Ira Sohn 2010: Citigroup After GGP
From the GGP Exit to a New Recovery Thesis
Fresh off the General Growth windfall, Ackman uses the Ira Sohn stage to present his next recovery thesis: Citigroup preferred securities. He argues that the market continued to price Citi as if the crisis were permanent, while the underlying franchise and recapitalized balance sheet told a different story. The speech shows the GGP playbook being generalized into a repeatable distressed-to-quality framework.
“Ackman first critiqued the ratings agencies and laid out a plan on how to 'save' them. He mainly thinks they need to negate conflicts of interest, institute a new payment scheme as well as a new issue ratings moratorium.”
Summary
This page is based on the secondary write-up published by Market Folly after Ackman's appearance at the Ira Sohn Investment Conference in 2010. It is not a transcript or official recording; the language below is the note-taker's paraphrase of what Ackman presented. As the notes record it, the talk ranged across three subjects: a critique of the rating-agency model, a fresh bullish update on General Growth Properties coming out of bankruptcy, and the brief announcement of a new 150-million-share position in Citigroup. The through-line is the golden-era habit of taking a crisis-forged template and redeploying it: the GGP rescue had worked, and the same distressed-to-quality instinct was now being aimed at a money-center bank.
Second-hand notes published by Market Folly; no official recording or transcript of this talk exists. Quotes below are the note-taker's words, verbatim from the archived notes.
On the rating-agency section, as the notes record it:
"Ackman first critiqued the ratings agencies and laid out a plan on how to 'save' them. He mainly thinks they need to negate conflicts of interest, institute a new payment scheme as well as a new issue ratings moratorium."
— Notes via Market Folly, Ira Sohn Investment Conference, 2010
On the broader goal of reducing reliance on ratings:
"Ackman feels we need a new system whereby investors are not so overly reliant on ratings and can do their own due diligence. In the end, he believes NRSROs should be removed from the structuring and underwriting process."
— Notes via Market Folly, Ira Sohn Investment Conference, 2010
On General Growth as the context for the new Citigroup purchase:
"Ackman's investment turned out to be his most successful ever, but he's not done yet. His new presentation details the plan to save the company from bankruptcy as well as the continued bullish prospects."
— Notes via Market Folly, Ira Sohn Investment Conference, 2010
On the bullish macro evidence for GGP, as the notes summarize it:
"He cites a bouncing-back US consumer, demand for mall REIT debt and equity capital, increased mall traffic, as well as decreasing cap rates."
— Notes via Market Folly, Ira Sohn Investment Conference, 2010
On the bankruptcy-emergence structure:
"Most notably, Ackman delves into General Growth's bankruptcy emergence where the company will become two separate entities: General Growth Properties (GGP) and General Growth Opportunities (GGO) He notes an estimated value of GGP at $15 and an estimated value of GGO at $5."
— Notes via Market Folly, Ira Sohn Investment Conference, 2010
On the split between the two entities:
"GGP would be considered the cashflow cow as it holds all the income producing assets while GGO holds more non-income producing properties (via real estate development assets)."
— Notes via Market Folly, Ira Sohn Investment Conference, 2010
On the technical demand the recapitalization would create:
"Ackman also makes note that shares of GGP would have to be added back to real estate indices, thus generating natural buyers because when the company entered bankruptcy it was removed from these indices."
— Notes via Market Folly, Ira Sohn Investment Conference, 2010
On Ackman's own framing of talking his book:
"Rounding out Ackman's presentation, he then casually mentions that people have always accused him of talking his book (who doesn't talk their book these days?)"
— Notes via Market Folly, Ira Sohn Investment Conference, 2010
On the book recommendation worked into the talk:
"As such, he ties in the suggestion that you buy Christine Richard's new book, Confidence Game: How a Hedge Fund Manager Called Wall Street's Bluff, which he is the subject of."
— Notes via Market Folly, Ira Sohn Investment Conference, 2010
On the new Citigroup position:
"Lastly, Ackman leaves one presentation slide up regarding Pershing Square's brand new purchase of 150 million shares of Citigroup (C) and comically comments that he doesn't have time to talk about this large new addition."
— Notes via Market Folly, Ira Sohn Investment Conference, 2010
Full Text
Market Folly notes, verbatim from the archived notes. Words unchanged.
Tuesday, June 8, 2010
Bill Ackman's Ira Sohn Presentation: Rating Agencies, General Growth Properties & Citigroup
We had previously covered a brief summary of Bill Ackman's thoughts at the Ira Sohn Investment Conference and now we'll take an in-depth look at the Pershing Square hedge fund manager's thoughts. Below is his full presentation encompassing topics of how to save the ratings agencies, his continued bullish stance on General Growth Properties (GGP), a new book he is the subject of, and his brand new purchase of Citigroup (C).
Ackman first critiqued the ratings agencies and laid out a plan on how to 'save' them. He mainly thinks they need to negate conflicts of interest, institute a new payment scheme as well as a new issue ratings moratorium. Ackman feels we need a new system whereby investors are not so overly reliant on ratings and can do their own due diligence. In the end, he believes NRSROs should be removed from the structuring and underwriting process and you can view his full thoughts in the presentation below. You'll recall of course that fellow hedge fund manager David Einhorn of Greenlight Capital is bearish on the sector. In fact, he mentioned in his new Ira Sohn presentation that he was still short the ratings agencies and we've also covered his original thesis from last year, The Curse of the Triple A.
Ackman's next topic revisited an old (and still current) investment. At least year's Ira Sohn Conference, you may remember that Bill Ackman made a presentation on General Growth Properties. Back then, the stock was trading around $1 per share as the mall REIT operator was on the verge of bankruptcy. Ackman's investment turned out to be his most successful ever, but he's not done yet. His new presentation details the plan to save the company from bankruptcy as well as the continued bullish prospects. He cites a bouncing-back US consumer, demand for mall REIT debt and equity capital, increased mall traffic, as well as decreasing cap rates.
Most notably, Ackman delves into General Growth's bankruptcy emergence where the company will become two separate entities: General Growth Properties (GGP) and General Growth Opportunities (GGO) He notes an estimated value of GGP at $15 and an estimated value of GGO at $5. GGP would be considered the cashflow cow as it holds all the income producing assets while GGO holds more non-income producing properties (via real estate development assets). Ackman also makes note that shares of GGP would have to be added back to real estate indices, thus generating natural buyers because when the company entered bankruptcy it was removed from these indices. You'll recall of course that we previously detailed how Ackman thinks GGP could double over the next few years. Hedge fund Pershing Square is definitely still in the bullish camp as we've detailed their large economic exposure to GGP. For the rest of Ackman's investments, head to Pershing Square's equity portfolio.
Rounding out Ackman's presentation, he then casually mentions that people have always accused him of talking his book (who doesn't talk their book these days?) As such, he ties in the suggestion that you buy Christine Richard's new book, Confidence Game: How a Hedge Fund Manager Called Wall Street's Bluff, which he is the subject of. Lastly, Ackman leaves one presentation slide up regarding Pershing Square's brand new purchase of 150 million shares of Citigroup (C) and comically comments that he doesn't have time to talk about this large new addition. Later in the week though, we did manage to determine why Bill Ackman bought Citigroup.
Embedded below is Bill Ackman & hedge fund Pershing Square's full presentation from the Ira Sohn Investment Conference analyzing the ratings agencies, General Growth Properties, and more:
You can download a .pdf copy here.
Key Themes
- Wide-Gap Valuation — the GGP and Citigroup discussions both assume the market is still pricing crisis scars into assets whose underlying franchises have stabilized
- Capital Allocation Discipline — the rating-agency critique centers on who pays for ratings and who therefore controls the capital-allocation signal
- Portfolio Concentration — the talk publicizes a single newly disclosed 150-million-share bank position while still defending a landmark GGP concentration
- The Activist Premium — the GGP recapitalization is presented as an event-driven value release engineered by active involvement
- The Right CEO — the GGP turnaround is framed as a management-and-structure story, not just a sector rebound
- GGP Bankruptcy Thesis 2009 — the 2010 appearance explicitly revisits the prior year's Ira Sohn idea and measures its success
Context & Significance
This is Act II, the golden era, still riding the updraft of the GGP win. The mindset is not defensive; it is expansive. Having just extracted what the notes call his "most successful ever" investment from a bankrupt mall REIT, Ackman uses the same conference stage to argue that the pattern is repeatable. The ratings-agency reform section shows the same public-interest framing that characterized the MBIA campaign — a structural problem, publicly diagnosed, with a proposed remedy. The GGP update shows confidence in a newly recapitalized balance sheet and a management path out of Chapter 11. And the Citigroup disclosure is treated almost as an afterthought, which is itself revealing: the fund was large enough, and the opportunity set wide enough, that a 150-million-share bank position could be announced with a joke about running out of time.
The honest retrospective note is that the material is thin. Because the only surviving account is a blogger's summary, we cannot recover the actual argument for Citigroup, only its existence and size. The GGP optimism was directionally right in the medium term, but the notes give no basis for evaluating the Citigroup thesis beyond the fact that Ackman had made the purchase. What the document captures well is the posture: a manager who has just been proved right on a distressed-to-quality idea and is now scanning the wreckage of the crisis for the next one.