It is a grey, blustery New York morning, days before Hurricane Sandy will unleash its fury on the city, and Bill Ackman is tearing his way through a day that started just after dawn.
He is running on just a few hours of sleep, his private jet having returned him home the night before after a whirlwind four-day trip through Korea and Singapore. His first stop was dropping the youngest of his three daughters at a small, private grade school on Manhattan’s Upper East Side. By 8 o’clock, he is sitting next to me at Sarabeth’s, a popular eatery on Madison Avenue, inspecting an egg-white and spinach omelette.
Dressed in a close-fitting navy blue suit, he leans over the table, head bowed, as he fires off pointed responses to my questions—sometimes even before I’ve finished asking them.
Here on the Upper East Side, Ackman is just another silver-haired billionaire eating a $20 breakfast. In Canada, however, he is the boardroom barbarian who toppled four-star corporate generals at one of the country’s most historic companies. It has been 20 years since the 46-year-old Ackman launched his first hedge fund and began building a reputation as the most active activist on Wall Street, betting against overhyped companies and arm-twisting directors into fixing broken businesses. He has had some flops, but today he waves them off. He can afford to. His hedge fund, Pershing Square Capital Management, now ranks as one of the world’s biggest and most feared activist forces, with $11-billion in assets under administration. (All currency in U.S. dollars unless otherwise noted.)
Pershing is the corporate personification of the restless, sharp-tongued investor who has such a long history of rubbing people the wrong way that a fellow student once contributed this quip for his high school yearbook caption: “A closed mouth gathers no foot.” The bigger the fund gets, the more financial clout and confidence Ackman has to lead shareholder insurrections against powerful boards used to closing ranks on impertinent investors.
“I have always had this drive,” Ackman says. “I want to have a significant life. I want to make a difference.”
On the home front, that means hosting occasional singles’ nights with his wife, Karen, at their sprawling co-op overlooking Central Park to introduce friends to potential mates. “I love matchmaking,” he says.
In the business realm, Ackman’s reputation rests on boardroom bust-ups, a reputation that was cemented this spring, after he launched what at the time was his biggest activist bet yet, against the oldest of the old guard, Canadian Pacific Railway. The railway’s profitability had lagged behind its peers for years, yet the board appeared unwilling to acknowledge shareholders’ frustration. What began in November, 2011, as a campaign for a new CEO and two seats on the CP board mushroomed into a proxy war that eventually saw close to 90 per cent of shareholder votes supporting Ackman’s dissident slate.
The boardroom massacre that ensued sent a chilling signal to big-business boards: Perform or else. Directors, anxious to avoid the fate of CP’s ousted crew, are more motivated than ever before to challenge executives’ poor results. Pension and investment funds that have historically shrunk from confrontation have greater leverage to push for change. Since Ackman took aim at CP—triggering a 49 per cent increase in the railway’s stock price in one year—it’s a good bet that most of Canada’s fund managers have his phone number on speed-dial. In short, no other CEO has had a bigger impact on how our publicly traded companies are steered than Ackman.
And Pershing’s influence will continue to grow, he insists, because boards in both Canada and the United States are “still somewhat dysfunctional,” he says. Too collegial, directors don’t push hard enough to get the right information out of executives—who, by the way, can be very selective about what they share.
After several glasses of water and half his omelette, Ackman heads out the door in search of a cab. (He must be the only billionaire in New York with no driver—he doesn’t want his daughters to be overly coddled.) On the 35-block ride from Sarabeth’s to Pershing’s midtown office, Ackman keeps his eye trained on my notebook, exhorting: “It’s important to get this right.”
First: Pershing has delivered more than a 20 per cent annual compound rate of return to investors in the past nine years. About 90 per cent of the profits, he goes on, were generated by activist plays that pushed targets such as Wendy’s International to spin off divisions. Ackman wants to grow the activist side of the fund’s business, but he is constrained. Like other hedge funds, Pershing has to keep a large share of its assets in liquid investments because its investors can cash in as much as one-eighth of their holdings each quarter. He wants a more permanent capital base so that he has the freedom to hold on to core stocks like CP as long as “forever,” and to make even bigger wagers on activist plays. That’s why he was in Asia—courting investors for a new Pershing fund that is planning an initial public offering on the London Stock Exchange. With the new fund and more permanent equity investors, he tells me as our taxi hurtles down Fifth Avenue, “We will be able to do more.”