Bill Ackman is one of the most outspoken investors globally. But his opinions aren't just limited to the investing world. Ackman has become somewhat of a polarizing figure in recent years due to his engagement on a variety of topics including politics and even military tactics.

But how did Bill Ackman build his wealth and notoriety in the first place?

Here's a glimpse at Ackman's journey to fame and the investments that paved the way.

Ackman's First Fund:

Shortly after graduating from Harvard Business School in 1992, Bill Ackman and a fellow Harvard grad named David Berkowitz launched their first investment fund called Gotham Partners.

While it’s difficult to find public returns for Gotham, it appears he was quite successful in his early years. Ackman and Berkowitz reportedly posted double-digit annual returns throughout most of the 90’s, which helped propel the fund from just $3 million in initial capital to over ~$300 million in assets by the year 2000. At one point, the fund even made a joint bid for the Rockefeller Center which helped put Ackman's name on the map.

However, heading into the early 2000’s, Gotham Partners began to make some ill-fated investments in golf courses. After taking a controlling stake in a private golf course operator they even rebranded the company to Gotham Golf.

But the business struggled. The golf courses lost money and eventually the debt burden grew too big.

In an effort to save the investment, Ackman tried to engineer a merger between Gotham Golf and a cash rich real-estate company that they also had a controlling stake in. However, minority shareholders in the real estate company filed a lawsuit to block the deal and they won.

While this ruling was eventually overturned, investors in Gotham had become wary. By 2003, Ackman had no choice but to sell off assets and return capital to investors. 

Launching Pershing Square:

With the unwind of Gotham Partners now in his rearview, Ackman decided to start a fund of his own.

In an attempt at a fresh start, Bill Ackman launched Pershing Square Capital Management in 2004. Two decades later and Ackman is still running Pershing Square today.

While there have certainly been some bumps along the way, over the last 20 years, Pershing Square's returns have trounced that of the S&P 500 index.

While the outperformance is certainly impressive, there have been some long periods of underperformance along the way.

So to dissect these returns further, it's helpful to take a look at some of Pershing Square's biggest winners and losers that powered the 2 decades of market-beating returns.

Ackman's Best Investments:

1.) Wendy's

In 2004, Bill Ackman detected that Wendy's, which was one of the largest fast-food chains in the US at the time, had some unrealized value through its ownership of Canadian breakfast chain Tim Horton's.

After amassing an initial 9.3% stake in the company, Ackman tried to meet with Wendy's management several times but was constantly rejected. So finally, in 2005, Ackman published a letter that was directed to the CEO of Wendy's explaining the ways that the company could unlock additional shareholder value.

Ackman's 3 proposals:

1. Spin-off Tim Hortons

2. Re-franchise a significant portion of Wendy’s-operated restaurants

3. Repurchase Wendy’s shares using proceeds from re-franchising.

The activist pressure finally worked and Ackman's belief that Tim Horton's would be worth more as an independent entity came to fruition in 2006.

By November of that year, Ackman had sold his remaining shares in Wendy's stock, netting Pershing Square a double in the just a couple years.

2.) General Growth Properties

In 2009, during the depths of the great financial crisis, Pershing Square purchased a $60 million position in General Growth Properties which was the 2nd largest shopping mall operator in the US at the time.

Plagued by a significant debt-load and an inability to refinance due to the collapse of the mortgage-backed securities market, Ackman and an investment group which included Brookfield Asset Management, encouraged the company to file for Chapter 11 bankruptcy protection.

And that's exactly what they did. In 2009, General Growth filed the largest real estate bankruptcy in US history. While many shareholders had run for the hills at the thought of "bankruptcy", Ackman knew that Chapter 11 would give General Growth Properties the ability to extend their debt maturities.

By buying more time, General Growth was able to sell off some of its assets and emerge from bankruptcy within 8 months.

All in all, after Pershing Square had sold its stake in 2011, Ackman's $60 million investment had reportedly turned into $1.6 billlion. Helping Pershing Square deliver a 29% net return in 2010.

3.) Chipotle Mexican Grill

In September of 2016, Bill Ackman took a $1.2 billion stake in the fast-casual dining operator Chipotle Mexican Grill.

At the time, the stake amounted to 9.9% of the company, and Chipotle was in the midst of a crisis. Following an E-Coli outbreak across a number of its locations, consumer confidence in the brand was low and shares had dropped by more than 40% from the latest highs.

But Ackman believed the company could revive the brand. Ackman, who had secured 2 seats on Chipotle's board, also helped bring in Brian Niccol as the company's new CEO.

Under Niccol's leadership, Chipotle doubled down on food safety, cleaning its restaurants, digital orders, and limited-time menu items. Through a combination of improvements, Chipotle was able to restore trust and get traffic in its stores growing again.

Since Ackman's initial purchase, shares are up ~600% as Chipotle has become one of the most efficient and profitable quick service restaurant operators globally.

Ackman's Biggest Misses:

For the better part of the last decade, Pershing Square actually underperformed the market due to a particularly rough stretch between 2015 and 2019.

That difficult period was caused by two investments in particular.

1.) Herbalife

In 2014, Bill Ackman announced that his fund was short one of the largest vitamin and nutritional supplements companies in the world at the time, Herbalife.

In a 300-slide presentation at the Sohn Investment Conference, Ackman detailed why he believed that Herbalife was a pyramid scheme.

The pitch from Ackman was that people were not actually consuming Herbalife products as much as they were selling them, meaning it was benefitting only the top sellers and the company while dumping inventory on new players.

Looking back today, Ackman was directionally correct on his claims. The company has had to revise its business practices, revenue has gone nowhere, and the stock has collapsed by more than 75% since 2012. Yet Ackman still lost money, here's why:

1.) Lack of Fraud: Though Ackman made a great case for why Herbalife's sales growth was misleading and its multi-level marketing practices were morally wrong, the presentation failed to provide clear evidence of actual fraud.

2.) Icahn: Perhaps the biggest reason Ackman's short against Herbalife didn't work out was the involvement of famous activist investor Carl Icahn. Icahn's firm Icahn Enterprises bought a 13% position in Herbalife seemingly out of spite. Icahn and Ackman had a history of disputes and Icahn saw this as an opportunity to make money while hurting Ackman's returns in the process.

With a big investor's backing, Herbalife investors had renewed confidence which sent the stock climbing after the news.

All in all, Ackman's bet against Herbalife kicked off several years of underperformance for Pershing Square.

2015: -20.5%

2016: -13.5%

2.) Valeant Pharmaceuticals

The 2nd investment that really hampered returns for Pershing Square was Valeant Pharmaceuticals.

Valeant was what's commonly referred to as a “platform pharmaceutical business”. Often times, that means they use debt to acquire other pharmaceutical manufacturers, reduce the researching and development spending, and juice the profits.

Unfortunately for Ackman, shortly after acquiring his shares, Valeant came under fire from regulators for boosting drug prices through dubious methods that were not completely disclosed to investors. At the same time, Valeant was receiving scrutiny over some of their accounting practices.

As the stock price collapsed, Ackman doubled down and accumulated a larger stake in the company. But his involvement wasn't enough. The decline continued and in his letter to investors Ackman stated that the poor results were a result of "certain unexpected events".

Finally, in 2017, after several years of involvement and a 96% drawdown from highs, Ackman decided it was time to get out. In his rationale for closing the position, Ackman stated that even if there were significant upside it "would not compensate us for the human resources and substantial mindshare that this investment had and would have continued to consume."

Ultimately, the Valeant investment led to a 4% decline for Pershing Square investors, marking the firm's 3rd year in a row of negative returns.

Pershing Square Current Holdings: