Andrew Bary

Billionaire investor Bill Ackman is a huge fan of Warren Buffett and has invested in Berkshire Hathaway. Ackman is even trying to create what he has called a "modern-day" Berkshire by taking control of real estate company Howard Hughes Holdings.

In a recent podcast, Ackman offered some provocative comments, saying Berkshire will be better managed after Buffett leaves the scene and that the company's longtime CEO, 94, has been too conservative in his investment discipline.

Ackman admires Buffett's likely successor, Berkshire executive Greg Abel. "Greg is more of an operator," Ackman said. "There is a lot of value to be extracted in running the businesses better."

Ackman heads Pershing Square Capital Management, which has close to $20 billion of assets under management. Its largest vehicle is Pershing Square Holdings, a European-listed closed-end fund.

Ackman told Jonathan Boyar, president of the Boyar Value Group, in a podcast that Buffett takes a hands-off approach to managing Berkshire's dozens of operating businesses. The podcast is called The World According to Boyar.

"Buffett has been reluctant...to get involved in fixing companies" owned by Berkshire, Ackman said. "The next generation [of leadership] will be more disciplined. There are probably CEOs [of various Berkshire businesses] that should have been replaced years ago."

Ackman cited Burlington Northern Santa Fe, one of Berkshire's largest divisions, calling it " probably the least efficiently operated of all the railroads." BNSF has lower profit margins than its chief rival Union Pacific.

Buffett has praised Abel, who heads Berkshire's non-insurance operations, for getting better results from Berkshire's many divisions and holding Berkshire's managers more accountable than he has done.

Buffett said in his recently released annual shareholder letter that both BNSF and Berkshire's utility, Berkshire Hathaway Energy, "have much left to accomplish."

Ackman said that Buffett's value investment approach has prevented him from taking advantage of opportunities in the stock market.

"Warren has this price discipline. If it trades for more than 10 times operating income, he won't buy the business, no matter how attractive it is," Ackman said. He added that there are "amazing" businesses with great long-term outlooks, but trade for more than 10 times pretax operating profits.

"It's worked incredibly well for him for 60 or 70 years, why should he change?" Ackman said.

Buffett hasn't acknowledged this price discipline, but his investment activity supports Ackman's view.

Berkshire, for instance, accumulated its huge Apple stake from 2016 to 2018 at less than 15 times after-tax earnings, or roughly 10 times pretax operating earnings. Berkshire paid a similar price for Coca-Cola and American Express in the 1980s.

And the formula that Berkshire used to buy the remainder of Pilot Travel Centers, the truck-stop operator, was 10 times pretax operating earnings after the initial purchase in 2017.

Asked about Berkshire's large net sales of stock, Ackman said Buffett "probably doesn't like the level of the stock market."

Ackman said he tried to get Buffett to make various investments, but Buffett balked.

Ackman said he attempted to broker a sale of Hilton Hotels to Berkshire when Blackstone controlled it, but Buffett passed. "That would have been an incredible home run" for Berkshire, Ackman said. Hilton ended up being one of Blackstone's best investments. Hilton has appreciated more than fivefold over the past decade.

Ackman said that he warned Buffett about Covid-19 in February 2020 but that Buffett "dismissed" his concerns. When Covid struck in March 2020 and markets tumbled, Buffett failed to take advantage of what Ackman called incredible opportunities, with Ackman saying he was "frozen."

Ackman's firm made a killing in 2020 because he anticipated the Covid market meltdown with a macro bet against U.S. corporate bonds that made a few billion dollars, and he scored with various other investments. His closed-end fund gained 70% that year.

Ackman's firm sold Berkshire stock in early 2020 because he saw better opportunities in stocks like Hilton and Lowe's. He said he sold a "70-cent dollar" in Berkshire to buy "40-cent" dollars like Hilton and Lowe's. His firm even sold some Berkshire stock back to the company.

"I love the man and he has been an amazing inspiration," Ackman said.

Write to Andrew Bary at andrew.bary@barrons.com

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February 28, 2025 11:37 ET (16:37 GMT)

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