In recent weeks one of the most notorious book talkers in history, Pershing Square’s Bill Ackman, has been at it again:
“Ackman’s extraordinary doom-laden appearance on CNBC, in which he revealed he had evacuated his family and colleagues from New York City and said he expected the virus to kill close to a million Americans, spooked financial markets, sparking immediate frenzied selling.” Guardian
A few days after the above interview some interesting facts emerged:
“Bill Ackman has turned a $27 million hedge against a coronavirus downturn into proceeds of $2.6 billion. That will go down as a genius trade…” Reuters
Genius trade or not, some have called Ackman’s actions “soulless and disgusting”. In an effort to be objective further investigation is required.
First, Ackman acquired his “insurance” (hedge) position well before the famous March 18 interview and for seemingly cogent reasons:
“On March 3, 2020, we disclosed that we had acquired large notional hedges which have asymmetric payoff characteristics; that is, the risk of loss from these hedges was limited, while their potential upside was many multiples of our capital at risk. We did so because of our concern about the negative effect of the coronavirus on the U.S. and global economies, and on equity and credit markets.” Pershing Square
Next, Ackman was already moving out of this position by March 18 and, according to Pershing, no extra returns were generated from the March 18 interview:
“By Wednesday, March 18th at 12:30pm, when I appeared on CNBC, we had already sold slightly more than half of the notional amount of our CDS, realizing a gain of more than $1.3 billion, with the unrealized portion of our hedge having a market value at that time of $1.3 billion for a total of $2.6 billion.”
Not to impugn Pershing’s word, but it is possible that while saying the market was going to “hell” Ackman’s team was opportunistically selling insurance hedges while at the same time buying stocks during the market firesale (which Ackman just so happened to be pouring gasoline on). A handful of people have also noted this:
“He [Ackman] was redeploying some of the cash into the stocks at much cheaper levels than the stocks would have been at if he hadn’t been yelling fire in a crowded theater” Joe Kernen
Responding to the outrage Ackman recently claimed that his apocalyptic rant-fest was actually – wait for it – bullish:
“On CNBC I also disclosed that we were buying stocks like Hilton, Restaurant Brands and Starbucks. By disclosing what we were buying in real time, I was sending a very bullish message to the markets, likely increasing the prices we would have to pay to buy more of these stocks.” Bill Ackman
Despite audacity points for attempting to spin the blatantly disingenuous, the above trite does not mesh with reality. To be sure, when you say things like “Hilton is going to zero” and “if we allow this to continue…every hotel company in the world is done!”, you shouldn’t claim afterwards that you were sending a “very bullish message to the markets”. Moreover, and as I am sure Mr. Ackman is aware, simply saying you are a buyer does not mean much of anything, especially when you are also a de facto seller (i.e. half the insurance hedges were still active on March 18). Did Ackman disclose his market insurance hedges on March 18? No. Did Ackman disclose his net exposure on March 18? No. Enough said.
The narrative Ackman has adopted today is that instead of blood-money profits being used to buy clubs to slaughter baby seals, gains from his leveraged short position were simply funneled into pro-USA positions. Despite what you think about Ackman and his selective disclosures, the simplicity of this argument is very convincing:
“By selling the hedge, we generated $2.6 billion of proceeds, the substantial majority of which we invested in both new and existing investments, which we believe will payoff as markets recover.”
Anyway you cut it, $2.6 billion from $27 million is monstrous “trade”, even if it was really the result of a smartly timed “hedge”…
Understanding Bill Ackman
Prior to the March 18, 2020 Twitter-storm Ackman had not posted on Twitter since January 2019, and prior to the March 18 CNBC interview Ackman had not done a CNBC interview in more than two years. While it is possible that during this hiatus Ackman didn’t have much to talk about, the more likely scenario is that there was a lot he didn’t want to talk about. Quite frankly, when Ackman sold the last of his Herbalife short in 2018 – one of the great failed shorts in history – he probably needed some time to decompress. The Herbalife debacle not only cost Ackman’s fund money but it tarnished his reputation (more than missteps at Borders, JC Penny, or Valeant ever did). This two year period of relative silence seemed to help Ackman refocus, and help a lot of people forget his true stripes.
After logging solid returns in 2019 and with the opportunity to make some big moves in 2020, Ackman couldn’t resist rejoining both Twitter and CNBC on March 18. Some might say the convergence of major portfolio changes and a non-stop flurry of investment ideas over multiple media platforms was merely coincidence. These people would be what can aptly be called delusional. Given that Ackman doesn’t make a habit of talking about flowers and rainbows, we can assume, at the very least, he returned on March 18, 2020 for very specific and calculated reasons.
At risk of speculation, Ackman, like everyone, was watching the unprecedented volatility in the markets in March and salivating at the prospect of making some major moves. He knew, as any savvy hedge fund manager would, that how he traversed the covid-crisis would probably decide his year-end fate. Furthermore and perhaps most importantly, March 18 was, without doubt, a safe time for Ackman to enter back into the conversation without the threat of anyone bringing up Herbalife again.
So, with circuit breaker hits becoming commonplace, the markets entering their fastest bear, and daily doses of panic more popular than pizza in New York, the “arrogant” Ackman we all know and love/hate returned with force and he has been a force ever since. Mr. Ackman undoubtedly loves this attention and, make no mistake, he will use it to try and control the narrative as he speaks to his glorious book. To wit, with the insurance bets unwound and cash to buy “cheap” stocks running low, it took Ackman just over one week from March 18 to strike a new wildly bullish-tone.
“Billionaire investor Bill Ackman asked President Donald Trump on Sunday to spend trillions on infrastructure to offset the economic fallout from the novel coronavirus. Two days earlier, Ackman’s Pershing Square hedge fund raised its stake in a real estate developer — which would likely benefit from an infrastructure boom” Business Insider
Lobbying for bailout/stimulus funds or special regulatory treatment is something even the most principled billionaire does from time to time (yes even Buffett). The difference with Ackman is that only a few days after one of the most apocalyptic interviews in history – and after no meaningful changes in coronavirus policies per se – he suddenly became more more bullish than most. As his panic stricken cry of “shut it down!” morphs into something like “provide stimulus to my investments!”, you cannot help but sit in awe as the recently silent Ackman now can’t seem to shut up. Since returning to Twitter Ackman has launched hundreds of posts, including 25-posts alone on March 28.
“We can finance the infrastructure with near zero cost long-term financing. Build costs will be lower because of lower commodity prices and less competition for labor. We can rebuild America’s infrastructure, and help support the economy to enhance the recovery from the virus.” Twitter
There is a small part of Ackman, the student locked in a room, that doesn’t really care about March 18 because he simply wants Pershing to perform better than the markets. But there is also another part of Ackman that is ecstatic his words can cause such a commotion. To be sure, like Soros breaking the Pound or Berry conquering subprime, Ackman helped cause a stock market meltdown on March 18, 2020 and he turned $27 million into $2.6 billion (whether we like it or not dear reader, this is the story that may persist).
In short, is anyone really surprised that when a billionaire hedge fund manager appears on CNBC saying stocks are going to zero that the markets, already tumbling, tumble a bit more? For that matter, is anyone that knows of Ackman’s past really surprised he returned in such a grandiose manner? Ackman has a history of saying stocks are going to zero, attacking companies/boards, lobbying regulators, and deploying all sorts of other “activist” schemes to make himself (and his shareholders) money. He also has a history of selectively disclosing words and investment ideas that have a tendency to fail or succeed in spectacular fashion.
“By disclosing what we were buying in real time, I was sending a very bullish message to the markets”
As for what really happened on March 18, the truth sits somewhere between Ackman being “soulless and disgusting” and Ackman being the stuff of legend.
Flashback: February 19, 2012 – The “Bully”, The “Cry Baby”, and Herbalife
