and went on to become a doctor. It was expected that the children would achieve academically.
He was always massively competitive. Around the age of nine he took up tennis, and while he wasn’t the most naturally gifted, what stood out was persistence. He stayed in rallies, refused to give away points, and had a real tolerance for long, grinding matches. He’s remained a huge tennis fan, often photographed at the major tournaments.
It’s fair to say that Ackman has always had one thousand percent belief in himself, as can be seen in 1983, aged seventeen, when he made a two-thousand-dollar bet with his father that he would score a perfect 800 on the verbal section of the SAT, the tests used for college admissions.
That $2,000 was his entire savings, and his father, who I read up on as part of my research, comes across as a genuinely nice man. Not wanting to take all of his son’s money, he cancelled the bet before the results arrived.
When the scores came back, Ackman scored 780 on verbal, not 800.
Even now Ackman doesn’t accept that he might have been wrong. Here’s a quote from an excellent Vanity Fair article by William D. Cohan in 2013:
“I’m still convinced some of the questions were wrong.”
He graduated fourth in his class and entered Harvard in 1984, majoring in Social Studies, an honours programme built around social theory, history, and economics.
While in college, he had a summer job selling advertising for a publication called Let’s Go, a student-run travel guide series from Harvard. Before the internet, it was the travel book for backpackers.
Ackman was a ferocious salesman. One colleague described his technique as “relentless, bordering on annoying.” He made dozens of cold calls a day to hostels, hotels, and restaurants across Europe and North America. By the end of the summer, he had earned $14,000 in commissions, a huge amount for a student back then.
Ackman spent nearly the entire $14,000 on a high-end stereo. A $14,000 stereo back in the 80s must have been something else.
But he had been hired by Let’s Go as an independent contractor, so a few months later the IRS hit him with a tax bill that Bill couldn’t pay because he had spent it all. He had to ask his father to settle it for him.
Look, easy to dislike him. Imagine being able to spend $14,000 on a stereo and then have daddy bail you out. Easy to dislike. Even physically he seems to have the advantage over many—tall, six foot three, athletic, shock of grey hair, not unattractive. But in defence, it’s hardly his fault. Still.
Back at Harvard for his senior year, his thesis was titled: “Scaling the Ivy Wall: The Politics of Admissions at Harvard and Yale.”
Ackman’s thesis, as I understand it, was that the driving force behind Harvard’s admissions policy was institutional self-interest, that its policies were always the result of public or political pressure and were implemented more or less as a PR exercise to make the college look good—not based on fairness, or merit, and not based on who actually deserves a leg up.
What I find interesting about this is that I assumed his recent very public tirades against the big colleges like Harvard—for those who aren’t aware, over the last few years Ackman has been very public in his criticisms of the policies of Harvard and other top colleges—was him just jumping on the bandwagon.
And while I don’t agree with what I believe has been a campaign of harassment against the presidents of certain colleges, what we can see from his thesis is that Ackman was raising questions about Harvard’s admission policies almost forty years ago.
Now it is a bit ironic that in his thesis Ackman is essentially criticising Harvard for implementing policies on the back of public or political pressure, and then this is exactly what he has been doing over the last few years—using his influence and political ties to try and change the policies of Harvard and other colleges.
After graduating, Ackman went to work for two years for his father. But he was always interested in investing and was heavily influenced by Warren Buffett.
“Read everything Warren Buffett has ever written, and you can stop there. That’s all you need to know.”
But as we shall see, for the first part of his career he didn’t follow Buffett’s value investing formula—you know, buying into good companies and holding them long term.
So in autumn 1990 he enrolled at Harvard Business School and began investing his own savings.
He also found a classmate to bounce ideas around with—David Berkowitz, not Son of Sam.
The division of labour was clear. Ackman was the “front man” who found the deals and pitched the story. Berkowitz was the “back man” who stress-tested the maths.
In their final year, 1992, they began cold-calling wealthy investors for what would become Gotham Partners, which was incorporated a few weeks after they graduated.
Ackman had zero experience managing an investment fund. He had to persuade skeptical investors that two graduates with no professional track record could outperform the market. His pitch was described as “relentlessly confident.” No surprise there.
Ackman pitched to one hundred potential investors. They got six investors. Ackman and Berkowitz put in $350,000. His father also put in some money, for a total of $3 million.
One of Gotham’s first significant positions was in Alexander’s Inc., a distressed New York department store chain which had gone into bankruptcy. Fun fact: in the 80s Donald Trump held 27% of Alexander’s, but this was taken from him by his creditors when he got into financial difficulties that led to the first of his six bankruptcies.
When Ackman invested, the company was worth just $80 million, but because of Ackman’s experience and background in real estate, he knew the value of the company’s flagship property on Lexington Avenue alone was worth hundreds of millions.
Now it took a few years before the site was redeveloped, but Gotham got an ROI of several hundred percent from that deal, and as a result the fund grew. The following year they had about $30 million in the fund.
And here’s a quote from The Washington Post about a year after Gotham had launched:
“A top professional investor in the fund said: ‘It is intriguing that they are up and running so well and yet lack much experience. We have never put money with people who have no professional background, but they are really smart guys who have impressed a lot of experienced investors.’”
In 1994, he married Karen Herskovitz, a landscape architect. They would go on to have three children together.
Ackman and Gotham were still a small player. The deal that pushed him to prominence was one that he didn’t actually win.
In 1995, the Japanese owners of Rockefeller Center—the landmark complex at the heart of Midtown Manhattan—filed for bankruptcy. Ackman put together a bid in partnership with a larger financial conglomerate called Leucadia National. They didn’t win—Goldman Sachs did—but the attempt had put his name in front of a much larger audience, a bigger league.
Over the following years the fund grew to five hundred million dollars in assets, driven partly by that publicity and partly by a strong run of returns mainly linked to real estate plays.
But then in 1998 the fund diversified aggressively into an entirely different industry: golf.
They bought a private golf course operator and began expanding it, taking on debt to buy courses across the country. Ackman now found himself managing a large service business—over twenty-five golf courses with all the operational complexity that entailed—very different from buying and holding stakes in public companies.
By the end of 2001, Gotham had invested somewhere between $100 million and $150 million in the golf business, and it was losing millions of dollars a year. The 9/11 terrorist attacks didn’t help.
Ackman’s proposed solution was to merge the golf operation into the real estate trust Gotham controlled, using that vehicle’s hundred-million-dollar cash reserve to absorb the losses.
The problem was that the trust had its own public shareholders, and they could see exactly what was being proposed. Their cash was going to be used to rescue a private business that Gotham controlled through a completely separate fund.
They went to court. They won.
Once investors saw that the fund’s biggest asset, golf, was failing and its rescue plan was blocked, they all wanted out at once.
In December 2002, Ackman and Berkowitz announced the liquidation of Gotham Partners.
As a side note, Berkowitz went on to have a successful career working for other hedge funds, whereas Ackman, as we know, continued with his own firm, which I’ll get into.
However, two important things come out of this.
First, Gotham Partners had shares in a company called Hallwood Realty. Ackman believed its shares were way undervalued at $60 and thought they were worth $140. But he was liquidating Gotham, so he needed to get rid of them, so he called Carl Icahn.
They hammered out a deal where Icahn agreed to buy them for $80, but they also built into the agreement something Icahn called “Schmuck insurance”—an agreement that if Icahn sold his shares within three years, the two would split any profit above a 10% return. It was called Schmuck insurance because if Icahn made a big quick profit, this prevented Ackman from looking like a schmuck.
When Hallwood Realty was merged a year later and Icahn got $137 per share, Ackman expected to be paid around $4.5 million, but Icahn refused on the basis that technically a merger didn’t constitute a sale of his shares.
Ackman sued, and by all accounts, based on the contract they’d signed, Ackman had Icahn bang to rights. But Icahn thought he could bully Ackman. Icahn had a net worth of about $14 billion. Ackman about $4 million.
The case dragged on for seven years until eventually Icahn was forced to pay Ackman what was owed, including interest, a total of $9 million.
After the verdict though, Icahn was enraged—not because he lost, at least that’s what he says, but because Ackman went to the press and got a nice puff piece written about his victory in The New York Times, and in doing so violated a decades-old code on Wall Street: never rub it in the other guy’s face, no matter how gratifying the win.
Hard to know if this is what really pissed off Icahn.
But according to Ackman’s critics, this is the type of behaviour that really annoys them. He’s needlessly competitive, always has to be right, but more importantly, he wants everybody else to know just how right he is.
Quote from hedge funder William D. Cohan, Vanity Fair, 2013:
“He is very smart—but he lets you know it. And he combines that with this sort of noblesse oblige that lots of people find offensive.”
It means a French phrase meaning “nobility obliges”—the idea that those with privilege, wealth, or high social status have a responsibility to act generously and honourably toward those less fortunate.
“On top of that he is pointlessly, needlessly competitive every time he opens his mouth.”
Now the second thing to come out of the winding down of Gotham is that Ackman had already started researching a company called MBIA—this huge, Triple-A-rated bond insurer.
If a city in America wanted to build a school, or a bridge, or a sewer system, they issued bonds. And very often, MBIA was the one insuring those bonds. They insured about 20% of all US municipal debt.
That Triple-A rating is vital. MBIA was considered by Wall Street to be basically “zero-loss underwriting”—the idea that the debt it insured was so safe it would never have to pay out.
But Ackman’s take on MBIA, based on the research he had undertaken, was explosive.
Ackman claimed MBIA were insuring risky subprime mortgages and CDOs, collateralized debt obligations, that were far more dangerous than the municipal bonds they were supposed to cover.
Let’s just pause for a second. Most of us became aware of subprime mortgages and CDOs as a result of the 2008 crash, and in 2002 subprime wasn’t even on most people’s radar. So Ackman, in fairness to him, was one of the first to call it out.
Now for clarification, he wasn’t calling it out in a way that he was saying this was happening all over Wall Street, but he did see it in MBIA.
For context, it was around this time that the bundling of subprime mortgages into CDOs, and then packaging them in a way that made large parts of that risk appear safe enough to carry top-tier Triple-A ratings, started.
And while I won’t get into the whole CDO thing here, if you want a really great book that explains it in terms that even I understand, I strongly recommend Gillian Tett’s book Fools Gold. Fantastic read.
Ackman’s core argument was that MBIA was both fraudulent and insolvent. It didn’t have enough cash in reserve to pay out if even a fraction of these mortgages defaulted.
Before Ackman published the report, MBIA’s chairman issued what Ackman characterised as a direct warning:
“You’re a young guy, early in your career. You should think long and hard before issuing this report... we have high friends in high places.”
Ackman didn’t back down, and even though Gotham Partners was winding down, they published a fifty-five-page report titled Is MBIA Triple-A? and they shorted MBIA.
That’s ballsy, because MBIA’s threat wasn’t an idle one. They publicly accused Ackman of market manipulation and lobbied the New York Attorney General and the SEC to investigate.
Eliot Spitzer, the super aggressive New York AG known then as the “Sheriff of Wall Street,” was feared on Wall Street. Being targeted by Spitzer was often a death sentence for a financier’s reputation.
Spitzer eventually became Governor of New York, then resigned after it emerged he’d spent over $80,000 on high-end escorts.
Spitzer launched the investigation in 2003, served Ackman with a subpoena, and he was subjected to gruelling depositions.
Ackman stood firm, treating the investigations as a platform rather than a threat.
Every time Spitzer’s office asked a question, Ackman provided hundreds of pages of data. He essentially tried to “flip” the investigators, attempting to convince them that MBIA was the wrongdoer here, not him.
By late 2003, the investigation fizzled out. Spitzer’s office found no evidence of market manipulation, mostly because everything Ackman was saying was technically true.
And the information Ackman provided did lead to Spitzer investigating MBIA, but it took a few years for that to conclude, and I’ll get to it.
Anyway, by this stage Ackman’s reputation on Wall Street was pretty low, to say the least. Gotham had folded, nobody believed his research into MBIA, he’d just been investigated by Spitzer, and even though he wasn’t charged, the business press called him “roadkill on the hedge fund highway.”
But Ackman never lets criticism influence his belief in himself.
In January 2004, he launched Pershing Square Capital Management with fifty-four million dollars in seed capital. Fifty million of that came from Leucadia National, the same partners who had backed Ackman on the Rockefeller Center bid nearly a decade earlier.
Ackman put in four million of his own money, which by that point represented most of what he had left.
The name came from the square near Grand Central Terminal where the office was based.
Within months of launching, Ackman re-initiated his short position on MBIA. He just wouldn’t let that go because he was so convinced that his research was right.
Ackman shifted his approach. Owning a passive stake in an undervalued company and waiting was no longer enough. He wanted to be inside the room. Control was very important to Ackman—pushing management to make the changes based on his analysis or research.
This became the defining feature of how he invested from that point forward, and for the next ten to twelve years.
His first big bet: he began building a long position in Wendy’s, the fast food chain which at that time also owned Tim Hortons, the Canadian coffee and breakfast chain, which was growing faster and generating better margins than the core burger business.
Ackman’s research told him that while Wendy’s had a market cap of $5.7 billion, if you spun off Tim Hortons, that alone would be worth $4 billion. So you were essentially getting the 6,000-plus Wendy’s burger restaurants for very little.
It was like buying a house and realising the backyard was worth more than the home itself.
Ackman had been trying to get a meeting with Wendy’s management, but they kept turning him down.
So in early 2005 he changed tactics. He began preparing for a public confrontation instead.
Then, in March 2005, a woman in San Jose reported finding a severed human finger in her bowl of Wendy’s chili. This actually turned out to be a fraud.
The story became a national media circus almost immediately. Wendy’s stock dropped.
Ackman saw an opportunity and bought shares on the cheap, building a 9.3% stake, paying a total of just $100 million, because he didn’t have to put up all of the money. Instead he used total return swaps and call options, financial derivatives that allowed him to control hundreds of millions of dollars’ worth of Wendy’s stock while only putting up a fraction of the cash as collateral.
By the summer of 2005, the Wendy’s board, under pressure, finally buckled.
They announced the IPO of Tim Hortons and a massive billion-dollar buyback.
Pershing Square netted a profit of roughly $280 million.
Ackman used this as his roadmap for activist investing.
Emboldened, he moved on to McDonald’s.
He published research arguing that McDonald’s should sell its company-owned restaurants and spin off its real estate into a REIT, a real estate investment trust.
McDonald’s management resisted. Its CEO famously told Ackman to “go away.”
“We don’t need a 39-year-old hedge fund manager telling us how to run our business.”
Pershing built up a 5% stake valued at $2 billion.
Even though the board rejected the REIT spinoff, the pressure from Ackman forced them to respond. They announced they would sell 1,500 company-owned stores to franchisees and increase their dividend.
Ackman was able to exit with a profit of hundreds of millions, and again an enhanced reputation as someone willing to take on a giant like McDonald’s.
So with these high-profile victories, the fund was growing. It had around $3 billion to $4 billion in assets by 2007, and this is when Ackman made one of the biggest bets of his career.
He started buying shares in the retailer Target, and he raised a dedicated two-billion-dollar fund built entirely around Target.
The idea was simple, at least on the surface. Again, mostly a real estate play.
Ackman believed if the company separated its real estate and sold its credit card business, the stock, in his view, could roughly double.
The board didn’t agree.
They believed owning their own stores was vital and gave them operational flexibility that was more valuable than a one-time cash infusion.
Also, Ackman’s timing was disastrous.
You had the 2008 financial crash. Target’s shares more than halved.
But crucially, because the $2 billion Pershing Square fund used high-leverage call options, it didn’t just lose 50% like the stock—it lost 90% of its capital by January 2009.
In options trading, if the stock doesn’t hit a certain price by a certain date, the value goes to zero, so it was a complete bust.
Now the key point here is that some of his investors in this Target fund were fellow hedge funders, activist investors—people like Daniel Loeb, founder of Third Point.
He ended up losing about $175 million, and they fell out over this.
So just like with Icahn, Ackman made a powerful enemy of Loeb.
And I don’t think this was just about money. Ackman’s prickly, or maybe arrogant, superior attitude makes him a lot easier to fall out with, and as a result there are always a lot of people on Wall Street hiding in the long grass, waiting for an opportunity to take a shot at Ackman.
The loss caused Ackman to issue a rare apology:
“Bottom line, [the Target investment] has been one of the greatest disappointments of my career to date,” he wrote investors.
While all of this played out, Ackman still had his short position in MBIA and was like a dog with a bone. He just wouldn’t let up.
And with good reason.
Spitzer’s office, as mentioned, investigated MBIA, and in 2006 MBIA was forced to pay a $75 million fine and restate seven years of financial results.
While this was a massive win for Ackman’s credibility, it did not destroy the company.
The rating agencies, Moody’s and S&P, maintained MBIA’s Triple-A rating.
Most people would just give up by this stage, but not Ackman.
He wrote directly to the board of Moody’s, warning of potential liability if they maintained the Triple-A rating.
He cornered the CEO of PricewaterhouseCoopers, MBIA’s auditor, at a charity event.
He raised the issue with an analyst at a funeral.
Finally, in the first few months of 2008, as the danger of subprime mortgages started to make headlines, the various rating agencies cut MBIA’s Triple-A rating.
After the Lehman collapse in September, MBIA’s stock, which had traded at $70 in 2007, fell to $2.
Ackman’s short position, which he had held for six years, finally came good and generated a profit of $1.1 billion for his investors, and apparently Ackman himself made hundreds of millions.
Pershing Square’s main fund, not the Target fund which was separate, finished 2008 with a standout annual return.
And despite the Target setback, Ackman is basking in the praise he’s getting for his tenacity and foresight.
As Joe Nocera, writing in The New York Times, said at that time:
“I don’t think I’ve ever seen a fund manager grab a company by the tail and simply not let go the way Mr. Ackman has done with MBIA.
The other participants in the marketplace—the analysts and rating agencies and institutional investors—they should be thanking him.
He may be aggressive, he may be over the top, he may not be able to speak in short sentences. But he’s doing the hard work, and thinking the hard thoughts, that they refused to do for far too long.”
So that brings us nicely to 2008, where I’m leaving the story, and I’ll do part two maybe in six months or a year’s time.
So I’m not going to do a deep dive in terms of what I think of Ackman quite yet. I’ll probably save that until the final episode.
But one thing that is clear about Ackman from his youth and right up until 2008 is that he has enormous amounts of self-belief.
Or to quote one of his hedge fund peers from William D. Cohan’s excellent article in Vanity Fair:
“There is a saying in this business: ‘Often wrong, never in doubt.’ Ackman personifies it.”
I love that line.
And again, love him or loathe him, Bill Ackman makes for a great business story.
Anyway, that brings us to listeners’ emails, and this one comes from Jay, who I suspect might be a Man United fan, because he’d love me to do an episode on Jim Ratcliffe, the controversial owner of Ineos, the plastics company.
He’s worth about $30 billion and also has control over Man United, a fascinating figure, and I will cover him, Jay.
Thanks so much for the suggestion and for listening.
And remember, if you have any comments, any corrections, or any story you’d like me to cover, email us at: info@gbspod.com
All the best, folks.