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Why hedge fund titan Bill Ackman dumped his stake in Buffett’s Berkshire Hathaway?

bill ackman hedge fund manager

Hedge fund billionaire Bill Ackman (pictured) said he sold off his entire stake at Warren Buffett’s Berkshire Hathaway investment group, emphasizing his fund is in a better position to take advantage of opportunities in the market.

Ackman, the manager of the multi-billion hedge fund Pershing Square, said that his fund is more “nimble” to react to seize potential opportunities in the current financial market.

He commented: “The one advantage we have versus Berkshire is relative scale”, citing the difference between his $10bn hedge fund vs. Berkshire’s $300bn portfolio of cash and securities during a quarterly call with investors on Wednesday.

Pershing Square’s holding in Berkshire Hathaway was worth $1bn at the end of March. Ackman first bought a stake in the investment group a year ago, and had increased it over the last few weeks.

Ackman’s decision to dump his shares in the Omaha-based conglomerate goes against his long-held view of Berkshire’s ability to withstand an economic downturn, such as the coronavirus health emergency, due to its diversified portfolio of subsidiary companies, which include a candy maker, a jet-leasing business, and multiple insurance companies.

Ackman said the group was “built by Warren Buffett to withstand a global economic shock like this one”.

Berkshire Hathaway’s (BRK) shares have underperformed the S&P500 this year by almost 16%, losing 8.35% so far based on Thursday morning’s price of $277,710 per share.

BRK stock chart ytd

Ackman’s view on Berkshire seems to be in line with that of a growing group of concerned investors who saw some recent moves from the 89-year old investor as differing from his value-based investment approach of only buying stocks in firms with strong earnings power and the potential for continued growth.

Last month, Buffett announced the liquidation of his company’s entire portfolio of airline stocks, while recent filings show that Berkshire also sold off many of its shares in major financial companies amid the coronavirus outbreak, pointing to a gloomy long-term economic outlook resulting from the crisis.

Meanwhile, Bill Ackman has jumped to the spotlight in March after reaping a $2.6bn profit from a small bet against credit default swaps, anticipating that the credit rating of investment-grade corporate bond issuers in America would drop as a result of the virus outbreak.

His fund has gained 22% so far this year, mostly attributed to this windfall, while the S&P500 is delivering a 7.8% gain during the same period.

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    Alejandro Arrieche

    Alejandro is a financial writer with 7 years of experience in financial management and financial analysis. He writes technical content about economics, finance, investments, and real estate and have also assisted financial businesses in building their digital marketing strategy. His favorite topics are value investing and financial analysis.

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