Pershing Square's Bill Ackman on Markets, SPACs, Airbnb, Stripe

the worst day for the nasdaq since my gosh march which is a time around when you were pretty public about the market as well i'm curious what you think of this particular trade today is it just the market jitters at the beginning of september or is this the beginning of the end yes it's certainly not the beginning of the end but i would say we're coming upon one of the more uncertain periods in american history right we have a very divisive presidential election uh coupled with uh you know virus that's had a huge impact on the economy and the markets have been remarkably strong since really the third week in in march and uh so it's not surprising uh you know evaluations particularly you know sort of technology landscape have gotten to some pretty extraordinary uh levels uh so i think it's not a surprise i don't think it's any indication of the beginning of the end but i do think you know markets don't like uncertainty and we have an election in 60 days uh where it's a toss-up who's going to be the next president and and what the policies of the next president whether it's trump's second term or biden's first term and what that means for for the country what it means for corporate america what it means for taxation you know these are uncertain uh issues and uncertainty as i say is the enemy of markets you had said that it wouldn't change your investment position no matter which person was to be president for the next administration are you changing your thoughts on that now do you think there would be widely different policies were there to be a biden administration for example rather than a second trump term i i don't know that's completely noble i think biden and his his choice of the vice president suggests a more kind of moderate uh as opposed to more progressive uh democratic uh you know uh administration to the extent that biden is is sort of the winner but i do think they're gonna have different policies and different approaches toward you know taxation uh you know business etc although i do think biden uh kamala harris is in a more moderate camp than a biden you know warren administration for example i do want to push you a little bit on valuations because you mentioned how things have maybe got a little fully valued or overvalued but a docusign down 12 tesla down 8 today is that closer to sort of the real valuation for these companies or a fair valuation in this environment or you know could there be even a lot more to go so i don't know enough about either of those two businesses to know whether the price is a fair price or not but a lot of i would say when i speak about evaluation of some of the more high-flying companies a lot is predicated on what's going to happen in the future right in a what's interesting is when you have a world with you know almost zero percent interest rates um you know the discount rates used to discount the future uh are very very low and so with companies which are growing very rapidly uh you know uh low discount rates rapidly growing companies you can get to very high valuations although the problem is small changes in your assumptions can lead to a very different outcome in terms of what a business is worth and i think those small changes and assumptions can relate to someone's confidence and what the future looks like and i think it's hard to predict the future when we have an uncertain you know sort of political environment and just the inherent uncertainty uh about the virus you know yesterday you know cdc says tell states to prepare for you know possibly a distribution of a vaccine november 1st um you know if there's a real vaccine that's distributed in scale uh before the end of the year that has a meaningful impact if there isn't one until the second half of next year that has an angel impact as well i just think it's not it's not known today uh you know what those outcomes are and and you factor in you know your risk premium uh you know should go up when when there's more uncertainty and the risk premium relates to the discount rate uh you know it's the risk-free rate plus a risk premium that you use to discount the future and you know many rapidly growing companies you can't justify the value placing a multiple on next year's earnings which is sort of the convention for many kind of more mundane businesses you have to make certain expectations about a company's ability to become profitable and for those profits to grow at a pretty rapid rate to justify some you know many of the values or the collective values of where many of these companies were trading i think that is inevitably leads to more volatility when there's uncertainty and in some ways there's more uncertainty now even than there was in march when we we knew less about how much there was to be uncertain about just base case-wise coronavirus-wise what are you looking at bill and do you anticipate yourself going going back into the office or any of your stuff going back into the office anytime soon yeah look we'd love to get back to the office uh you know zoom is uh you know humor doesn't work very well on zoom and if you know part of part of a culture of an organization is how people relate to one another and and the team and we have regular you know zoom meetings but it doesn't compare to the camaraderie that you can develop you know in an office environments we'd love to get back at the same time you know we've worked very effectively uh working from home uh we don't want to create risk for our employees and the nature of our business is one that we don't need to be in the office at least in the short term in order to be effective so we haven't picked a date yet we're kind of taking it day by day but we we have no current plans to come back to the office i would say this winter and uh you know hopefully you know we get we'll get back there as soon as possible i do miss the office do miss physical interaction with the team you know i do want to mention that one analyst in the uk labeled your february trade literally and i'm quoting arguably the greatest trade witnessed by the uk closed and industry obviously you know we witnessed it here are you trading this market on down days like this and we haven't had one in a long time are you considering or are your managers considering sort of derivatives type trades or hedge type trades yes no we're not trading at all i mean we're not doing anything um we own you know as you know nine ten companies we like the businesses uh we're comfortable with their valuations um and uh you know we have pretty full positions in each of them so it's not we're not adding on a day like this uh but we're not subtracting a day like this you know we like the companies uh we own we think they'll do very well uh and we don't put them in the overvalue camp so i guess none of them uh none of them are even fairly valued yet absolutely not definitely and that's let me remind people with a 46 plus percent year-to-date gain for and you know they've all really been sort of in your portfolio on a 58 59 gain last year so let's get to the fact bill you know it's only been six weeks you have a couple of years really but we know that there have definitely been conversations due diligence being done and we reported yesterday that airbnb was said to have rebuffed an approach from you explain what that all means how it all went down uh sure i wouldn't use the word rebuff and you know we had a we've had a very nice uh dialogue with airbnb we got to know the management team or a number of the senior members of the team it's a business that we've admired over time they've been on a path to go public um you know we talked a bit with them about our structure and i think they have not as your i guess your article pointed out they haven't decided against going this back route um but at this point i think their first choice is to do an ipo um you know our you know putting aside airbnb just speaking generally you know what we offer to a company is the ability to inject you know five billion dollars of cash take them public you know if we started today if we opened a due diligence uh got access to a data room on a company and had opportunity to spend time with management by zoom and when i would say in three to four weeks you know depending on the nature of business we could get a sufficient understanding of the business to be comfortable and we could also negotiate a deal and we could give them certainty on raising capital and they could become a public company you know 45 to 60 days after that initial 30-day period of time but we give them certainty if you will in the first 30 days you know a company like airbnb is filed confidentially at some point they're going to file their prospectus you know sometime in december you know maybe you know after the election and possibly before the new administration comes in you know they they it's really that last day of the road show that they'll know what price they get and whether that's a certain transaction and and how much capital they raise you know it's a different approach you know you're sort of you know you're taking behind door number three as opposed to the bird in hand so to speak um and i guess my uh we did we have not we did not get to a stage where we had access to inside information we had the ability to do real due diligence on the business or did we have any opportunity to discuss valuation with airbnb you know i think we really kind of get to know you i think the you know the pres the reports are true that we've had some discussions but they were very preliminary and they certainly did not we did not discuss valuation and we didn't get to do a deep enough dive frankly to determine whether this is a business uh you know we'd want to own and at what price we'd want to own it at so we like the company that kind of at least from the outside in terms of the nature of the business we don't know enough about the economics of the business or the way it's run to have a view as to whether it's a fit for what we're trying to do just from their point of view bill and obviously the certainty of the price that they would get is is a big plus right it's a big thumbs up for that but otherwise and given that they would have to give away something in order to go this back route right they would definitely very much have to let you have a big say in how they run the business what would be in it for them to go this back route given that you know their board is full of people like you know ken chanolt and greylocks uh reid hoffman and so on that there's plenty of advice there sure so actually we're not insisting on a particular role for pershing square or any member of our team or any of the directors on the persian square taunting board obviously the governance of whatever company we merge with is an important topic and we're going to want to make sure it's a board that has appropriate independent representation but we're not requiring that persian square you know necessarily has a seat on the board it really depends on the situation it depends on the existing board but the last backed transaction we did you know many years ago you know eight years ago was burger king and you know a couple of directors from our spac at that time joined the board but it was i did not personally excuse me um and it's been a very successful experience so i think maybe there's some misconceptions about spak sort of generally but in our case there's no you don't give up anything by doing a deal with us um you know and you get to figure out everything upfront uh before you sign the papers and before you even have to tell anyone you've begun you've begun your process so i think what's attractive about what we are offering is the ability to give certainty in a very short period of time you know a five billion dollar ipo is a very large ipo you know other than uh alibaba facebook and uber there has not been a 5 billion plus ipo in the u.s for the last uh decade and you know so if you're a large company that wants to rate a large amount of capital i mean today's sort of a perfect reason why you don't want to just you know i think while markets are a billion maybe people get excited they'll get a you know an overvaluation if you will in an ipo transaction maybe that's why that route makes sense but you don't know until the last day of the ipo process whether your transaction gets done or not and that's why we've had enormously uh let's put it this way we weren't rebuffed by airbnb but i would say we've certainly been welcomed by a meaningful number of kind of uh private equity controlled companies we're in a number of you know discussions also preliminary as well as i would say family or individually controlled uh companies we were you know we were doing work on you know various businesses getting to know management teams and i'm you know quite confident we're going to find a transaction that makes sense for us and a transaction that makes sense for the other side but in a volatile market you know the reason why we launched versus protonating in this market was our expectation was volatility to come and certainty and a five billion dollar injection of cash is something i wouldn't walk away so quickly from if i were if i were if our positions were reversed and i was the ceo of a private company that needed to raise a lot of cash to go public and had to do it within a reasonable time frame i would take a very hard look at what we offer well then bill let me ask you why you might be so interested if there are certain problems in a volatile environment and we all know that criticism is leveled against airbnb right they had to raise two billion dollars at the beginning of the pandemic brian chesky was even sort of called upon to step down at you know an early point in the pandemic why would you be so interested in this business if it is such a volatile business and yes you know a lot about tourism and about travel and hotels and stuff but um you know what would be your confidence in this business look again i we have not done the work on airbnb we've not had access to inside information um we're looking for uh you know our favorite businesses in the world are sort of asset light uh annuity-like businesses that can grow at a high rate over a very long period of time with a lot of durability uh you know to the extent that air b airbnb meets those uh criteria and it's run managed well it has a you know control over its cost structure there's a path to you know meaningful profitability and cash flow generation then it's a business that meets our criteria if not it's not a business that meets our criteria and the companies that we're looking for what i would describe as very very durable uh you know growth companies will accept a degree of volatility um you know we we were buying hilton stock you know in the depths of the market in march uh even though the hotel industry you know is really on its knees because we've got a long-term view on the industry uh and we haven't you know sold a share of hilton uh that we've acquired we now own just under five percent of the company so we we like businesses where if you will you own a royalty on future growth and travel that that's appealing to us um but there are many other kinds of businesses we're looking at in the call fintech space um as well as you know some consumer businesses um you know some sort of b2b uh you know uh companies a kind of a full spectrum of different businesses and we're trying to find a fit between what we offer uh and what will be of value to a counterparty but i do think market volatility is our friend you know interestingly uh purchase where tontine i noticed today was either flat or slightly up for the day in a down five percent market i think what the market's saying is this entity becomes more valuable uh with greater uncertainty it's not trading at about a ten percent premium to the cash uh that we have in the till and it and it's it's it's worth a premium to the cash because the you know the worse the world guts in a way the better the deal will make in terms of merging that i mean there were definitely some fintech and and financial companies you know being talked about in the earlier days when people were talking about this including bloomberg lp which you can comment on if you want but also the likes of stripe for example or you know klarner or some of those is is that the type of company that you feel would be a good candidate for um your respect so while while i'm on bloomberg might as well talk about bloomberg i mean this is a business i've obviously known a very long time and became a bloomer customer in october of 1992 and i've never cancelled my uh you know subscription and we had many more today than we had if you will uh you know back then so it's a business i certainly admire and it's a great company and it's certainly a fit within you know the kinds of businesses that we would be interested in uh you know you know stripe uh you know i have a very high regard for the the co-ceos or ceo and presidents the brothers that run carlson brothers that run that business i think they're building a remarkable uh you know kind of franchise uh i do like that company i think you know my sense of strike today and actually we have had very limited discussions with stripe they're they're not yet ready to go public so one of the other criteria for us is the company has to really be ready to be a public company um today it has to be a great business it's got to be a durable growth company it's got to be managed well they have to have you know a path to you know profitability and they have to be ready to be a public company and there are certain requirements in terms of uh management and infrastructure and systems that you need in order to be a public company that said bill you know most of the chatterers has discussed really silicon valley partially because you used that kind of language when you were talking about what you were looking for but are you also looking at a whole range of other things i mean are you looking at some industrials are you looking at parts of companies assets of different companies and so on yeah so i would say the highest probability transactions are in the biggest uh universe is i would say the private equity controlled universe so um the private equity firms are very comfortable doing transactions and specs they understand the certainty and the other benefits and they understand how to think about you know transaction value and so we have a number of discussions going on in private equity actually you had mentioned earlier in the conversation i think what's changed you know private equity i think has always been open to transactions it's backs i think the biggest change in the last period is that the whole sort of venture-backed community is much is is totally open to us back transactions today there was you know bill gurley you know one of the general partners of benchmark like a great compare and contrast between ipo spax and direct listings i encourage you to take a look at and actually in the last day or so reid hoffman a member of the airbnb board uh announced that he was raising uh a spa there's a guy named kevin harts who's one of the early sort of angel type investors so i do think the spac structure is going to come into its own obviously we have a view about you know the benefits of our structure versus the typical stack structure uh which has led to our scale and the you know the fact that we have the least amount of dilution the least amount of friction to do a transaction well i do think we're changing the way companies are going to go public and that's probably a good thing you know good for capital formation good for making it easier for businesses to raise capital i think that's inherently possible and as you say it's partially you know market concerns i mean no one wants down rounds right so venture capital has to find some other way of of having their businesses funded and so on bill we don't have much time left i want to very briefly ask you about fannie freddie and the rest of your portfolio before we move on to an idea you have for young people for children in fact but um do you anticipate any problems with fannie freddie going forward this this argument that just won't go away you know about about capital rules also i think fannie and freddie are clearly on a path to becoming privatized companies uh and all the necessary steps are in the process of being taken one of the significant ones is finalizing a capital rule uh and i think we're getting closer you know the the new version of the capital rule is improved i think the amount of capital that has been proposed for fannie and freddie at four percent of you know assets and off-balance sheet guarantees is well above what they actually require and the problem with that is it's going to make it difficult to raise a sufficient amount of capital for these to emerge as truly privatized companies and you know mortgage rates gonna have to go up you know fannie and freddie wrote uh kind of responsive letters about the capital rule and they point out you know in order for investors to invest in fannie and freddie particularly in light of the history of the government expropriation of two companies investors are going to have to earn an adequate return on the capital uh that they invest in order to invest in and it becomes really almost impossible to do so if capital levels are set at levels you know they're well beyond what the business needs so we think fannie and freddie comfortably cap more than what jamie dimon would call a fortress balance sheet at two and a half percent capital to total assets you know banks have to hold four percent uh against their mortgage portfolios but banks actually hold mortgages on balance sheet they're not fannie freddie are really just guarantors of timely payment of interest in principle on a portfolio very very low risk securities yeah and they have a much better franchise than banks in terms of annuity like cash flows they collect so i think that stuff's going to get worked out and really the next step is resolving the government preferred stock and our hope is that you know 2021 fannie freddie reemerge as truly independent public companies taking the risk away from the taxpayer and i think that's important particularly as we've seen in the pandemic you know the first people to withdraw from the financing markets with sort of the quasi you know the traditional private sector whereas fannie and freddie kept guaranteeing mortgage securities and providing liquidity to this very important market

Channel: Bloomberg Television

Views: 182,908

Keywords: Bloomberg

Id: GmaCarSyBk4

Length: 20min 11sec (1211 seconds)

Published: Thu Sep 03 2020