Ackman, Rubenstein on Markets, Money and More

hello I'm David Rubenstein I'm here today with Bill Ackman the noted investor and philanthropists and increasingly tennis player so bill thank you very much for joining us today nice to see you okay bill the markets not seem to be our strange is somebody who's not following them that quite the way that you do the economy seems to be in a recession a fairly deep recession yet the market is almost where it was when we started this recession can you explain that why the market seems to be so much higher than the economy is sure so you know when people talk about the market they talk about either the Dow or the S&P 500 and the S&P 500 is a market cap weighted index and what's interesting or fortunate and unfortunate about the crisis is it affects different companies differently and the more dominant large cap you know companies the more strong in the balance sheet the stronger the market position those businesses are huge beneficiaries of the crisis and with the market does not reflect our small businesses private companies more levered businesses that don't have access to capital don't have the same dominance of the public market so a business like Amazon which is a very big component of the the market is you know is up 45% that does a lot obviously for the averages it's probably something approaching almost 10% of the ESPY index today my guess is you know six seven percentage points the index businesses like Google Facebook I think long term beneficiaries and ultimately the value of a business is the present value the cash it generates over its life and even if their cash flows are disrupted in the short term if they're greater in the long term the values will be higher so I think the stock market is a snapshot a portion of the economy if it were if you had an index of smaller businesses the market would be down 50 60 70 80 percent so the market also seems to gyrate more than normally we have market going up a thousand points down a thousand points is that because of computerized trading or why is the market gyrating so much oh again the market is a discounting mechanism and people's estimates of the future have been very volatile how long is the crisis going to go on for when we get back to a normal life you know these affect the input of the model that analysts are using to value securities I think the other issue is the market in the short term is very much a sentiment index it's a way for people to express their emotions and there's been a lot of emotions mature when that happens there's a corresponding degree of volatility but I don't think the market is dramatically wrong you know when you look at the market on a company by company basis we look at the companies we own you know different businesses have been affected differently some you know many businesses have been will be long-term beneficiaries not long ago you made a very spectacular investment as I remember it it was 27 million dollars you put on a hedge in effect and it became worth more or less 2.6 billion something like that about a hundred times your money so I don't know if you've done a lot of those hundred times your money deals but was that something that you expected that would go up that much and you were later criticized by some for having gone on CNBC and and kind of talked down the market at the time when you had a short position can you explain why you made the investment and why the criticism might not have been fair sure so what we did is we bet that credit spreads would widen which I thought was a very very low-risk bet in the sense that credit spreads were at the all-time tightest levels ever going into what I thought would be a pretty serious economic crisis if we were wrong about the economic impact of the crisis we would have paid again a relatively modest amount of premium you know to be wrong so it was a very asymmetric bet and you know unfortunately things played out the way we expected in terms of the economic impact of the crisis you know if you actually watch my CNBC segment all twenty-eight minutes of it which I think a lot of people didn't do as opposed to the snippets that CNBC advertised after my presentation I actually gave a well I say we look we're at a fork in the road if we go down one fork its doom and damnation and that fork was a one in which we did not in effect shut down the country briefly I'm carefully reopen the country went down just let the virus go roughshod I felt it would have very dramatic and health implications that was the part I was most concerned about but as I said in my 20 minute presentation that I was actually quite bullish because I was very confident that the government would in effect shut down the country and that would you know stunt the growth of the virus allow us to reopen the economy and when I said on CNBC that's why I'm buying socks and I made we went bullish we were very bearish going into March March 12 and on the 12th we started buying stocks very aggressively and we started unwinding our hedge as quickly as possible I went on CNBC in the 18th by the 18th I had 3.3 billion more exposure than I did in the 12 and I was really in a way I was talking my book and my book was bullish I was betting that the country would be shut down and and fortunately I think for the country California initiated the shutdown within 24 hours and then New York State and then the rest of the states have have largely followed and that's why you're gonna have the opportunity for an economic recovery and the virus will kill you know only 150,000 people instead of you know what could have been millions but the the unfortunate part is the you know CNBC brand you have 30-second segments where I talked about the fork in the road with doom and damnation and they didn't run the segments where I'm saying actually I'm bullish so if you go back and watch you'll come away with a very different impression then some people perceived short snippets well do you have anymore hundred times your money bets that you might be able to give to us where somebody might be at a make a hundred times their money and then not-too-distant future any good bets you might recommend sure so the the it's a bit of an overstatement to say you know we ended up you know spending 27 million dollars on the insurance policy on which we collected 2.6 billion but we had to you know the way that bet is entered into is you commit to pay five hundred million dollars per year for five years and the longer you keep it on the more you can lose so it's a little bit different than someone who can scrape together you know ten thousand dollars and make a hundred ton so it was a it's a bit of an overstatement to say we made a hundred times but it was a it was a very good hedge and we were able to invest the money in the market and protect our investors capital so we felt good about it okay so let's say Bill I told you today with absolutes certainty no doubt about it that the next president of the United States would be Donald Trump he's gonna be reelected you know for certain would you short the market would you go along the market what would you do it really wouldn't change anything that we're doing you know our strategy is to buy super high quality dominant companies that can withstand a pandemic or dramatic movement and interest rates that are not particularly exposed in the economy so you know who the president is it's not something that we would make up that one way or another on the portfolio the same thing will be true Abidin if I told you with certainty he's gonna be the next president you wouldn't change your views right okay so you are what's called an activist investor not a macro investor an activist investor typically invests in companies or make specific bets on companies the direction up or down or so forth how did you get into being an activist investor as opposed to let's say a value investor a macro investor was it something you decided to do while you're in college or early in your professional career what led you into that route I think it's part of my personality you know I started as an investor raised the first pool of capital when I was 26 and I made a early investment at a company called Rockefeller Center properties and I saw management making a series of decisions that made no sense to me it was just so obvious the right thing to do as to how to create value and it was being a frustrated passive investor that made me into an active investor and you know that investment turned into a very profitable and very high-profile investment and with success you know one is motivated to try it again and it's been helpful to the strategy over a very long period of time and it's fun and if you're passive you can feel like the markets Patsey and if you're active you can actually create some value and I think it's a lot more interesting than just picking securities you know we bought a stake in Chipotle at a time where the company was struggling a few years ago we put a few directors on the board we recruited the new CEO named Brian nickel it's completely turned around the company the stock is you know almost tripled in the midst of a crisis and it just tells you that you know that's a lot more fun and it's a lot more profitable and it's I would say better good for a lot more good for America than just simply being a pastor stock ticker a Pershing Square was started in 2004 year in vehicle where did you get the name Pershing Square sure so right in front of Grand Central Station was used to be a square that was an open grass you know sort of public gathering space you know over time Grand Central Station was built you know this is a little bridge over over it but it's that location still called Pershing Square and our offices were at the corner of you know right in front there 110 East 42nd Street so I like the name and you know it was available that's what led to our choosing you started in 2004 Pershing Square with I think 54 million dollars so somebody invested in 2004 part of that 54 million they kept it with you what kind of compounded a rate of return where they have today you would have about 11 times your money and about a 16 percent IRR okay and are there people who have done that that kept their money or the whole time yes the Lord very loyal ones it's not been a straight line up we'll be clear okay so let's talk about for a moment some of the campaign's you've done as activists some of them have worked out some have not Chipotle has seem to have worked out but you did a couple that were difficult one so Herbalife or valiant they didn't work out what would you say is the mistake you made in hindsight and that you would try to avoid in the future sure so there's sort of eight principles that have driven our investment success and when we have veered from those eight principles we've lost money and after the 2000 went through a very difficult period circa 2015-2016 the two investments you mentioned were big drivers of that it was a you know if you will experiences making mistakes and learning from them and it was a moment of reflection for the firm and I went back to the core principles that have driven our success for the first twelve years and I had a member of the investment team literally engraved them in a stone tablet not dissimilar from Moses's Ten Commandments and I had that stone tablet put you know what you might call a deal toy sit some to everyone's desk in the office and we've adhere to those principles you know ever since and you know we've been fortunate to return to the success we had for the first dozen years so I think it's about keeping to your principles are basically one of that's in simple predictable free casual genitive dominant companies with large barriers to entry that are in high returns on capital that have limited exposure to extrinsic risks we can't control strong balance sheets don't need access to capital to survive have excellent management good governance sounds logical but you know occasionally we've diverged and there's those times you know there's a certain discipline that comes with investments and there always seems to be a countervailing quality that caused us to diverge but it really each case we've compromised on business quality or complexity we've been harmed from the investment standpoint to be an activist investor my impression is do you have to be a fairly tough person you can't be a shy retiring person because people are going to criticize you so did you develop a thick skin relatively early and do you feel okay being confrontational at times or is that a problem because you just not your personality sure I'm generally not a confrontational person you know I had my my one little episode with Carl Icahn on CNBC that had a kind of fair amount of attention yeah I didn't actually choose to debate Carl Icahn on television the you know to the credit of the network they brought him on in the middle of an interview like this one where we both had in the posing a point of view you know on an investment I do think it's a strategy that requires a thick skin but you know I think anyone who takes high profile positions not just on investments but on any issue particularly this moment in history is going to get slammed by one side of the debate it's the inherent nature of the of a divisive country and you know fairly strong opinions on both sides but I've always had the view that if you take you know a public strong position that you have a lot of conviction in your Garrett and no one you know no one pays attention that maybe there isn't that much substance to what you have to say so I guess I take it as favorable and and can also often be instructive to hear the opposing point of view as long as it's not ad hominem criticism you know I have no objection to someone taking the closing point of view at all let's talk about the economy for a moment right now it seems as if we borrowed enormous amount of money to pay for the procession in effect the Fed has put up maybe four to six trillion dollars off its balance sheet Congress has maybe put up so far three plus trillion maybe close to four trillion so are you worried about the debt having an impact on the economy in terms of the value of the dollar inflation or just the size of debt and our billing billing to pay it off sure it's you know if you think about the country as a business the country has a lot of intrinsic value a lot of asset value I would say one of the most valuable assets of the country is the you know the country owns 35% of your income and my income in a way you can think about that you know that's the text the current level of of taxation federal taxation so that's in effect the country owns a thirty five percent stake in your intrinsic value and my intrinsic value as a contributor to the economy and the country retains the right to change that percentage ownership at its will by in fact changing you know obviously tax policy so there is and of course we have enormous assets whether they're real estate assets or infrastructure assets you know that are so I think the the asset side of the u.s. balance sheet is very very large obviously you'd never want to let the liability side of the balance sheet grow too much and there are a lot of not just debt liabilities we have outstanding but we have you know social security you know normos health care costs Medicare Medicaid etc you know that we bear as a country so it's something that is concerning you know we are fortunate it's finding ourselves in a very low interest rate environment but it's something to think about and be concerned about but it's sort of difficult to do the same kind of calculation of the the neck of the leverage nature of the United States unless you do a proper valuation of the asset side of the balance sheet so we're in a technical recession we're technically in a recession I should say and fairly deep but right now when do you think we're likely to come out of this recession in the third quarter fourth quarter or next year you have any views yeah I think we're going to you know begin a recovery you know certainly by year-end I don't think we'll be back to anything close to a normal economy until probably the second half of 2021 I we have an early vaccine you know Pfizer's been talking about a potential distributable vaccine by the fall that will obviously make an enormous difference I think if we can reduce the treatment of the virus to you know one a test you can take it home and get an accurate result in 15 minutes and it's a it's telemedicine to your doctor to get you know the cleared doctors say okay you need a prescription for REM desert V R in a inhaler format and you can stay home for two weeks and be fine you know those things will make a fairly significant positive impact but I think the we've had kind of a sloppy closure of the country for the virus and we're gonna we're having a bit of a sloppy opening so I think you're gonna you know you're not gonna have business confidence return and consumer confidence return until you know the kind of people feel safe truly safe if I had to guess that's really more like the second half of next year and into a you know the beginnings in q4 and if you wanted YouTube next year oh you said sloppy opening what you mean is there's a lot of cases in Texas and Florida of people getting virus now and doesn't seem like it's disappeared so are you worried that this could without a vaccine keep going on through all of the 21 I think what will happen is you know the the health care system is getting better and better at treating the virus so you know they're learning when to put people on a ventilator more importantly when not to their learning which drugs can have a positive effect and what you know learning more about what doses and earlier it went when to give the medication testing is improving and I think all of these things you know are positives and will improve confidence and reduce you know kind of risk things will be a lot better I think in a few months although you're gonna have some states with a lot more cases because people have not been careful on those states are gonna have to moderate economic activity and maybe you know go to a mode of protecting more aggressively you know people at risk and being more cautious you know again all the things which will temper the economic recovery but I do see a you know kind of gradual improvement in all fronts as the global healthcare system every medical researcher in the world basically working on solving one problem and a lot of resources going into it so I think I think by the fall we'll feel a lot better if we can take death off the table if we can take severe illness off the table I think that's certainly possible in this calendar year people gonna feel a lot better about living and going out and living a more non normal s so if j-pal called you tomorrow and said look I'm not sure what I should do should I do more and if the Secretary of Treasury Stephen Newton called you tomorrow should I pass another bill working with Congress what would you tell both of them would you say we need more help from the Fed we need more help from Congress or would you say we've had enough help um look I think we have to protect the most vulnerable people economically during this you know period of time and I don't I don't know you know when do these programs precisely run out you need to design programs you know I've heard we've made a lot of investments in the restaurant industry where you know some of the benefits are at a level where they're more they're better than you know $15 per hour sort of the minimum entry points for many private businesses and it discourages people returning to work so you design them in such a way that you don't reduce economic incentives to return to work but you have to have them large enough to protect people you know during one of the more challenging times particularly for people at the lower end of the economic scale now you mentioned earlier that tech companies seem to have done pretty well your firm seems to invest more and that's a consumer retail least some of the visible ones are in that area are you a tech investor in the sense of investing in tech companies or is that something you plan to do in the future or you wish you had done more of sure it's a look at they're always investments I I would rather not have missed I feel like I could have figured out Amazon but that's a backward-looking sort of approach I don't think Amazon so much as a technology company you know in the same way I you know Starbucks is a in a way a technology company one of its competitive advantages versus the the corner coffee shop is its you know digital ordering and delivery and and contact lists way of interacting with customers I think every business is a technology company what we are not is we're not investors in pure technology companies we wouldn't invest in a self-driving company with no revenues but we might invest in a you know many of the businesses we own are heavy users of technology whether they're consumer facing or whether they're industrial companies or manufacturing businesses we're looking for businesses with very attractive economic characteristics there are many so-called you know companies that are in the Nasdaq people think of them as tech companies but they have the kind of economic characteristics we like we just don't like businesses where a couple of young people in a garage you know somewhere in Silicon Valley can come up with a disrupting technology that disintermediate s-- the business suppose a young person at your alma mater Harvard or any other college said look I'm watching Bill Ackman he's a smart guy he's making some money I'd like to do that III want to be hired by Bill Ackman what do you look for when you're trying to hire young people you want somebody that's exactly like you one of the skills that you're looking for so we're really a private equity firm that invests only in the public markets and so when we've recruited for the investment team if that's what you're referring to we're looking for people the typical candidates been a couple of years in investment banking in a great training program at a big firm of goldman sachs etc Blackstone or the old version of Blackstone you know their Blackstone advisory business we've recruited some people from there and then you know several years in private equity because private equity investors focus on simple predictable free cash flow generative businesses and focus on businesses that can support a large amount of debt and and really determine valuation think about industry dynamics so we're looking for someone with you know that kind of a background you usually four or five years out of school and then and then they join the team and we've had a lot of continuity in duration for people who've we've come to the firm but we hire very very few people we only have a seven person investment team the plan is to keep it quite small well when you had your problem saw a couple years ago you alluded to and I talked about valiant then for example did you ever lose faith that you would be able to turn your business around and did you ever doubt that you could make this a successful business again sure so you know I think the always like to say that success is not a straight line up and I would give these talks of business schools about how you do how to deal with failure and then I failed and I had to implement the strategy that I was a proponent of to business school students but I think the key look we have a business with a strategy that make sense we made some mistakes experience is learning from those mistakes that's the key and then you know I was quite confident that if we've here to the principles that built the success of the firm or re adhered if you will that we returned to success and it's just a question of duration and and every day coming into the office and making decisions with with good judgment and being level-headed and you know with time I was confident that things would recover and and you know feel very fortunate that things have worked out the way that we expected but I'm certainly gonna be you know now at 54 I'm done making mistakes that's my that's my business plan going forward would be very very good watchful about veering from the course that has led to you know our success in recent months you've been running your company I assume from your home I assume and is that made it more difficult or easier and what have you learned from this experience you think you can run the company from your home in the future just like you're doing it now we could but it's far less fun and that you know one of the reasons why we can run the company from from our respective homes is that we've built a real culture and almost a family-like environment among the people and in a culture of trust and respect and you know we all like each other but we can succeed doing this because we view it as a temporary solution I would say you know we've been incredibly effective and incredibly productive you know working from home but it's harder to have the separation between your job and your life if you you know I think it's actually very very helpful to come into an office and then when you leave leave it behind you it's a lot harder I'm working from the if you will the den where my office is located my parents bedroom is you know sort of over there you know the baby you know sometimes I hear a crying in the kitchen you know so it's it's quite beautiful in a way this moment with you know living with my parents for the last almost four months and I'm a 13 month old child remarried relatively recently I'm very fortunate to to you know beautiful family but works from a temporary standpoint and I also think you know it will be easier if I have a day where I need to focus on family where I can operate from home and that's true for other employees so I think we we can get to a model that's better than what we had but it's gonna be centered around an office environment now in recent years you become a very active philanthropist you've signed The Giving Pledge you're involved in the Giving Pledge effort what are the areas that are your greatest passion in philanthropy so you know I I like the inherent leverage of you know an asymmetric risk reward in business and I like the same thing in philanthropy so we've done a lot of investments in what I would describe as early-stage businesses that are designed to address social problems many of them are nonprofits many of them are actually you know a B corporation or a for-profit or something in between and we've had some goo like outcomes where we you know Beth with an organization very very early you know an organization you know the organization with a budget of 100,000 and now they've become you know organizations that really move the needle so I find that stuff very sort of passionate about that kind of structure but you know in terms of what we focused on economic empowerment social justice addressing income inequality you know we've done some cancer research kind of backing kind of early sort of younger scientists before they can get grants from the NIH it's really been about backing very talented I would say entrepreneurs and people who are passionate about solving a problem with either a for-profit solution or not-for-profit solution and I'm even more passionate about the for-profit solutions to a problem not that we're trying to make a profit but that we're building a sustainable organization that can address a problem that doesn't need to constantly rely on an annual grant from a foundation I mentioned at the beginning that you're a tennis player you didn't play in college but you've taken up tennis recently I think you're pretty well regarded as a tennis player do you wish you'd play tennis earlier and if so do you think you could have been a professional tennis player so I played in high school I was a good state level player I was told by the Harvard coach that I had a good chance of making the JV and he told that to about 50 other young people and there were probably four spots on the on the JV and the rowing meeting was across the hall and about 15 minutes into the tennis meeting when I saw how many people were there I went across the hall to the rowing meeting and uh growing for four years and it had a profound impact on my life and my ability actually he asked me the question how do you get through a difficult business period the answer is it helps to be a rower and endure a severe amount of physical mental torture which was a big part of the big part of rose I have no regrets although the last 15 years I've taken up tennis and I'm a vastly superior tennis player I can play a you know very high level tennis game much better than I was you know when I went to college so I think I had the best of both worlds feel very fortunate oh my pole you've played with John McEnroe can you beat John McEnroe he's a little bit older than you or not quite yet there I play with John McEnroe about 12 years ago I had kind of a funny incident where we were playing doubles and it was referral for a charity and I hit an overhead and I hit him with the overhead I can't think on you know probably twice in my life I've hit some women overhead he spent the entire rest of the match doing his best to hit me back which you know really gives us a mother I have a lot of respect for John McEnroe and his personality but it was a fun fun moment I think it's extremely improbable that I could beat John McEnroe in a singles game but with an equal partner I would give him a good run in the Delphis but yeah one of the greatest players ever and you know I'd really enjoy playing with him and I would win a few games and hopefully more all right well I hope you get to play again with him and I want to thank you for taking time to be with us today and I hope you did find a couple more more or less hundred times your money bets though I realize it wasn't quite a hundred times your money but it was pretty successful thanks a lot bill thank you so much David appreciate it

Channel: Bloomberg Live

Views: 216,173

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Id: sU83fZF6HcU

Length: 28min 49sec (1729 seconds)

Published: Mon Jun 22 2020