Special Guest Bill Ackman on Markets, AI and Concentrated Investing

**Matt Britzman** (0:00)
The views expressed during this episode were those of the trust manager and not a recommendation to buy, sell or hold any investment. Nor do they necessarily reflect the views of Hargreaves Lansdown.

**Anna Macdonald** (0:10)
Hello, and welcome to the Switch Your Money On podcast from Hargreaves Lansdown. I'm Anna Macdonald.

**Matt Britzman** (0:16)
And I'm Matt Britzman.

**Anna Macdonald** (0:17)
Today, which is Thursday, 11 June, Matt and I are joined by Bill Ackman, founder and CEO of Pershing Square Capital Management, one of the best known active investors of the last couple of decades. Pershing Square runs a very focused strategy, typically around 8 to 12 high conviction investments, mainly in large US companies.
It's very deliberately, not a diversified index-like approach. In the UK, many investors will be familiar with the listed vehicle Pershing Square Holdings, a £7 billion market cap investment trust, which gives access to that strategy.

**Matt Britzman** (0:54)
Yeah, Anna. So, one of the important features of the trust is this idea of permanent capital. And it's something that we're going to talk to Bill about in terms of why he likes that structure. But just for a bit of kind of background, unlike an open-ended fund where investors are redeeming day to day, that doesn't happen with a closed-end investment trust. And typically, that can give a manager the ability to take a longer-term approach. Again, hopefully, something that we'll get Bill to talk about. We're also going to talk to Bill about markets more broadly. We're going to cover AI.
There will likely be some chatter on SpaceX, OpenAI, and I thought we'd pick some of the big IPOs that we're seeing. So I think this is going to be a good one.

**Anna Macdonald** (1:31)
Good morning, Bill, and welcome to our podcast. I'm Anna Macdonald, Investment Strategy Director.

**Matt Britzman** (1:37)
And I'm Matt Britzman, Senior Equity Analyst. Ty, Bill, thanks for joining us.

**Bill Ackman** (1:40)
Of course.

**Anna Macdonald** (1:41)
Before we get into the individual stocks, can we start on why having a closed-end vehicle is so important to you?

**Bill Ackman** (1:51)
Well, look, the markets have become increasingly short-term. More and more capital is controlled by what some people call podshops.
Firms where capital is deployed among a large number of small teams, where the teams are compensated based on relatively short-term performance, and where they're very tight with what they call risk limits, meaning if there's any degree of downside volatility, they're sort of forced out of names.
The markets are also characterized by index funds that are owning an increasing percentage of companies, and that money takes capital out of the float, which means the marginal buyer and seller has a bigger influence. Results of that is a lot more volatility. In that kind of environment, you can go through periods of time where very high-quality businesses are trading at very deeply discounted prices. But if your capital is short-term, effectively those investors have short-term capital. They're forced to sell when things are even slightly worse than anticipated. That creates an opportunity as long as your capital base can sustain that short-term volatility. That's what gives us the advantage and that's why we've really gone to a model where nearly 100 percent of our capital is in these permanent structures. It enables us to be a long-term investor. If you think about what is a company, a company is, if you pick a good one, it's an infinite life entity and the value of that business is the present value of the cash you can generate from it. To own that business for a month or two, you're going to miss out on significant opportunities.

**Anna Macdonald** (3:19)
Okay.

**Bill Ackman** (3:20)
You're forced to own the business for such a short period of time.

**Anna Macdonald** (3:23)
So does that mean that you are, in terms of the– you have a concentrated portfolio, that you are sitting and thinking, right, if the market moves, you know, for example, if there's a sell-off, we are ready to go with a couple of ideas in the sort of– in the stable that we can bring them out and bring them onto the field. Is that how you think about it?

**Bill Ackman** (3:41)
We call it a library as opposed to a stable, but yes.

**Anna Macdonald** (3:43)
Okay.

**Bill Ackman** (3:45)
We built a library of very high-quality companies that we'd love to own. And actually, we are going through a period right now where those kind of businesses are available at very attractive prices, the kind of companies we like.

**Anna Macdonald** (3:54)
Okay. So, do you think over the last five years, for example, that the way that the market has behaved with increasing passive funds and more and more high-frequency trading, that that is somehow providing these opportunities for you, but at some stage, do you think that balance shifts or do you think this is going to be a feature going forward? At what point does this active management style really come back into delivering index-beating performance, if this is what we're going to measure ourselves against?