Ackman Talks Howard Hughes Plans, IPOs and Anthropic

Sure. So if you follow Mr. Buffett over 60 years, incredible, 61 years, maybe incredible career, and you look at how he created value at Berkshire Hathaway over time, he did, I would say, two principal things. Let me move three. First, he wound down the textile operation. He took the capital and bought an insurance company, and then he managed the assets of that insurance company differently from a typical insurer. He took the float and invested in short-term treasuries, so the policyholders knew that there was money set aside to pay claims. And then he took the surplus with the insurer and invested in common stocks. And he did a good job managing that portfolio. And insurance is a very cash-flow generative business because you write premiums, you collect money upfront, and you pay it out in the future. And as a result, Berkshire was able to grow at a very rapid rate, compounding the insurance company's assets, earning a high return on capital without having to issue stock. And so Berkshire had a million shares outstanding for most of its life, until, I guess, the Gen Re acquisition. So the combination of growing a very valuable business inside a company and not issuing stock as you grow led to enormous per-share value being created. Basically, we're taking a page from Mr. Buffett. Vantage is a specialty insurer and reinsurer. We closed in June. In July, we announced that Mark Rennison, the former CEO of Arch Capital Group, one of the best-performing insurance companies over the last 25 years, he was the CEO for the last eight years, he was at Arch really from inception, became executive chair of Vantage. Mark recruited David Ginsburg, former president, his protege at Arch Capital Group, Lucy Fato, former vice chair and general counsel of AIG. And we brought an enormous horsepower to what was already a very good insurance company platform, already had a very good team, and we're taking the... We immediately sold the fixed income assets, which has become increasingly important because of moving rates. Yes, we invested the money in short-term treasuries, but 65% or so, when 35% of the assets we invested in a common stock portfolio that we manage. So our goal is to build a high ROE specialty insurance company led by a superb team with us managing the assets and grow Howard Hughes and increase the intrinsic value of the company.

So I'm not really a fixed income investor. I never found the risk-reward of owning a longer-term fixed income instrument interesting. Just not my... I sort of like risk-free or high return. I don't like stuff in the middle.

So we're going to run a relatively low-leverage insurer. Most insurance companies, you know, write an amount of premium equal to the equity, the capital of the insurer. We'll write less than that. And we'll also, most insurers invest, you know, something like two and a half times their equity in assets, and we'll invest less than that. So we'll have much less leverage on both sides. We'll take zero risk for the bulk of the insurance company assets, as I mentioned, short-term treasuries. That frees us up the flexibility under the capital rules to have something in order of 40 to 50% of the... if I'm approaching 40% of the assets, 40 or 45% of the assets in common stocks.

I would say it's certainly not done. It's at the very beginning. And Mark's going to do his thing, right? But we announced something else of significance today. I tweeted about it and we talked about it today, which is Howard Hughes has built an extraordinary team, has an amazing collection of assets in markets where people want to live, and the business is selling lots to homebuilders. And these small, what we call NPCs, these small cities that we manage, we own all the commercial real estate, the land, etc. It's a business we financed entirely with our own equity for the last 15 years. We're going to a model. We're going to bring in third-party investors, you know, think Brookfield, you know, think Blackstone. Right. The typical real estate investor today puts up very little of their own money. They charge fees and promotes. We're going to have a lot of skin in the game. Today we have 100% of the equity. We're going to begin a process immediately to bring in partners to reduce our equity commitment to our real estate by as much as 80%, and then turn Howard Hughes into more of a real estate asset management business with a lot of skin in the game, but one that can earn a much higher return when you take out 80% of the equity, bring in third-party capital, you earn promotes. That will enable us to take, we think, two or three billion dollars of equity over the next, you know, sometime by the end of next year, hopefully capital that we can now redeploy into Vantage. And, you know, when you get a very talented team, you want to put more capital behind them. And that's what we're doing with Mark. What the real estate subsidiary benefits now can earn much higher returns because it's leveraging third-party capital that's going to enable it to accelerate some of the development assets that, you know, in the context of the cost of public company capital were difficult to achieve, are difficult to justify, now become much more attractive.

Yes. For the... and you're clarifying my clarification, so I'm pleased for that.

Or among other things, we go on Bloomberg TV and we talk about it.

Okay, so we did an interesting IPO in that we did two lists. We did a listing and an IPO. We took public a closed-end fund, but a very different closed-end fund. So a typical closed-end fund, frankly, doesn't have a very good track record. And it's not really a financial... it's a financial product that's sold generally to a financial advisor. The client is usually not particularly involved. In this case, for the majority of the investors, the substantial majority of the investors, they made an investment in this entity to invest with Pershing Square. Historically, to invest with Pershing Square as a U.S. citizen, you got to invest with us privately in a fund where we charge a 1.5% management fee and a 20% incentive fee, and you had to lock up your money for, you know, over a longer period of time. This is a liquid public vehicle that doesn't charge incentive fee. Yeah, it's the lowest-cost hedge fund in the world. It's got a 19% compounded, you know, nearly 23-year track record. The track record of the strategy is the lower fee structure of the entity. So it's a liquid, truly liquid alternative at the lowest fees. Now, what have we done? We focused since the IPO on deploying the capital. Our first priority was putting that money to work. We're fully invested at Pershing Square USA. What we haven't done, what we just are beginning, and you're part of that process, is letting people know this. And so this is just a marketing issue. It's a marketing issue. We need to let people know that Pershing Square USA is actually, if you want to invest with Pershing Square, kind of, I know people all the time. They say, Bill, I'd love to invest with you, but, you know, I can't. Well, now you can buy, you pay, you can spend $39.

So I think PSQ is down about 3% from the IPO. Okay. About 240 basis points of that is actually the cost of the IPO. So we're basically flat in terms of... We deployed five billion dollars of capital in stocks we like that we think are very compelling on current values. And I wouldn't want someone to judge us. In fact, the IPO was actually very helpful to us as we were deploying capital. Stocks were going down. Right. And particularly the stocks we were buying, we were buying Meta as it was going down. That's, you know, obviously starting to head in our direction. But we own a portfolio of some of the best, we call super-durable growth companies in the world. Businesses like an S&P Global that you couldn't touch something less than 30 times earnings that we were able to buy at 21 times earnings. You know, a business like the Intercontinental Exchange, an amazing business with an incredible track record. You could note at 24 times earnings today, buy it at 17 times. You know, it's a market that has become, is a very narrow market. I'm sure you've, you know, where the market's attention is focused and the kind of businesses we like to own. We own businesses based on how we expect them, the returns we generate over the next five years. Not five minutes. Not the next 90 days. So. And I can't tell you where any stock we own is going to trade in the next... I mean, it is an incredibly concentrated market, and we're waiting for more big IPOs that might make it, although it seems like they're falling off a cliff. We'll see.