market folly

Hedge fund manager Bill Ackman recently sat down with CNBC and gave his thoughts on two of his well publicized positions. In the first video, he talks about his stake in General Growth Properties where he has a position of $177 million in unsecured debt, 24% of the company's equity, and has been in talks regarding debtor in possession (DIP) financing. General Growth of course has filed for Chapter 11 bankruptcy. Ackman sees General Growth as having one of the premier commercial real estate portfolios in the country, as they have flagship malls in numerous key markets. He cites the fact that GGP (now trading as GGWPQ) has around 91-93% occupancy and has very strong cashflow. The credit crunch simply caused them problems and Ackman wants to see a better capital structure and reorganization. He feels that the company will not have to be liquidated and that bankrupcty courts will merely draw out the maturations on their debt and he hopes that current shareholders should come out ok. He sees some potential deleveraging afterward as well.

In the second video, Ackman touches on his big plan to get his slate of directors elected to the Target's (TGT) board. Ackman points out that while Target serves in the retail, grocery, and credit card business, none of their board members really have experience in these areas. Ackman seeks to rectify this by bringing in an impartial board, with each member having expertise in a certain area to fill the void. He also cites a big problem in that there is no 'ownership culture' on Target's board. He says that board members own less than 0.02% of Target stock and seeks to change this.

Ackman's struggle with his Target position has been well documented, as one of his hedge funds, Pershing Square IV, invests solely in shares of Target, and with leverage (through call options that expire at the $35 strike in 2011). Target is by far Pershing's overall largest position, as we detailed when we covered Pershing's portfolio. Their new portfolio will be released in a few days and we'll be updating their changes in our hedge fund tracking series. Since the losses, Ackman has ponied up $25 million of his own money into the position as well. It's very clear that he is doing whatever it takes to institute change at Target. He recently sent out a letter to Target shareholders as well.

His position in this name leaves him with ample lessons, as he recently stated, "The investment business is about being confident enough to know that you’re right and everyone else is wrong. Yet you have to be humble enough that you recognize when you’ve made a mistake. Earlier in my career, I think I had the confidence part pretty solid. But the humbleness part I had to learn."

For more thoughts from Ackman, also check out his interview with Charlie Rose.


Video 1 (GGP)



Video 2 (Target)