The investor that bets on market collapses

Bill Ackman is one of Wall Street’s most polarizing figures. He built Pershing Square Capital Management into a $15 billion hedge fund by defying market trends and taking calculated risks. From turning a $27 million bet during the 2008 crash into $1.6 billion to his failed short on Herbalife, Ackman’s career has been marked by both major wins and high-profile losses.

This week, we explore Ackman’s rise, the high-stakes bets that shaped his career, and the lessons he learned along the way:

• 💼 Lessons learned from early failures

• 💥 Public battles and bold investments

• 📈 Creating a $15 billion hedge fund

— Investor Briefcase Team

Ackman’s career didn’t begin with the success he is known for today. After graduating from Harvard Business School in 1992, he co-founded Gotham Partners with classmate David Berkowitz. Gotham focused on undervalued real estate and small-cap investments, quickly expanding to manage over $500 million by the late 1990s.

However, the firm’s rapid growth masked deeper problems. Gotham began investing in illiquid assets, including golf courses and obscure real estate ventures, which tied up capital and left the fund vulnerable to market downturns. A high-profile legal dispute involving a failed merger with golf course owner First Union Real Estate made matters worse. Gotham became entangled in shareholder lawsuits, further damaging its reputation and scaring away investors.

By 2002, the firm was in crisis. Investors fled, and Ackman was forced to close down Gotham Partners amid accusations of mismanagement and financial strain. The collapse left Ackman financially bruised and with his reputation under scrutiny.

The failure of Gotham Partners marked a turning point. Ackman learned to prioritize liquidity, transparency, and scalability, lessons that would guide his future successes with Pershing Square.

In 2004, Bill Ackman founded Pershing Square Capital Management with $54 million, primarily made up of his own money and contributions from a few early backers from his previous venture. This time, he adopted a disciplined activist investing strategy, focusing on undervalued companies where he could acquire significant stakes, restructure operations, and enhance profitability.

One of his earliest successes with Pershing Square came during the 2008 financial crisis. Ackman placed a short bet against MBIA, a bond insurer heavily exposed to subprime mortgage risks. His conviction that the firm’s business model was unsustainable led to a $60 million investment in credit-default swaps that ultimately returned $1.6 billion when the market collapsed.

Despite his success during the housing crisis, not all of his high-profile bets have paid off. In 2012, he initiated a $1 billion short position against Herbalife, accusing the company of being a pyramid scheme. The trade turned into a bitter public feud with Carl Icahn, who bet against Ackman and publicly ridiculed his position. After years of regulatory scrutiny and intense media attention, Ackman exited the trade in 2018, reportedly losing $500 million with a 50% loss on the trade for his fund.

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Ackman’s success at Pershing Square goes beyond individual trades. After the costly Herbalife short, he sharpened his activist strategy to focus on companies that the market had mispriced.

Over the years, he used his approach to target companies like Wendy’s, where he pushed for asset sales, and Canadian Pacific Railway, where he led a successful boardroom battle to replace the CEO and improve operations. These trades generated substantial shareholder returns and attracted major institutional investors drawn to Ackman’s high-conviction, activist-driven approach.

During the COVID-19 pandemic, Ackman’s foresight paid off in a historic trade. He made a $27 million bet on credit-default swaps, realizing that the market had vastly overvalued tech stocks. When the markets crashed, his trade returned $2.6 billion in profits in less than a month. He reinvested the gains into recovery-focused companies like Hilton, Lowe’s, and Chipotle, turning short-term wins into lasting growth.

Today, Pershing Square manages $15 billion, with annualized returns of over 16% since its inception. Ackman’s ability to balance activism, conviction, and financial precision has turned Pershing Square into one of Wall Street’s most influential hedge funds.

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Other Notable Hedge Fund Managers

> Ray Dalio: Founder of Bridgewater Associates, the world’s largest hedge fund. Known for his principles-driven approach, Dalio emphasizes radical transparency and a focus on macroeconomic trends in investing.

> Ken Griffin: Founder and CEO of Citadel, one of the most successful hedge funds globally. Griffin is recognized for his quantitative strategies and building a high-performance culture in the investment world.

> Carl Icahn: Founder of Icahn Enterprises, a pioneer in activist investing. Icahn is famous for taking significant stakes in companies to push for operational and financial changes to enhance shareholder value.

> Paul Tudor Jones: Founder of Tudor Investment Corporation, known for his macro trading strategies. Jones is also a prominent philanthropist and advocate for environmental and social causes.

> Steve Cohen: Founder of Point72 Asset Management and former head of SAC Capital. Known for his trading acumen and sharp focus on short-term market moves, Cohen also owns the New York Mets.

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