I also want to ask you, Bill, while we have you, of course, about your portfolio. The fund is down this year in an up market. So what do you tell shareholders about why that is, and what you think of the valuation, and why they should stick with it?
Yeah. So, you know, our goal is not to find stocks that are going to go up in the next 90 days. You know, the market has increasingly moved to a very short-term dynamic. You know, index funds are forever holders, but effectively taking, you know, stocks out of the float, and then, you know, very short-term investors trying to, you know, estimate whether a company's going to make or miss earnings or guidance. And that led to massive market volatility. And, you know, the focus this year has been on AI-adjacent, you know, sort of hardware, energy, you know, very narrow market, and that's really created what we think is a great opportunity for us over a multi-year period of time to buy some of the great franchise, durable growth companies we've, you know, always wanted to own, but they were at kind of going-in earnings yields or PE multiples that made them, you know, the kind of go-forward return less attractive for us. And we've been able to buy businesses, you know, Visa, Mastercard, you know, Netflix, and others at, you know, prices that we, you know, pencil out to well north of 20% IRRs over, you know, three-, four-, five-year holding period. So it's a great setup for us.
Um, you know, of course, would love to finish the year strong. Every investment manager wants to have a positive year. We do have some, you know, if our money could leave every day or every month or at the end of the year, we would probably try to position the portfolio differently, but I think that would lead to suboptimal longer-term returns. We feel, you know, we're down modestly, you know, single digits for our largest fund and for our new vehicle. We were actually, well, before I got to Israel, we were up slightly from launch over, you know, a small period of time. But most importantly, we deployed $5 billion of capital of Pershing Square USA in some very high-quality, long-term, durable compounders that are less, I would say, sexy for, you know, people trying to make money next month, but I think they will continue to compound their earnings and grow at, you know, very high rates over time.
Well, since you mentioned Netflix, that was one that I wanted to ask you about because the company reported yesterday and it was pretty disappointing, capping off a kind of ugly performance for Netflix with some real questions about how long it could take to revive their content slate, you know, what the competition looks like, engagement. Why I think you added it back as of the August filing. What's your expectation there?
So I was on the plane when the earnings kind of came out. I had a brief opportunity to get an update from the team. We actually viewed the quarter very favorably. We thought, you know, well in excess of estimates. You know, a little bit, you know, my understanding is, you know, advertising wasn't quite what management hoped, but they, I thought, had a good explanation. You know, I would say Netflix is a high-growth utility. And if you're concerned, you know, the mix of content that people are watching is, you know, different than it was a year, five years ago, and that's calculated, you know, time, engagement, if you will. But, you know, what matters for Netflix is, you know, kind of the growth rate of subscribers, the persistency, their ability to price for the enormous value they offer the consumer. We think all those things are extremely strong. You can buy the stock today at one of the lowest valuations in history. And, you know, importantly, I think the stock today is something like 18 times earnings. You know, we think the earnings growth here is going to be, you know, 20%, you know, to mid- to high-teens for the foreseeable future. In a really a utility, like, to get someone to cancel their Netflix subscription. They've won the streaming wars. I don't know who displaces Netflix. And yeah, they, I think they would like to have some, you know, big hits like Squid Game and otherwise. And they're making adjustments to the team to make sure that happens. But this is an excellent management team.
I'll point out that 18 times earnings today is a similar multiple of cash flow, whereas four years ago there was a large gap between earnings and the cash flow of the business. You know, as the business has matured, you know, it's become enormously cash flow positive. I think they bought in something like 3% of the outstanding share count, if I got that correct, in the most recent quarter. You know, this is sort of another example of a stock where we'll make more money over time if the stock is cheaper in the short to intermediate term because they're going to cancel a lot more shares as a result. So I think another good example of a super high-quality business where a short-term investor, you know, is looking for something to be disappointed about in the quarter outcome, but we're, you know, we expect our go-forward IRR to be well north of, you know, well into the 20s.
Speaking of disappointment in the short term, Fannie and Freddie have been a drag, and I know you've had high hopes that the Trump administration is going to finally make a move here to privatize. It's taken longer than expected. Did get some comments from Secretary Bessent in a podcast this week saying, I think he said '27 or '28, that, you know, they still want to go forward. I would imagine next year or the year after we would be tackling the ownership structure. Do you still have high conviction that this is going to happen? Are you still bullish?
Yes, very bullish. And actually, to point out, our relative underperformance this year in large part is driven by Fannie and Freddie. These are stocks that went from 3 to 15 or so last year and went from 15 to 3 this year. You know, they became fairly sizable positions. You know, we own well north of 200 million shares of combined company. So this was a very big sort of headwind for us. Now, why didn't we sell it when the stock was up 5x? Because we, again, believe our view of what's going to happen here. Actually, what's not talked about, it's actually absolutely politically critical for Fannie and Freddie to be released from conservatorship before the end of the Trump administration. Why is that the case? Because this is, you know, an enormously cash-flow-generative asset that in the hands, for example, of a Democratic administration could be used in a manner that is politically very threatening to the Republican Party. You know, the control of who gets access to mortgages, you know, and, you know, there were obviously issues during the Biden administration where there were mortgages being granted to people on favorable terms because of skin color and other such initiatives, and, you know, it's a tool that can be used in a very political manner.
So I, you know, having met with the administration about this topic, I think they view it as absolutely mission critical. It's released, you know, they're both released from conservatorship. We've put forth a very straightforward plan that will get it done more efficiently. Actually, it's really important that the stock is in the hands of institutional investors and is privatized to protect this from becoming a politically controlled asset. That is well understood at the highest levels of the Trump administration. I think, you know, the administration toyed with some other alternative approaches to taking these companies public. There was an initiative, I understand, where Fannie and Freddie would be combined under a new holding company. I don't know if you saw the tweet from the president where there's something called the Great American Mortgage Company, where the Fannie and Freddie would stay in conservatorship and there would be this new holding company put on top. You know, it is not a viable structure.
The simplest outcome here that creates the most value for the American taxpayer is just simply accounting for the $300 billion of payments that have been made by Fannie and Freddie to the Treasury, fully repaying the $191 billion that was advanced during the financial crisis, and then an uplisting to a major exchange like the New York Stock Exchange. And the president rings the bell, announces a major, you know, hundreds of billions of value creation for the American people, and then he tasks the Treasury Secretary and Director Bessent with resolving the conservatorship, which is a process, you know, finalizing the capital rules. But what's fascinating to me is these stocks were $23 a share 14 years ago when they had no capital and they had no real earnings, and Obama had just basically, with the net worth sweep, taken away 100% of their profits forever.
Well, since President Trump was first elected, Mnuchin was Treasury Secretary. He stopped the net worth sweep. These entities have fully rebuilt their capital. What's not, I think, well understood is Fannie and Freddie today have five times the capital they had historically, you know, 250 basis points or so of capital. They will get to the extraordinarily high levels of capital that were initially proposed for Fannie and Freddie by 2030. But we believe the two and a half percentage points of capital they have today is more than sufficient. It's what Jamie Dimon would call a fortress-level balance sheet. I completely understand the Treasury Secretary when he says that the first and foremost, the north star here is we can't let the change in ownership of Fannie and Freddie in any way affect mortgage rates. And there's no reason why it should. And even the release from conservatorship, you know, the proper process here is get them to a fortress balance sheet, which is where they are already. You want to add more capital to that. It's just happening sort of naturally. Keep in place the $450 billion of the government backstop in the form of senior preferred. Make that backstop something that's paid for. The company should pay a kind of commitment fee for the backstop, and then you're going to have, you know, almost, I would say, a stupid amount of capital. There's no scenario in which these entities would be a threat to the market.
I would argue mortgage spreads tighten in that world because the fear would be if it's a Democratic administration that wins the next presidential election. I think that creates uncertainty about how Fannie and Freddie are going to use, you know, what's going to happen with their capital. Are they going to take steps that are going to reduce the underlying mortgage quality? I think all of that can be clarified and resolved. I think it's great that the Treasury Secretary said, you know, '27 or '28. If I were them, I would get busy on this right after the turn of the year and get it done in a 2027 timeframe. Now, what's, you know, why do I like these stocks? Why have I held them from 3 to 15 and back to 3? Because in the scenario I've outlined, these are well into the high 40s, $50 stock. You know, the president has even higher estimates of value, and I think we can get there. You know, what we're saying is just accounting for the repayment of the preferred, a relisting on the New York Stock Exchange, and these stocks will go up 10-fold. And that's, you know, that's the most asymmetric investment I'm aware of in the stock market.
Well, they're spiking now on your comments.
By what is an incredibly... yeah, incredibly high quality. These are incredibly high-quality businesses that are trading at like, you know, one times earnings. It's...
