Why Did Bill Ackman Unload His Berkshire Stake?

Why has Bill Ackman dumped Warren Buffett? Specifically, the hedge fund impresario has sold all his holdings in Berkshire Hathaway, the conglomerate that investing guru Buffett runs.

Perhaps the answer is that Berkshire, which trails the market, lacks the get-up-and-go that Ackman wants to see in a stock. Perhaps Ackman doesn’t like what he sees in the Buffett portfolio, such as limited exposure to health stocks. Perhaps Buffett is simply too stodgy for the much-younger Ackman, who claims to adore the legendary investor.

In a conference call last week with his Pershing Square investors, Ackman did not explain why he was unloading his stake in Berkshire’s B shares, which investment service GuruFocus valued at $449 million. This constituted of 6.9% of Pershing’s $6.5 billion portfolio. Pershing enlarged its Berkshire position significantly just last year.

Ackman during the call labeled Berkshire a “strong investment,” although that seems like damning with faint praise, in light of his choosing to ditch the stock. Missing was Ackman’s one-time gushing over Berkshire. He only indicated that he wanted to deploy his capital into areas he considered having growth potential amid the ongoing cornavirus-influenced market. One such area is health care, which now is 14% of his assets.

Berkshire, aside from its operational companies in businesses ranging from insurance to railways, is essentially a giant mutual fund. Health care makes up just 2% of its investment assets. Buffett could not be reached for comment.

The odd part of all this is how much Ackman ordinarily says he worships Buffett. Indeed, the hedge operator once was dubbed “the baby Buffett,” perhaps because he said the older man had guided his investing career. Ackman credited his Berkshire stock for Pershing’s 2019 turnaround, after four losing years when he pursued losing bets on Valeant Pharmaceuticals and a short-selling campaign against Herbalife Nutrition.

Ackman effusively crediting Berkshire holdings as a key ingredient of Pershing’s stellar 2019 turnaround sounded like hype: Buffett’s company stock did rise 15.4% for the year, but that was about half of what the S&P 500 delivered. Pershing itself was up 58.1%. Still, the Berkshire contribution helped to some small degree.

Maybe, despite his one-time genuflecting toward Buffett, Ackman is disappointed in his Berkshire assets nowadays. Lately, Berkshire stock hasn’t exactly torn up the track. Both the A shares and the less expensive B shares are down around 19% this year, versus negative 5.8% for the S&P 500.

Buffett’s significant stakes in airlines, energy, and banks were no help: They have taken a hammering. He also is sitting on $137 billion in cash, and although he hasn’t done a major deal since 2016, he finds nothing very appealing to buy at the moment. That doesn’t send a note of forward momentum to investors.

Meanwhile, Pershing Square, which is publicly traded, is up a whopping 26% in 2020. As a hedgie, Ackman makes moves that are a lot more daring than those of Buffett, who is content to maintain his existing portfolio as is, with only occasional adjustments, such as his recent selling of his airline positions. Ackman’s portfolio turnover is much larger than Buffett’s. Indeed, there is a large age gap between the two men: Ackman is 54 and Buffett 89.

In March, Ackman sagely predicted that credit spreads would widen, so he bought $27 million in credit protection on corporate bonds globally, which paid off when fixed income markets panicked over the pandemic. Along with his divesting of Berkshire, he also unloaded positions in two other companies whose stock performances was less than exciting: Blackstone Group (flat this year) and Park Hotels & Resorts (off 60%).