Tags: Santoli | Ackman | Buffett | fund

Yahoo's Santoli: Bill Ackman Is Not Warren Buffett

By    |   Tuesday, 14 October 2014 11:29 AM

The new generation of brand-name billionaire investors like Bill Ackman want what Warren Buffett has — namely a reliable pool of permanent capital that they don't have to send back to investors on a whim — but they're unlikely to get it, according to Yahoo Finance's Michael Santoli.

Ackman was not shy about crediting Buffett's example this week when Pershing Square Holdings, his firm's main portfolio, achieved a long-held goal of trading on a public exchange — in this case in Amsterdam.

"Pershing Square Holdings, we think of it like an investment holding company. We are not Berkshire Hathaway, but I think that's not a bad business model. You think about a long-duration investment strategy," Ackman told Bloomberg TV.

"We will only invest in the public markets but we will buy large stakes in public companies like we did in the past. This will enable us to have a capital base that matches the duration of our investments."

Santoli pointed out that public company structures contain a more reliable pool of capital, while traditional hedge funds like the ones Ackman and others have maintained have a structure in which investors can easily withdraw their cash on short notice.

"Pershing Square, and many other big funds, were hit with heavy redemptions in the financial crisis, forcing them to sell assets into nasty market declines — just when a value investor would want to be buying more to benefit long-term holders," Santoli wrote.

"In fairness, Ackman and his contemporary marquee managers may not seek to replicate Berkshire in all its scope and variety," he added. "But it doesn't much matter, because no other executive, no matter how hot his hedge-fund returns, won't likely be given such latitude in running a public company."

During his investor road show, Ackman claimed that Pershing Square shares should trade above the net asset value (NAV) because the share prices in the companies he buys usually jump in value once his position is disclosed publicly, The Financial Times reported.

However, Pershing Square Holdings' IPO "fizzled," and ended its first day of trading Monday at a 9.9 percent discount to NAV.

The Times said Ackman's public listing in Amsterdam means his investors will now have to find buyers on the open market if they wish to exit.

"During the financial crisis, investors in Pershing withdrew about 27 percent of their holdings in the New York-based hedge fund."

Besides Ackman, hedge fund managers Brevan Howard and Dan Loeb's Third Point have also raised money in public offerings, and his billionaire rival Carl Icahn now has publicly traded Icahn Enterprises to draw on.

"These funds might all work out just fine in the limited way they are being capitalized and used. But it's almost certain that none of these investors, regardless of how brilliant, will be allowed by the market to do anything like what Buffett has done with his sprawling, decentralized conglomerate-cum-investment-portfolio," Santoli wrote.

"His phenomenal record of wealth creation, begun when he was obscure, is the only reason the market tolerates the collection of a huge railroad, massive insurance interests, a blue-chip consumer goods stock portfolio, a vast utility-and-pipeline network and assorted one-off investments and pet businesses."

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The new generation of brand-name billionaire investors like Bill Ackman want what Warren Buffett has — namely a reliable pool of permanent capital that they don't have to send back to investors on a whim — but they're unlikely to get it, according to Yahoo Finance's Michael Santoli.
Santoli, Ackman, Buffett, fund
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2014-29-14
Tuesday, 14 October 2014 11:29 AM
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