Billionaire Bill Ackman lays out why he invested nearly $700 million in Berkshire Hathaway
William “Bill” Ackman, founder and chief executive officer of Pershing Square Capital Management LP, at the Robin Hood investors conference in New York in 2013.Hedge fund billionaire Bill Ackman of Pershing Square Capital Management is riding high after a multiyear stretch of trouble.
Berkshire Hathaway owns high cash balances and has a tendency to do well in bad markets as Buffett and Munger, icons in American business, deploy funds at rock-bottom prices. Berkshire’s cash pile hit a record $122 billion in the second quarter. With markets now falling, it’s hard to not see new investment opportunities on the horizon.
Berkshire’s primary asset is the world’s largest insurance business, which we estimate represents nearly half of Berkshire’s intrinsic value. In its primary insurance segment, Berkshire focuses on the reinsurance and auto insurance segments.
Since the end of 2007, we estimate that Berkshire has averaged a nearly 7% annual rate of return on its insurance investment portfolio while holding an average of 20% of its portfolio in cash.
Berkshire’s regulated utilities business primarily consists of a handful of well-managed, highly efficient energy utilities that earn a reasonable return on equity while satisfying their customers’ and regulators’ desire for low energy prices. Berkshire’s regulated utilities business is relatively insulated from economic downturns due to the essential nature of the service it provides, which has allowed it to steadily grow its earnings during all phases of the economic cycle.
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