Bill Ackman: SVB Collapse, Biden vs Trump, How I Lost $400M on Netflix, Bill's 10-Year Long

Fundraising and Partnership Origins

• Bill Ackman and David Berkowitz raised their first fund, Gotham, with a target of $3 million, eventually closing at $3.1 million.
  • They conducted over 100 meetings to secure capital.
  • The successful capital came from six individuals, four of whom were in the top 400 wealthiest Americans.
  • Ackman secured a crucial investment from a real estate heir who initially rejected their fund but invested $500,000 after seeing his portfolio of their investment ideas perform significantly (ranging from +50% to +90%).
• The initial pitch relied on "moxie" and a demonstrated track record of life success rather than financial experience.
  • The partners emphasized they were Warren Buffett devotees investing in public companies with no leverage.
  • They convinced investors by highlighting their history of high achievement in high school and HBS.
• Ackman and Berkowitz lived together in an apartment at 360 East 88th Street while launching their firm to reduce costs.
  • The doorman mistakenly assumed they were a couple due to building policies that restricted single-occupancy shared units.
• Ackman emphasizes selecting partners based on total trust, noting that he and Berkowitz serve as trustees for each other's families.
  • He views trust as character-based, formed quickly through observation, and warns that ignoring "gut instinct" regarding potential betrayal is damaging.

Lessons from Failure and Risk Management

• Ackman identifies two major career dips: the 2008–2009 downfall of Gotham Partners following a short position on MBIA, and a business/personal slump between 2015 and 2017.
  • The Gotham collapse was triggered by a white paper questioning MBIA's AAA rating, leading to investigations by Eliot Spitzer and the SEC.
  • The fundamental structural lesson learned was the danger of asset-liability mismatch in hedge funds.
  • Consequently, Pershing Square was structured exclusively to invest in liquid large-cap public companies to avoid the liquidity issues that doomed Gotham.
• Ackman admits to specific investment mistakes and near-misses at Pershing Square.
  • The firm lost approximately $400 million on Netflix after exiting the position based on new quarterly data that contradicted their thesis.
  • Ackman cites the failure to make a larger bet on interest rate hedges (earning $2.8 billion instead of a potential $10 billion) as a significant error of timidity.
  • He defines "missed opportunities" as equally significant mistakes compared to losing capital on bad investments.
• Position sizing is determined by the probability of permanent impairment rather than daily volatility.
  • Large positions are taken in robust businesses like Universal Music where the risk of losing 25% of capital is near zero.
  • Smaller positions are taken on high-risk derivatives, such as interest rate options, where the likelihood of total loss is higher.
  • Ackman admits that past "timidity" in sizing winning bets has held back overall returns.

Current Economic Outlook and Banking Crisis

• Ackman has taken no position (long or short) in regional banks to avoid conflict of interest while publicly advising on the crisis.
  • He argues the Federal Deposit Insurance Corporation (FDIC) and Treasury must immediately implement a temporary guarantee on all bank deposits to stop runs.
  • Without a full guarantee, he predicts a continued drain of deposits from regional banks to systemically important banks like JPMorgan.
  • He notes the current three-tier system (guaranteed, implicitly backed, and uninsured) creates confusion and undermines confidence in small community banks essential for local lending.
• Ackman predicts persistent inflation of 3–4% for the foreseeable future, a trend he believes the bond market is currently underpricing.
  • He points to the low yield on 30-year Treasuries (approx. 3.6%) as inconsistent with a reality of 3.5% inflation.
• Regarding monetary policy, Ackman advises the Federal Reserve to pause or lower rates immediately to prevent further damage to the banking system.
  • He views rising interest rates as a primary driver of the current regional bank instability.
  • He argues that full employment and rising wages should be addressed through increased immigration to expand the labor supply, rather than slowing the economy via rate hikes.
• Ackman expresses concern over geopolitical instability and the erosion of US strategic reserves.
  • Specific threats include the Russia-Ukraine war, China's rising geopolitical influence (including brokering Saudi-Iran relations), and tensions regarding Taiwan.
  • He urges the US Department of Defense to rebuild weapon stocks and strategic petroleum reserves.

Political and Social Views

• Ackman criticizes the Biden wealth tax proposal (25% on appreciation of privately held assets) as destructive to the startup ecosystem.
  • He argues it would force founders to pay massive taxes on unrealized gains, effectively bankrupting new companies.
• He proposes a "Baby Bonds" or universal savings account policy to address wealth inequality.
  • The proposal suggests giving every newborn a $6,500–$7,000 tax-exempt account invested in an index fund, compounding to roughly $1 million by age 65.
  • He believes this would provide a stake in capitalism for all Americans and mitigate the wealth gap driven by asset compounding outpacing wage growth.
• Ackman advocates for tax code reforms to close loopholes for the wealthy.
  • He suggests making "like-kind exchanges" taxable for real estate investors to prevent the deferral of capital gains.
  • He argues that borrowing against assets (e.g., Elon Musk borrowing against Tesla stock) should be treated as a taxable distribution if the loan exceeds the basis.
  • He opposes the "carried interest" tax advantage for asset managers, suggesting it should be taxed as income.
• Ackman speculates that Jamie Dimon is the most viable alternative Democratic candidate against Donald Trump in 2024.
  • He believes a business leader with a track record of caring for citizens could unite the center and center-right better than a career politician.

Personal Life and Philosophy

• Ackman attributes his personal success and happiness to the ability to speak freely without fear of professional reprisal.
  • He uses his public platform, including Twitter, to influence policy and corporate governance, viewing financial independence as a prerequisite for free speech.
• His marriage to Neri Ackman is grounded in deep similarity rather than opposites attracting.
  • They share high levels of drive, ambition, values, and intellectual compatibility.
  • He notes that "date nights" and intentional time management are critical to maintaining the relationship amidst high-pressure careers.
• Ackman's parenting philosophy emphasizes self-reliance and hard work despite family wealth.
  • He did not receive an allowance and worked menial jobs (waxing cars, digging ditches) to earn money.
  • He taught his children that wealth provides security and opportunity but that character and drive are derived from parental lessons, not privilege.
• Ackman identifies Universal Music Group as his preferred 10-year investment due to the structural certainty of the streaming boom.
  • He identifies businesses reliant on outdated monopolies vulnerable to blockchain disruption as prime 10-year shorts.

SPAC Regulation and Future Outlook

• The rejection of the Universal Music SPAC merger by the SEC highlighted a regulatory focus on technicalities over economic substance.
  • Ackman notes the transaction had perfect shareholder alignment and was fundamentally sound, yet failed due to technical details.
  • He argues for principle-based regulation rather than strict adherence to technical compliance to prevent future "accidents" like Silicon Valley Bank.
• Ackman remains optimistic about the US long-term despite current "black swan" events.
  • He views the banking crisis and geopolitical conflicts as catalysts for potential positive systemic changes and leadership shifts.
  • He expresses hope for a peaceful resolution to the Ukraine-Russia war and the election of a unifying global leader.