Warren Buffett's latest shareholder letter contains the usual folksy mix of wisdom and humor. But it also strikes a more contemplative tone, reflecting on the divergent mortality of the company and its chief architect. On Berkshire Hathaway Inc., Buffett is upbeat. “Companies die for many reasons but, unlike the fate of humans, old age itself is not lethal. Berkshire today is far more youthful than it was in 1965,” he writes.
On his own longevity, he is more circumspect: “At 94, it won’t be long before Greg Abel replaces me as CEO and will be writing the annual letters.”
Shareholders would be right to wonder how Berkshire will survive the transition. It’s a risk the company itself flags in its annual report: “If for any reason the services of our key personnel, particularly Mr. Buffett, were to become unavailable, there could be a material adverse effect on our operations.” While they know Abel well – he was nominated as Buffett’s successor in 2021 and appeared alongside him at last year’s annual general meeting – he lacks Buffett’s pedigree as an investor.
Indeed, the true successor to Buffett’s legacy as market oracle may be operating outside of Berkshire.
One contender is Bill Ackman, who founded Pershing Square Capital Management in 2004. Ackman has been a fan of Buffett for many years. “I first learned about Warren Buffett from a college classmate when I was 20 years old,” he posted on X last week. “Four years later, I read my first Berkshire Hathaway shareholder letter and I was inspired to become an investor.” As a fund manager, Ackman regularly attended Berkshire AGMs, queuing at the mic on four separate occasions to ask questions. His funds have held the stock.
Now, Ackman is looking to replicate his own “modern-day version” of Berkshire Hathaway. Last week, his management firm revised an offer to buy a stake in Howard Hughes Holdings Inc. If successful, Pershing Square would own 48% of the real estate developer across its funds and management vehicle. Ackman’s objective is to use Howard Hughes Holdings as the foundation of a diversified holding company that would acquire controlling interests in private and public businesses.
On the surface, Ackman has the right credentials to assume the mantle. Like Buffett, he has a public profile, with close to 1.7 million followers on X. His annual general meeting in London this month attracted around 1,000 registrations – short of the 30,000-40,000 that attend Berkshire meetings in Omaha, Nebraska, but constrained by a more restrictive structure (US residents find it hard to own shares in his UK-listed vehicle). Both use their platform to espouse a philosophy as much as to market their investment standing, though Buffett’s “aw, shucks” profile could hardly be more different than Ackman’s keyboard warrior. But times change.
His investment performance is also strong: Since launch in 2004, Pershing Square funds have compounded at an annual rate of 19.8% after management fees – almost identical to Buffett’s record of 19.9% over 60 years – although returns slip to 16.4% once performance fees are deducted. And Ackman’s own wealth makes up around 21% of his funds, which compares with Buffett’s 14% stake in Berkshire.
The two men are also very well connected. “I pretty much know every CEO in America or am one step removed,” Ackman said during his presentation announcing the Howard Hughes transaction (which has had 107,000 views). Operationally, they are aligned too, each running a tight ship and fostering low staff turnover. Berkshire employs 27 people in its head office, and they’ve all been there a long time; Pershing Square employs 41 at its Manhattan headquarters, the most senior having been at the firm for over a decade.
Despite his profile, though, Ackman only manages $16.2 billion of assets, compared with Berkshire’s market cap of $1.03 trillion. At his annual general meeting, Ackman reflected on the gap between profile and assets which the Howard Hughes transaction provides one leg towards closing.
Sadly for Ackman, the deal may not be the panacea. Buffett used a spurt of cash flow generated by his acquisition of the original Berkshire Hathaway textile manufacturer to finance further deals, notably in insurance. He now owns 189 operating businesses alongside his equity portfolio. Ackman has acknowledged that Howard Hughes won’t be in a position to generate free cash flow for more than three years.
Buffett’s structure was also cleaner. Four years after buying Berkshire, Buffett wound up his fund and focused on Berkshire as his primary investment vehicle. Ackman will continue managing his UK-listed investment trust, a legacy hedge fund and a special purpose acquisition vehicle; he’s proposed launching more funds in the future. Each has its own set of stakeholders – even his management company has third-party shareholders after he sold a stake last year – whose interests don’t necessarily align. To reconcile some of these interests, Ackman proposes that Howard Hughes pay Pershing Square a fee of 1.5% of market cap. While critics point out that Buffett doesn’t do this with Berkshire, drawing a salary of just $100,000 a year, Ackman responds that others at the top of Berkshire Hathaway get paid very well – including Greg Abel who receives $20 million in annual cash compensation.
One thing going for Ackman, though, may be time. He is currently 58 years old. Another thing he has in common with Buffett is that Buffett listed Berkshire's shares on the New York Stock Exchange when he was 58, in November 1988. At the time, Berkshire’s market cap was only $5.8 billion. There is still plenty to play for.
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