[Repost] Bill Ackman on Active Investing and Hedge Funds

Every day you read about deals which don't happen. I mean, you look at transactions where the shareholders are supportive, the acquirer's prepared to pay a big premium. In fact, many of these deals are stock deals where the shareholders get to continue in the value creation, and a board rejects it, and they don't happen. And the acquiring company walks away having spent $100 million, $200 million when you consider all the financing commitments and everything they need to get. I mean, what we did in our case is we called the question and allowed shareholders to decide what they wanted to do with the future of their business. And I think that there are acquirers that would like to buy, transactions that don't happen for social issues, and I think we can help catalyze. So I think it's very likely we will partner with another strategic to make a bid for a business. And we may not get it, but if the outcome for shareholders is the business either improves on its own or it gets sold to someone else, I think that's a win.

Okay, I think you people call us a hedge fund and they call the whole category. I think what we need to do a few things. One is, from an industry perspective, we need to explain a little bit better what our hedge fund is. Now there are some funds that are designed to not lose money almost in any market condition. Call it market neutral. I think there are very few that actually work, but there are some that are successful in that model. And a down 7% month for a market neutral fund is like a disaster. We're really principally a long-only fund with the exception of Herbalife. We have concentrated positions in companies we've owned for years. CP we've owned for four years, we'll probably own it for many more years. Howard Hughes we've effectively owned for seven years. So I can't tell you where any of our stocks are going to be next month. I certainly can't even tell you where they're going to be at the end of the year. But I can tell you that the businesses we own, Mondelez will be a much more valuable company a year from now than it is today, and two years from now it's going to be even more valuable. And CP is going to be a much more valuable company. What's interesting about a company like CP, the stock price moves up and down based on oil prices and commodity prices. But what is the value of a business? It's the present value of the cash the business generates over its life. The price of oil in the short term doesn't have a particularly meaningful impact on that calculation, but it seems to have a big impact on the stock price. So volatility is an opportunity for long-term investors to buy more at attractive prices, or in the case of CP, they're buying more of the company.

Activists are long-term investors. Not all of them, I look at it as a spectrum, just like hedge fund managers, mutual fund managers. What we do, ten years ago people accused us of being short-term. We have been in business for a year, it's hard to prove you're a long-term investor. When you're moving around $20 billion, it's hard to do that constantly buying and selling things. You're much better off buying super high quality companies and making them better. I think the most important thing about this article is it basically says short sellers who share their views publicly, something very wrong with that. It's effectively, as you say, a hedge fund becoming a private regulator. That's right, and I think that is absurd. Look at Lumber Liquidators. I'll take myself out of it. Whitney Tilson goes public maybe a year ago and says this company is shipping formaldehyde-laced product that can cause cancer and harm. It was ignored by the markets. It took a 60 Minutes piece, which Whitney obviously was the protagonist in, but they did their own research as well, to ultimately alert the world. Stock went from over $100 a share to today it's $15. They've even been forced to withdraw this product. They're under investigation by a whole bunch of regulators. I think the consumers have benefited. The shareholders who sold when Whitney went out with his piece have been beneficiaries. Look at David Einhorn and Lehman. He came public and said this company is undercapitalized, they need to recapitalize. Lehman ignored him. They continued to buy back stock. They said David was market manipulation, I think was the word that was used. Had the company recapitalized, Lehman might have made it through the financial crisis. Shareholders might have gotten something out of their investment. And look at Jim Chanos on Enron. So I think that what's interesting about the article, and again there are lots of factual problems with the article which we can address, but this is an inherently healthy phenomenon. But what's interesting with the article is the last sentence. He talks about 'isn't right for a sort of hedge fund managers operating behind closed doors and private meetings.' There's nothing close to our profit about our investment in Herbalife. We gave the most public, most transparent presentation, 350 slides, multiple presentations, with a website with every piece of research we've done, plus all the source documents. Isn't that an incredibly healthy thing for market transparency? So I think it's really disagree. Reporters can write whatever they want to write, I respect that. For someone who spent clearly an enormous amount of time, 12,000-word article, to come to, I think, an absurd conclusion is disappointing. I'll give you a little fun fact which might help people discern this company is operating fraudulently. Among the facts that he reports in the story is that Herbalife is running 101 orphanages in 51 countries around the world. Now the only place for him to get that fact was from Herbalife. Herbalife has something called Casa Herbalife, and it's sort of their philanthropy. What it is is they give a blender or two to children's organizations in the country, and they donate product they can't sell. The distributors check a box, and Herbalife donates the product to these 101 little places around the world, and it's fed to small children. I don't know whether small children in Africa should be drinking this protein shake from normal. I thought that's a medical question. But the notion that they're running orphanages, I just think that if I were a reporter, I would focus on that. I'd go into these Casa Herbalifes. I'd ask Herbalife to tell me where the models ones are located, but I'd go see that one. I think it's more a tax fraud for distributors than it is.