Ackman details how he is turning Howard Hughes into a Berkshire Hathaway 2.0: buying the real estate company at a discount to liquidation value, then using insurance float (with assets in Treasuries and surplus in equities) to create a tax-efficient compounding machine over decades.
transcript
Bill Ackman: And the vast majority of the value he created at Berkshire was through actually the ownership of insurance operation. And what's interesting about insurance is that running an insurance company, you have two jobs. One is you write business, right? You take risk. You collect premiums in exchange for the obligation to pay future claims. And then you get money up front, and your responsibility is to invest that money. The vast majority of insurance companies focus only on the liability side of the balance sheet. Buffett was really the first to focus on, actually more on the asset side of the balance sheet than on the liability side. Over time, on the liability side. If you manage the assets of an insurance company well and the liabilities well, you can build this enormously profitable, compounding, tax-efficient machine over time. And the question is, why haven't other people done this? And the answer is, if you're really good at investing, You go work for a hedge fund, you go work for Fidelity, you go work for Wellington, but you don't go work for an insurance company. So the insurance company's ability to recruit investment talent is very limited. Buffett owned half the company. He was really good at investing, which is why it worked. So what we're doing is we're, you know, Buffett started with a crappy textile company. He effectively liquidated it over time, reinvested in insurance, and then invested the assets well. Howard Hughes is actually a really interesting company, but it's a business that Wall Street has not cared about for a long period of time. We created it out of the bankruptcy of General Growth. It was a spin-off of all the other assets. And it's a company that owns these small cities. So I bet a lot of people here have heard of Summerlin, because a lot of the tech community has moved from California to Las Vegas. But we own this small city, 26,000 acres of land. We own all the commercial land. We own all the residential land. We sell lots of home builders. We build a downtown. It's a bit like the Irvine company. Don Bren created probably $100 billion of personal wealth managing a small city. So super cool company, but the time frame is decades as opposed to quarters. So Wall Street's never cared. It's always traded a huge discount. So Buffett bought into a textile business at a discount to liquidation value. At $63 a share, you're owning Howard Hughes at a discount to liquidation value. What we're doing is instead of reinvesting all the cash the business generates into real estate, we're going to reinvest all the cash into insurance within the next week or so. You're in the business of building this flywheel. We're going to build this into a compounding machine over the next 50 years. It's something I've always wanted to do. We have the benefit of understanding both the insurance side of the business and we can manage the assets well. And you can buy it at whatever, 60 cents on the dollar.