Billionaire hedge funder Bill Ackman, who enjoys the reputation as the “baby Warren Buffett” on Wall Street and is a longtime investor in Buffett’s investment conglomerate, Berkshire Hathaway, has decided to part ways with his idol.
On Wednesday, Ackman revealed in a conference call that his investment firm, Pershing Square, had dumped its entire $1 billion stake in Berkshire Hathaway, along with smaller positions in other companies, including Blackstone and Park Hotels & Resorts. The transactions were first reported by Bloomberg.
The surprising exit came just a few weeks after Pershing increased its stake in the Buffett-owned company by over 30 percent, using profits Ackman had reaped from hedging against the coronavirus-induced market sell-off. At the end of the first quarter, Berkshire shares accounted for about 15 percent of Pershing’s $6.6 billion stock portfolio. But now, Ackman figures that that capital could be put to better use.
“Today, we have $10 billion of capital to invest; we can be much more nimble,” Ackman said on Wednesday’s call. “And so our view was generally we should take advantage of that nimbleness, preserve some extra liquidity in the event that prices get more attractive again.”
Ryan Israel, one of Ackman’s top lieutenants at Pershing, added that, while Berkshire is a strong long-term investment, the firm’s inaction on its huge cash pile, a whopping $137 billion at the end of the first quarter, has fallen short of Pershing’s expectations.
“The current environment means there may be more than typical opportunities for us to see very high-returning investments,” Israel said on Wednesday’s call.
Berkshire has sat on this record cash reserve for months. Buffett has said he’s looking to deploy the money on an “elephant acquisition” when the right deal comes along. But he hasn’t found one yet.
“What’s Warren Buffett’s Berkshire Hathaway without its deals? Perhaps just not worth owning,” wrote Bloomberg’s finance columnist Tara Lachapelle in a Twitter post on Thursday. “That’s the calculation Bill Ackman seems to have made.”
What's Warren Buffett's Berkshire Hathaway without its deals? Perhaps just not worth owning.
— Tara Lachapelle (@taralach) May 28, 2020
In March, Ackman made headlines across the internet for scoring a nearly 10,000 percent return by accurately predicting the coronavirus-driven market crash in mid-March. Within four weeks, his turned a $27 million hedging position into $2.6 billion in assets.
He then used some of those proceeds to boost Pershing’s stakes in Berkshire, along with several other companies, including Starbucks, Hilton and Lowe’s.
It’s not crazy to speculate that Ackman might reinvest in Berkshire again at some point in the near future. After all, he fully acknowledges the firm as one of the few investments out there that can survive a systematic blow like the pandemic.
“Berkshire Hathaway was built by Warren Buffett to withstand a global economic shock like this one,” Ackman wrote in Pershing’s 2019 annual report, published in April. “We believe that Berkshire will emerge from this crisis as a more valuable enterprise.”