Pershing Square pays its investment team on portfolio results

Transcript

Transcribed by machine (Whisper) from the episode’s audio, so a word may be off here and there.

1. 9:03

   How do you use the analysts? You're like just under 50 people in the firm. I would say a firm is structured differently from Chris Hahn. We're 48 people. We're nine investment professionals. And it's not me and a team of analysts. It's actually an investment team. Ryan Israel became our CIO four years ago. But a typical structure of a hedge fund is you have a portfolio manager. I guess that's nominally my position.

2. 9:27

   who's responsible for allocating capital among a team of analysts who are working on kind of different areas. And the best ideas win, and people are compensated based on individual P&Ls. We're not structured that way. One portfolio, 12, 14 investments, no one is compensated based on individual P&Ls. Everyone's compensated ultimately based on how the overall portfolio does. So everyone has, their interest is not getting capital allocated to them. Their interest is making sure our firm's capital is allocated and our investor's capital is allocated in the way that makes the most sense. So how does it work? So you sit around this table here?

3. 10:07

   This is not, we have an investment team room, which is smaller than this, about half the size. Okay. So there you are, you meet every week or how do you? The team has a formal meeting every week, but we have lunch together almost every day, the full team. So very high degree of interaction in the team. Typically, someone identifies an interesting idea. It could be me. It could be Ryan. It could be a member of the team. Hey, you know, XYZ stock, a company we followed for years, is now available at 40% discount because they missed earnings. Let's update the file. We pull out the file. The team that has done the most work on the name will dig in again, update their work, typically a two-person team. Ryan and or I will effectively oversee that team by doing some amount of work. So I'll read the annual reports, the proxy, the conference call transcripts, maybe some news articles. The team

4. 11:03

   doing the deeper dive will speak to many industry experts. We'll do a kind of deep dive. Will the whole team work on one idea at the time? Two people will work on one idea and go deep. Two people will have done some work. That's Ryan and Rai. And then the rest of the team will have done no work on the name. And then that whole group will form a view as to whether the team who leads the work will build a PowerPoint presentation and present to the team why they think an investment is interesting.

5. 11:33

   And then we'll make a collective decision. But actually an important dynamic is the typical hedge fund structure in such a way your only incentive is to get capital allocated to you, which sort of causes you to kind of lean into wanting an idea to be in the portfolio. In our case, we'll have two people who have done the work in a very profound way, two people who have done some of the work, and a group that has nothing invested in terms of time.

6. 11:58

   Do you need to have consensus? We, if there is an objection or someone raises a concern, we do more due diligence until we address the objection. Ultimately, I have the final say, but I can't think of an investment in the last decade that we didn't have really a collective view on. So let's take an example like you own Brookfield. Yes.