Bill Ackman really wants to replicated Warren Buffet… and fast.
Speaking on Howard Hughes Holdings' second-quarter earnings call Thursday, the executive chairman revealed his company has shifted from building an insurance operation from scratch to actively pursuing acquisitions of established insurers.
The company is targeting insurance deals in the $1-3 billion range, with Howard Hughes maintaining control while potentially partnering with other Pershing Square affiliates for larger transactions.
Ackman expects to announce a transaction soon, with more details planned for the company's September 30 annual meeting in New York City.
The pivot comes as Howard Hughes raised its full-year guidance and reported strong results across its real estate portfolio.
"Our thinking on building versus buying is if we can find the right asset and we're, I would say, increasingly confident we can, there are a number of potential transactions of a size and a, I think, quality that would be a great start for us," Ackman said during the call.
The insurance strategy has been central to Howard Hughes' transformation since Pershing Square invested $900 million in the company earlier this year.
Ackman's insurance ambitions draw heavily from what he argues is Berkshire Hathaway's model.
"What Buffett did is he ran a very low leverage insurance company. Instead of writing premiums equal to equity every year, he wrote -- he has written premiums equal to about 1/3 or anywhere between 20% and 40% of equity in any 1 year," Ackman noted.
That underwriting approach described by Acman, combined with aggressive equity investing, has been Berkshire's secret sauce. "He took 100% of that float from writing premium and invested in very short-term U.S. treasuries, basically taking no risk on the insurance company float. But then he invested about 100% of the equity of the insurance operation in common stocks," Ackman said.
Ackman said the believes Howard Hughes can replicate this success, bringing Pershing Square's investment expertise to bear on insurance operations.
"Insurance companies today really focus on maximizing the profitability their ensure. And I would say the asset side of the balance sheet is a bit of an afterthought," he observed. "One of the things that we bring to this transaction with Howard Hughes is an investment operation."
The insurance strategy has been central to Howard Hughes' transformation since Pershing Square invested $900 million in the company earlier this year. Notably, the strategic investors who recently purchased a 10% stake in Pershing Square Capital Management include several insurance industry players, including Arch Capital Group and Menora Mivtachim Holdings, an Israeli insurance and finance group with $93 billion in assets under management.
Howard Hughes reported second-quarter adjusted operating cash flow of $91 million and raised its full-year guidance to $385-435 million, driven by record land sales and strong operating asset performance.
