“I want to have one of the great investment records of all time, why not?” Bill Ackman, founder of hedge fund Pershing Square Capital Management said nonchalantly over breakfast one Saturday in early April.
He had just come from two hours of tennis on Randall’s Island, still in his sweat-stained black nylon warm-up pants, for which he apologized on the drive back from the courts. At a restaurant around the corner from his Central Park West home, Mr. Ackman ordered an egg white omelet with spinach and onions, insisting on no cheese even after repeated offers from the waitress. He turned down coffee, as well, but did add a bowl of granola with yogurt and strawberries.
“That’s why I have to be healthy,” Mr. Ackman continued. “It’s not just compounding a high rate; it’s living a long time. Buffett has a 55-year-old record. I’ve got a seven-and-a-half-year-old record. It’s going to be 90—I’ll be almost 90 by the time I’ve got a 50-year history.” He paused to refine the math. “I’ll be 87.” (He could shave a few more years off since Pershing is currently returning 24 percent annually compared to the 22 percent of Warren Buffet’s storied Berkshire Hathaway.)
Just after a cloudless dawn, Mr. Ackman and his 13-year-old daughter, Eloise, had climbed into one of the family’s two Volvos and headed across Manhattan to the East Side to pick up Marius, a junior Pershing Square analyst, and a friend of his from Morgan Stanley. They drove over a fog-shrouded R.F.K. Bridge and pulled into Sportstime, a year-old tennis complex across the road from the Carl Icahn Stadium.
While he prefers to see his seven-year-old fund in the same positive light as many people view the work of Mr. Buffet, comparisons are more often made to Mr. Icahn. Both he and Mr. Ackman are known for their activist investing, taking huge stakes in the bluest of blue-chip companies and then agitating for changes they believe will improve the stock price. Mr. Ackman, who considers his work as benevolent and beneficial–not just to the companies but also to the entire country–hates the comparison to the notorious corporate raider.
While Eloise spent an hour taking lessons from the John McEnroe Tennis Academy, her dad and the two junior bankers, both former semi-pros almost half his 44 years, volleyed back and forth, sometimes two-against-Ackman. Afterward, Mr. Ackman said he had taken it easy on them because Marius had injured his wrist in a snowboarding accident. He also complained of being rusty after a few weeks spent on vacation. Having missed his regular court time might explain the weakness in his forehand that morning. Every time one of Mr. Ackman’s shots landed out of bounds, he would bunch up his shoulders, collapsing his trim 6-foot-3 frame in apparent frustration.
After her practice, Eloise crossed the green-and-blue hard court for a round of doubles, joining Morgan Stanley across the net from Mr. Ackman and Marius. Nearly every shot that left Mr. Ackman’s racket barreled toward his daughter, many barely missing her as she gamely tried to volley them back. One of his shots did actually connect with its unintended target, causing Ms. Ackman to jump back. Dad rushed over for a quick hug and a peck on the forehead.
In the end, the gimpy Marius and his boss won the set 6-0.
From where The Observer was sitting above the courts–Mr. Ackman had suggested we not sit too close, lest we be on the receiving end of one of his cutthroat volleys–it seemed the hedge fund manager was trying to toughen up his daughter, just as his dad had him, just as he professes to do for the various companies he invests in, just as he does for random people on the street. But it was also clear Mr. Ackman was unwilling to relax even during a casual game on a Saturday morning. “What I love about tennis is that I’m better now than I was when I was 20,” he said on the drive home.
He has played against Andre Agassi, and recently warmed him up for a February match against Pete Sampras at Madison Square Garden. (Mr. Agassi lost in straight sets.) “He told me he did pretty well,” Marty Peretz said of Mr. Ackman. The Harvard professor and New Republic publisher speaks almost weekly with his former student, now his longtime money manager. Mr. Peretz was the first investor in Mr. Ackman’s previous fund, Gotham Partners, which he launched with an M.I.T.-trained engineer named David Berkowitz.
Mr. Peretz was partly responsible for the creation of the fund-he discouraged him from taking a job at a comfortable financial house after Mr. Ackman graduated from Harvard Business School in 1992 (he also went to the college for undergrad). “He would have been miserable there, having to answer to other people,” Mr. Peretz said. And so Mr. Ackman turned it down to launch his own hedge fund with almost no experience.
At the very least, a job with a bigger firm would have made it harder for Mr. Ackman to hold most of the records in the office gym, as he does at Pershing’s 40-person concern on the 42nd floor of 888 Seventh Avenue. Mr. Ackman has even been known to cross-train to reclaim record times on the treadmill or the rowing machine, according to colleagues.
Sometimes it feels like everything Mr. Ackman does is in the service of his outsize returns. “He is a very smart, very competitive guy, and for guys like him, that is how you keep score,” said Mark Axelowitz, a director at Morgan Stanley Private Wealth Management who knows Mr. Ackman socially.
LIKE A HANDFUL of other hedge fund managers, Mr. Ackman’s profile exploded at a time when pretty much everything else around him was imploding.
It all began in 2002, when he had made a now-notorious bet against gargantuan muni-bond insurer MBIA. Before that, there had been the occasional headline-grabbing deal, such as when he tried to separately team up with Donald Trump and Jerry Speyer to buy Rockefeller Center from the Japanese in the late 1990s, or when he led the first successful hostile takeover of a real estate investment trust, Cleveland’s First Union. But it was not until he got a tip that the federally backed agricultural insurer Farmer Mac was grossly overleveraged that he would hit upon the investment strategy that serves him to this day.
Like its bigger siblings, Fannie and Freddie, Farmer Mac had hordes of unregulated, risky loans sitting on its books, just waiting to default. At the time, though, it had “buy” or “strong buy” recommendations from a number of major banks, another counterintuitive investment for the combative Mr. Ackman. Gotham Partners took a huge short position in the company, then released a report titled “Buying the Farm.”
In the meantime, Mr. Ackman reached out to a reporter at The Times, Alison Leigh Cowan, whose brother was a business school classmate of his. When the gambit worked–some said thanks to Ms. Cowan’s reports–it made the fund $75 million and sent Mr. Ackman looking for another company to pursue.
Whitney Tilson, a mutual fund manager who has been friends with Mr. Ackman since his undergrad days, suggested investing in MBIA, but the closer Mr. Ackman looked, the worse-or better-things got. The company was mired in the alphabet soup of CDOs and CDSs, with leverage exceeding 100-to-1 in some instances. After reviewing thousands of pages of reports and financial disclosures, Mr. Ackman once again issued a damning report, but not before buying his shares and reaching out to the media.
Except this time, the focus was as much on this bearish outsider as on the companies he pursued. Mr. Ackman, the striking fellow with the steely hair and steelier stare, found himself the subject of a skeptical press. After a livid response from MBIA alleging a conspiracy to drive down its stock price, both the S.E.C. and Attorney General Eliot Spitzer began investigating Gotham Partners in 2003. Yet the firm was already on the way out, having closed its two major funds after a bad investment in a golf course company. Unable to sell off his assets, Mr. Ackman swore he would never invest in privately held companies again.
But first he had to salvage his reputation.
“Not to put it too impolitically, but we put him through the wringer,” Mr. Spitzer told The Observer. For six months, Mr. Ackman was under investigation, and while no charges were ever brought, the news leaked out all over the press, nearly ruining him. Given the public nature of his investment strategy, if he bought a stake in a company, even a favorable long position, as he did with McDonald’s in 2005 or Sears the following year, it became even more difficult than usual to force management to accept his complicated ideas.
He gets credit for the in-depth research he does into the companies he invests in, but it may just be something as pedestrian as stubbornness that wins him most of his battles. “This is a guy who is incredibly smart and incredibly intense-and this is coming from me,” Mr. Spitzer said. “A lot of guys would have thrown in the towel under that kind of scrutiny, but not Bill.”
With the near-collapse of MBIA in the aftermath of the credit bubble, Mr. Ackman was finally vindicated-and rewarded handsomely for it, making about $1.3 billion for his fund. Mr. Spitzer even turned to him for advice, meeting him at a diner off the Taconic Parkway, when the governor was returning to the city from Albany and the hedge fund manager was on his way to his home in Columbia County. Mr. Ackman had prepared a long list of suggestions on how to recapitalize MBIA. He had gone from adversary to adviser.
“Bill is a believer,” one hedge fund manager said. “He knows he is right, and he almost always is, and he sees it as his job to convince everyone else of that.”