Mr. Ackman describes the night he learned in January, 2003, about the SEC investigation “as his darkest hour.” He had been told earlier in the day that his grandmother was dying and, muzzled by his lawyers, he was unable to do what he does best, defend himself publicly. “It discredits everything that you have done up until that time. You have no ability to defend yourself to the entire world.”
Transcripts of his testimony to SEC officials offer an insight into an audacious tenacity that defines Mr. Ackman’s activism today. Several times during the examination, Mr. Ackman turned tables on the regulators, giving them lengthy speeches on MBIA’s risky financial structure and demanding that they instead investigate the insurer.
He wrote letters with similar arguments to the head of the SEC, which later dropped its investigation, and to New York’s attorney-general. He cornered financial analysts, accounting and rating agency executives at funerals and parties to warn them about the insurer’s looming crisis. But for years, he said, “no one believed me.”
In the interim he wound down Gotham Partners. He says the vast majority of his partners recovered their investments in Gotham, and the few that suffered losses were invited to join his new fund, Pershing, where fees were waived until they recovered. At Pershing, Mr. Ackman continued to bet against MBIA and years later, in June, 2008, his endurance was rewarded when rating agencies downgraded the bond insurer’s triple-A rating, sending the company’s stock, bonds and business into a deep tailspin.
The decline made a fortune for Pershing and Mr. Ackman, who personally pocketed $150-million (U.S.) from investment bets that profited from MBIA’s decline. By 2008, however, MBIA was no longer an investment, but a principle. Regulators, auditors and other gatekeepers had ignored his warnings for years and he did not want the spectre of “dirty” personal profits from a drowning company to cloud his message about systemic failures.
The activist has donated all of his profits from the MBIA debacle to a charitable foundation. He has gone on to make new fortunes by betting on other laggards such as U.S. retailer J.C. Penney, shopping mall giant General Growth and CP, but he says money is not the only motivation.
“This is not all about the economics for me. I am rich already. … The biggest driver for me here is my desire for independence and to grow the reputational equity of the firm. At CP, I have put a stake in the ground to show what we can accomplish here.”
He may be comforted by success, but it is doubtful that Mr. Ackman will ever lose his urge to negotiate better deals. Minutes after the hedge-fund homerun hitter placed his order, our waiter arrives with his naked tuna burger surrounded by a swamp of sautéed spinach – enough to keep Popeye going for days.
My grilled char arrives next, alone on a plate. The restaurant had given him my spinach, which he never finishes.
Editor's note: In the interest of fairness, The Globe and Mail also offered Canadian Pacific Railway CEO Fred Green the opportunity to sit down for The Lunch. The company politely declined.
IN HIS OWN WORDS
Early career aspirations
“I have always been a kind of a ‘change the world’ kind of person. When I was 19, I was going to allocate as much of the world’s resources to me as possible and then reallocate them the way that I thought was right.”
On why he never gives up
In his freshman year at Harvard he wrote a book about how to write the best college application essays. The book was rejected by publishers and a year later a pair of Yale University students wrote a similar book that was a bestseller. “It killed me, just killed that I didn’t follow it through. I made a decision, I swear to God, that if I ever had an idea and I was confident that I was right, I wouldn’t let anyone discourage me from pursuing it.”
What kept him going in the seven-year MBIA odyssey?