Pershing Square founder and CEO Bill Ackman Talks Howard Hughes Plans, IPOs and Anthropic

SPEAKER_1 (0:02)

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Dani Burger (0:07)

So, you just had your Howard Hughes Investment Day, and again, the biggest acquisition you did for this was very recently closing this insure, Vantage, and with that, you get some more firepower behind you to invest. What is the plan with that money? What are you looking at?

Bill Ackman (0:23)

Sure, so if you follow Mr. Buffett over 60 years, incredible, 61 years maybe, incredible career, and you look at how did he create so much value at Berkshire Hathaway over time, he did, I would say, two principal things, maybe three.

First, as he wound down the textile operation, he took the capital and bought an insurance company, and then he managed the assets of that insurance company differently from a typical insurer. He took the float and invested in short-term treasuries, so the policyholders knew that there was money set aside to pay claims, and then he took the surplus of the insurer and he invested in common stocks. He did a good job managing that portfolio. Insurance is a very cash-flow-generated business because you write premiums, you collect money upfront, and you pay it out in the future. As a result, Berkshire was able to grow at a very rapid rate, compounding the insurance company's assets, earning a high return on capital without having to issue stock. Berkshire had a million shares outstanding for most of its life until the January acquisition. So the combination of growing a very valuable business inside a company and not issuing stock as you grow led to enormous Perkshire value being created. Basically, we're taking a page from Mr. Buffett. Vantage is a specialty insurer and reinsurer. We closed in June.

In July, we announced that Mark Grandison, a former CEO of Arch Capital Group, one of the best performing insurance companies over the last 25 years. He was the CEO for the last eight years. He was at Arch really from inception.

He became Executive Chair of Vantage. Mark recruited David Gansburg, former president, his protege at Arch Capital Group. Lucy Faito, former Vice Chair General Counsel of AIG. He brought an enormous horsepower to what was already a very good insurance company platform, already had a very good team. And we immediately sold the fixed income assets, which has become increasingly important because of the move in rates. We invested the money in short term treasuries, about 65% or so, and 35% of the assets we invested in a common stock portfolio that we managed. So our goal is to build a high ROE specialty insurance company led by a superb team with us managing the assets, and grow Howard Hughes and increase the intrinsic value of the company.

Dani Burger (2:39)

Just on that note on selling longer dated treasuries, which obviously to your point was a very prescient move considering what rates are doing. Is this an environment where generally you'd be voiding duration, be it Howard Hughes or any of the other investments that you look at? I know equity majority investor, but is that bond market untouchable right now?

Bill Ackman (2:56)

So I'm not really a fixed income investor. I never found the risk reward of owning a longer term fixed income instrument interesting. Just not my, I sort of like risk-free or high return. I don't like stuff.

Dani Burger (3:08)

Well, on the equity portion then of Vantage, how far can you push this? How much can you invest into equities?

Bill Ackman (3:14)

So we're going to run a relatively low-leverage insurer. Most insurance companies write an amount of premium equal to the equity, the capital of the insurer. We'll write less than that.

And we'll also, most insurers invest something like two and a half times their equity in assets and we'll invest less than that. So we'll have much less leverage on both sides. We'll take zero risk for the bulk of the insurance company assets, as I mentioned, insured from treasuries. That frees us up the flexibility under the capital rules to have something in order of 40 to 50% of the, approaching 40% of the asset, 40, 45% of the assets in common stocks.

Dani Burger (3:54)

And the Vantage acquisition, any other transformational acquisitions you're looking at, or Vantage is done, and you can set that aside for now?

Bill Ackman (4:01)

I would say it's certainly not done. It's at the very beginning, and Mark's gonna do his thing. But we announced something else of significance today. I tweeted about it, and we talked about it today, which is Howard Hughes has built an extraordinary team as an amazing collection of assets in markets where people want to live. And the business is selling lots to homebuilders in these small, what we call MPCs, these small cities that we manage. We own all the commercial real estate, the land, etc. It's a business we financed entirely with our own equity for the last 15 years.