Good afternoon. My name is Rupert Morley. I'm the Chairman of Pershing Square Holdings, and it's a pleasure to welcome you to our annual investor presentation. Some of you may notice the room is a bit bigger this time. We've had over 1,000 people register online and virtual, and it's a great pleasure to welcome all of you here. I won't read this out, but it'll be available online later. But I would ask, please, not to record this session. The agenda: I'll speak for a short time about the board, and then I'll hand over to Bill, who will talk about strategy, performance, the organization, the portfolio, and then he'll be available for what I think will be a fascinating Q&A. So first of all, I'd like to start by introducing the board.
And as last year, I'll get them to stand up so that you can see who they are. The directors love engaging with shareholders, so please seek them out after this talk. And of course, we're very happy to see people in between the meetings. So Bronwyn Curtis.
[Uncertain] . We've got to clap for all of them now. Charlotte Denton. Andrew Hentsch. And Tope Lawani. So I think we have a great board. They pay a lot of attention. They're expert. They're experienced. They have diverse viewpoints, and they're very focused on making this particular fund an incredible success for you. We have five independent directors, and one is a representative of the manager. The manager, as you know, owns 27% of the fund and is by far our largest shareholder. I'd like to thank them all for their participation and their massive contribution over the year, and also Nick Botta, who has resigned from the board this year, and Anne Farlow, my predecessor, who is now here as a shareholder and to keep an eye on proceedings. So welcome, Anne.
The board meets four times a year, three times in person, and whenever we need to, basically, and the management company is highly engaged in those meetings. Bill attends and participates in every one, and it gives us an opportunity to really monitor the performance of the fund. Obviously, we study the portfolio, and we look at the performance of the NAV and of the share price. We pay close attention to the operations also, and we've been very pleased, particularly this year, to see the manager build capability through recruiting and systems so that it can support its future growth and development, which we think is particularly exciting. We also have an opportunity to talk to Bill about whatever's on our mind. That has included the way in which he balances his own private and high-profile interests with his duties as the executive in charge of this fund.
We look at investor relations, expenses, and regulatory issues such as ESG, where, again, we're very pleased to see the manager incorporate that into the evaluation of the risks of the portfolio. The board itself is supported by five committees. Three of these are entirely independent, including the Management Engagement Committee, and of course, whenever it's appropriate, the independent directors meet without [uncertain]. Last year, I can go through some of the things that we considered: share buybacks, dividend policy, and debt strategy. I'll cover a little later on. We approved an amendment to the Investment Management Agreement, which reduced the fees for PSH, and that's a theme that we'll keep coming back to.
We looked at and understood what the manager was doing in terms of the PSCM and also PSUS, and in both cases considered these initiatives to be in the interests of Pershing Square Holdings and its shareholders because they drive towards a reduction in fees and also great exposure for PSH. We looked at UK fee disclosure forbearance, and you're probably all aware of what's been going on there. We issued a zero-cost KID, an EMT, and we're pleased that those have been adopted by the major platforms, with one exception, which we hope will be resolved quite soon. We looked at the Euronext Amsterdam listing. Made a decision after about a year of study that we would delist in order to reduce fees, reduce the regulatory burden, and also increase the liquidity in our one remaining exchange.
Having said that, Euronext Amsterdam was the first exchange that PSH was listed on. We're very grateful to them for that and for the support that they've given the company over all these years, and I suppose that the last point there is strategy for addressing the discount to NAV, which is a theme which runs through all of our meetings and all of our considerations. In terms of debt, we're fortunate that the portfolio has incredibly attractive credit characteristics, and that has enabled the company to have a laddered series of instruments which go out to 2039 with an average weighted duration of seven years and a cost of capital of 3.1%, and a conservative approach to that with a debt-to-capital ratio of less than 25%, currently 15%, means that we've been able to maintain investment credit ratings, which is an incredible asset and benefit for the business.
Now to performance. In 2024, we saw NAV grow by 10.2%, the share price only by 3.9% because of the discount widening. However, that is in the context of a five-year and seven-year performance where both NAV and share price have grown compound at more than 20%. As you'll see, that's considerably in excess of any of the indices which one might use as comparables. I'm sure you'll also be pleased to know, and probably you're already aware, that year to date the share price has increased by 12.9%. I know that Bill will be thinking about how we compound during the year if that continues in future months. Finally, strategies to address the discount. The board fundamentally believes that the best approach and the best resolution for the discount is investment performance.
And we think that that is achievable in the context of a seven-year track record of increasing NAV by 22.9%. That having been said, obviously, we look for other opportunities and take other actions which we believe would help. In the meantime, we're actively marketing. Tony, who you may hear from, does an excellent job, supported by Camarco and Loderock, and that has allowed us to access pools of capital outside the U.S. The dividend has increased by 65% in five years as a result of it automatically increasing with NAV. And the board considers buybacks when the manager thinks that that is the best use of capital. Having said that, that's the same manager who has quadrupled the value of the fund in less than seven years. So it's a very high bar for buybacks. We have done buybacks.
We brought back 2.5 million shares in 2024. And in total, since inception, we've now bought back 27% of the shares that were initially issued. And the other thing we do, I think, is back the manager in strategic initiatives which we believe will benefit PSH. And many times that is around about fees or it's about increasing the exposure that the market has to us. And sorry to gallop through that, but I think that's a perfect opportunity for me to hand over now to the CEO and Portfolio Manager of Pershing Square Capital Management, Bill Ackman.
Thank you, Rupert. So I'll begin with kind of high-level strategy for the manager. We sold a stake in the manager, reported in June of this year. We sold 10% of the company to a group of family offices and some institutions. And we did this with a plan to grow the firm. The firm has a very high profile, I would say, relative to the assets we manage. We think we can continue to grow the firm without materially changing our business. And capital we thought would help us achieve that objective. The impact on the business in terms of how we manage our assets really unchanged. No change in personnel, no change in strategy, really no impact on PSH except for the potential future growth in assets, which inures to the benefit of PSH by virtue of lower fees.
In connection, prior to announcing this transaction last year, we announced a modification of the investment management agreement that provides that if we launch new funds that charge invest in public securities that charge only management fees, we're going to share that, allow the PSH to participate by its fees being reduced by 20% of the management fees of any new fund that we launch. Any fund that we launch that generates incentive fees, those incentive fees will be used to rebate a like amount of incentive fees from PSH. So the growth, when we originally launched PSH, the idea was this fee reduction was meant to be sort of an economic participation in the success of our business. And by growing these assets, we enable PSH shareholders to benefit.
One key element in this initiative that we actually took serious steps toward last year was the launch of something we called PSUS, which was really a U.S. version of Pershing Square Holdings. PSH itself is a very unattractive vehicle for U.S. investors, principally because of tax. And also, it's actually quite difficult for all but very high net worth investors to buy PSH if you are a U.S. person. Most retail brokerage firms restrict the ability of investors to buy PSH. We began the IPO process, and what we bumped into, we had a lot of interest from retail. We had some interest from institutions, but they were all sort of inspired to own it after it began trading. And to do an IPO of scale, you need to get them inspired to buy it at the time of the IPO.
Literally, at the 11th hour, inspired by creative thinking, I came up with a better idea for how PSUS could be structured. And we said, "Look, we'll be back and report back to you." And the goal here is to launch an entity of scale, something approaching the size of PSH that will have a material impact on the fees, on reducing the fees that PSH pays. We're limited by kind of regulation to talk about precise timing, but this is a very important initiative that we intend to move forward with as promptly as practicable. Sort of the best evidence that the launch of this entity is going to be helpful to PSH is the discount narrowed from 38% to 21% during the pendency of this offering, and then unfortunately widened back out when we paused the offering.
I do think it's a pretty early indicator of what the benefit is twofold. One, the fee reduction. Fees obviously have a significant benefit, but also having sort of a mirror image entity that trades on the New York Stock Exchange. We expect it will trade for various reasons at or ultimately, hopefully, above NAV. If PSH is trading at a discount, that creates sort of an arbitrage opportunity, and that we expect will also help close the discount. Just a chart of NAV. When we postponed the offering, the discount widened out very significantly. It's come in somewhat since. Howard Hughes is an investment. If you go back in time, in November 2008, we began to purchase a 25% stake in a company called General Growth Properties. General Growth was the second largest shopping mall company.
This was during the financial crisis. The stock had declined from $63 a share to $0.34. The company had $27 billion of debt. At that point, $100 million market cap. And we thought it was quite an interesting situation. We bought the stock in anticipation of the company filing for Chapter 11. It was really the first example of scale where in the public markets an investor basically bought stock in a company going bankrupt. People thought we were crazy. Sometimes it pays to be crazy. I joined the board. We led a restructuring where not just the creditors got par, but the shareholders ended up making literally a hundred-fold return from the if they had bought beginning at the time that we made our investment. It was a very attractive investment for us.
We spun out of that company a bunch of assorted assets under a corporate entity, which we called Howard Hughes Corporation. And we hired a team to work through those assets, develop a strategy. And the entity initially got sort of a halo from people expecting great things, but ultimately, because of the complexity, because it's a C Corp, because it's not a traditional real estate company, because it doesn't pay a dividend, has traded at a fairly significant discount to kind of a reasonable estimate of the value of its underlying assets. And we spent some time. The original idea we thought about was merging PSH with Howard Hughes. That ultimately did not work from a regulatory point of view. It's a bit different from our other investments in that it's a relatively small-cap company. Our strategy is to buy large minority stakes in kind of large-cap businesses.
And we've been exploring different alternatives for the company. In August, we announced we were considering a transaction to privatize the company. And then more recently, earlier this year, we announced a transaction where the management company with the proceeds from the stake sale would buy an incremental stake in Howard Hughes. Myself and a number of others, Ryan and other senior members of the team would in effect take control of the holding company. And the plan was to build this into a diversified holding company akin to a Berkshire Hathaway. We're in the midst of that dialogue with the company. Of course, there are limitations on what I can speak about. But the benefit here to PSH is really several folds. So number one, if you could mute your phones, that would be great. We have a 38% stake in this company that's really underperformed.
What do we do at Pershing Square? We take stakes in companies that have underperformed, and then we bring in sometimes new management teams to help them succeed. In this case, we're bringing in ourselves. We're adopting a strategy change for the company subject to the board. This is sort of an opportunity for us to deploy our strategy, not in the public securities market, but buying control stakes in private and potentially public businesses akin to Mr. Buffett started out with what he called a crappy textile company. We're starting out with a much higher quality business, but one that's not really recognized by Wall Street. Our plan is to turn it into a pretty interesting large-cap business over time.
Our proposal to the board of the company is for us not to receive equity compensation or salaries for assuming this role, but to receive a management fee equal to 1.5% of the market cap of the company on a go-forward basis. We're going to rebate dollar for dollar the management fee we received from Howard Hughes from PSH. That will have the effect of reducing the management fees that PSH pays, which we think on the margin, again, we think is helpful to the trading value. While it's been from the day we spun it off and we participated in the rights offering, it's been a very modest return, a little over a 2% return. We did somewhat opportunistically sell a chunk of stock at $125 a share and then buy back those shares during COVID from the company in an offering. And we repurchased.
We bought some stock over the course of the last couple of years. Not been a great standalone investment. It was sort of a necessary requirement to achieve our success on the General Growth portion. And now we're going to the goal is to turn this into actually we're pretty excited about it, a pretty interesting company. And there will be some meaningful benefits related to PSH. One, I think we can transform Howard Hughes into a much more attractive investment going forward. We can reduce the fees for our shareholders of PSH. And stay tuned. That's really more what I can say there. I've explained this. I've explained this. So let's talk about performance. Okay. Did I miss a slide here? Okay. So I would say a not particularly spectacular year, but solid, 10%. We think in absolute terms. On a relative basis, obviously the S&P massively outperformed us.
Depending upon whether other hedge funds we sort of outperformed, underperformed the MSCI World, outperformed the FTSE. That's really the simple explanation of last year. Compounding is this very powerful thing. We really think of the history of Pershing Square as sort of three eras. There's the first 11 and a half years. We compounded it at something like 21%. And then we had a significant drawdown, an investment in Valeant Pharmaceuticals. And then the world assumed we'd disappear. And they shorted the stocks we were long. People went long in the one stock we were short. Very challenging period. That led to kind of a strategic decision whereby we decided to get out of the business of raising what I think of as hedge fund capital, the business of marketing open-ended portfolios. We were going to focus our energies on PSH.
The team and I and others made a significant investment in PSH at that time, kind of further aligning our interests with our investors. We made an announcement at our shareholder meeting that this would be our business plan going forward. And this is what we call the permanent capital era. And the significance of this, and if you look at the slope of the chart, is that for what we do, permanent capital is an enormous competitive advantage. What held us back even in the first dozen years of success was the constant inflows of capital are dilutive to a concentrated manager. And then, of course, outflows of capital are challenging to manage against. And so having a very stable base of capital is really inured to our benefit. I think it's a meaningful contributor to why we've been so successful since the beginning of the permanent capital era.
This is the little stone, quasi-stone tablet we put on everyone's desk in late 2017. And we said, "Look, these are the core principles that we're going to stick to." I think you've seen this before, but something to be said for having a checklist engraved in stone on everyone's desk in the office. 23% net over the last seven years vastly outperforms even the S&P by 900 basis points per annum, which has been really a stellar performer over the last seven years. This is the very long-term record. Since inception, we've compounded at 16.4% versus a 10.5% return for the S&P since the inception of PSH. We've compounded about 13.5%, about 130 basis points below the S&P's return because, of course, it includes, inclusive of that very challenging period. Our approach, we prefer what we call the sort of bumpier road to outperformance. We're not trying to match.
Our portfolio looks nothing like the S&P 500. So there'll be periods of time, quarters, years where we meaningfully underperform an index. And there will hopefully be periods or most periods where we meaningfully outperform. And the outcome, the net is important. Just going back to the slide, it's been a 24.7-fold return versus an 8.2-fold return over the long-term history. And these numbers become more impressive, obviously, with the passage of time. These are the cumulative returns over time versus this PSH, yeah, versus the S&P. Okay. In terms of the year, big contributors were Alphabet, Chipotle, Hilton, Brookfield, and then Fannie and Freddie together about 3.5%. So actually fairly evenly split in terms of the contribution to the results, really from the six investments. Fannie Mae has been in the portfolio a very long time. We've had a view that this would eventually get resolved.
We think we're getting actually quite close to a resolution of Fannie and Freddie that will be very favorable for shareholders. The market has responded to that. Some of you may have watched the presentation we gave. It's still available on X where we presented our thinking on what's going to happen here. The detractors were Nike, which we'll talk about in some depth. And by the way, I'm going to do this portion. I'm going to hand it off to Ryan Israel, our CIO. He's going to walk through investments. Then I'm going to open it for Q&A. And I and the whole team will be available to answer. Interest rate swap options, we're sort of a remnant, as I call it, from a previous year. Actually, it was a very profitable investment in 30-year swap options that we elected to maintain.
Then, on a mark-to-market basis, we lost money in 2024. But over the course of that holding, it was still a profitable investment. We think about the interest rate swap options as a hedge. And we were still concerned about interest rates. And therefore, we kept the hedge in place. If we were running a pure maximized value above an instrument, we probably would have unwound it earlier. At some point, we may create a vehicle as part of our growth for people to invest in just those interesting asymmetric holdings. And when we do that, we will focus more on maximizing the value of the hedge. But the way we think about hedges is we've got a portfolio that is generally 100% or slightly more than that long.
If we think it makes sense to keep a hedge in place, if rates come down more quickly than we expect, we'll get the benefit by virtue of being long equity. Universal was an underperformer over the course of the year. It's made up some significant ground in the last few weeks. Restaurant Brands made significant business progress, but made not much progress in terms of its stock market performance. Howard Hughes was largely flat for the year. And then we had some interest expense. AUM basically grew with compounding, net of buybacks and a management fee. That's the benefit of permanent capital. The employees here have significant skin in the game. We own, actually, I think the number is a little more than 27% now of Pershing Square Holdings. We're 40% of Pershing Square LP and 20% of Pershing Square International.
So net-net, $0.28 of every dollar we manage is on behalf of the team making the investment decisions and managing the portfolio. In terms of significant developments over the course of the year in the portfolio, three new investments, including an investment in Uber, which we'll talk about in some depth today: Brookfield, Nike, and then Uber. We did very little in terms of hedging. We look for opportunities where we have a view that's at variance to the rest of the world, and we can find an instrument where the payoff characteristics reward us with a very large multiple of capital relative to the investment we make if the risk that we're concerned about takes place.
The biggest risk we were concerned about last year was the election going in a way that we thought would be bad for the world for a bunch of reasons, but also bad for our portfolio. There we got a little activist instead of hedging. We tried to lean in and help affect the outcome of the election. I think we were helpful. The stake sale, the beginning of the strategic transaction with Howard Hughes, and then a redesign of PSUS. Those were sort of the significant business developments. In terms of the overall market, last year was actually quite an interesting market. If you look at the average stock in the S&P 500, which is basically our universe, it generated a 13% return for the year, where the index itself generated a 25% return.
Of course, the difference there is the concentration of performance that came from the top seven companies in the index. If you look at the S&P equal weight versus the S&P, which is a cap-weighted index, unusually over the last couple of years, the market cap-weighted index massively outperformed the equal weight index, largely due to that concentration. 39% of the market value of the S&P today is 10 companies. And that somewhat explains our divergent performance for the year. We own one of the 10, of course, Alphabet, but none of the other nine. Same point sort of made here. And also, if you look at valuation, which I think is the index itself, 22 times earnings, that sounds certainly historically on the higher side in terms of multiples.
But a good portion of that is 39% of the index trades at 27 times, which obviously pulls up the valuation. So kind of if you put aside the top 10, actually the market itself does not look overvalued by historic levels. One really important factor that we've sort of been talking about for years that has become increasingly important is index inclusion. If your company is not in the S&P 500 index, you're going to trade at a discount. If you look at Universal Music, Restaurant Brands, what am I missing?
Brookfield.
Brookfield. None of them are S&P components. All of them would be if they met the various requirements. Two of the three are. Really all of them are taking steps toward getting included in the index because so much capital is indexed and so much capital is closet indexed that it's become an important metric. There's sort of an investment strategy in buying companies that are out of the index and then working with them to get them included in the index. Brookfield Asset Management, which is a controlled subsidiary of Brookfield Corp, the entity we own, is moving its corporate address to New York. By taking that step, it becomes eligible. They've taken a couple of other steps to make it more likely they get included in the index. We expect Brookfield Corp will follow kind of similar steps.
But supply and demand for securities, in particular in this case, demand plays a very important role. For example, Restaurant Brands, we think trades at seven turn lower multiple than the comp set. That's a massive, about a 35% discount to the comparables because it's a Canadian company. But it can take steps to, we believe, become an S&P included company. And we've shared our thinking with them. I guess I've made all these points. And I've magically predicted this slide. We're going to talk about some new ideas. And I'm going to hand that over to Ryan. We say robust new idea generation for most managers. Three ideas is not robust. For us, it's robust. We think we can find one great idea a year. We've done a lot of good. But we think all three are interesting. And we'll explain why. This is sort of an interesting slide.
What we've done here is we compare the performance of our stocks to sort of the performance of their business, i.e., using a metric of earnings growth, and so, for example, Brookfield, the return came from an increase in the multiple and also an increase in earnings. Nike got an increase in multiple and a dramatic decrease in earnings, which has led to the stock sort of underperforming, but over time, we try to look through to the underlying performance of a business. That's really our principal consideration. We care less in the short term about where the stock trades. In fact, if the stock trades at a discount in the short term, for example, Brookfield, which is very aggressively buying its shares, long term we're a beneficiary of that kind of persistent discount. Eventually, of course, we want the discount to go away.
But we feel quite good about the economic progress of our companies, which is the green on the slide. We bought Nike at the time of a turnaround. So that's a bit of an outlier. But each of our businesses grew meaningfully in value. And in the case of RBI and Canadian Pacific and Universal, the multiple contracted. We expect that it's a bit like a rubber band that starts building tension. Ultimately, that reverses. We've seen a meaningful reversal in actually Universal and the beginning of reversal, both in RBI and Canadian Pacific in the first few weeks of this year. Organizationally, not much has changed. The notable points are we promoted Ben. I'm going to make Ben stand up. Ben, Ben to President of Pershing Square.
Ben is a member of the investment team, but he also plays a key role in a lot of the kind of corporate strategic transactional initiatives that we do. Ben took over that seat from Nick Botta, founded Pershing with me. He formally is retiring from the firm. He will be a director of PSUS when that becomes a public company. We hired a new analyst. What's interesting about our recruitment process is it's rare that we hire someone new for the investment team. We have eight people, including me, on the team. And so the word that we were hiring a new analyst spread pretty wide. And we had literally every KKR, Blackstone, make your list of private equity firm analysts applied for this job. And by far, the best candidate was a woman named Sonal Khosla. And she's going to join.
But KKR didn't want to let her go until May. We wanted to hire her right away. But she's going to join in May. Doeon Jung is going to join as our Chief Technology Officer. I would say if I were to analyze our organization, one area where we are not absolutely best in class has been in the area of technology. Sort of not that we've underinvested. I just think we've not had best-in-class leadership there. And we've made an effort to solve that by recruiting an executive who we think will be superb. And we look forward to his joining in March. This is the org chart. Obviously, easier to see now. We'll make these slides public. But it doesn't change much year to year. One of the very unusual things about Pershing Square is in our industry, there's a huge amount of turnover.
Citadel's paying this guy $50 million to leave Millennium. And there's a constant battle for talent. We don't have meaningful turnover at Pershing Square. The reason for that, I would say, is in part the culture of the firm. It's a very appealing, interesting, nice place to work. We only hire high-quality human beings. That's one of our first criteria for selecting a candidate. There are a lot of super talented people in the world. But how we work together is critically important. I think that makes Pershing Square to be a much nicer place to work. Our economic model is also extremely attractive, relatively large amount of assets relative to the number of personnel. And it's really a group of force multipliers. I call it the Navy SEALs versus the U.S. Army.
The small team, small culture just makes it a much more appealing place to work economically as well as the relationships you build. That leads to much longer-term tenure at the firm. When someone leaves, it's a big deal. Nick leaving after 21 years, it's a meaningful sort of thing for the firm. I think it's one of our very important competitive advantages. I think it's also a meaningful risk reduction. Ultimately, you can do all the due diligence you want in someone. You don't really get to know them until you've worked alongside them for a period of time. So having people that we work alongside for years, Ryan's been here 16 years, Anthony a dozen, Ben 13 years, Charles 10, 11, Fran 10. Johnny come lately, Feroz. When did you get here?
Eight years.
Eight years. Manning, only three years?
Three and a half.
Three and a half. Like my daughter, she says five and three quarters. When you're below five years at Pershing, every month counts. And then Bharath has been here also eight years. OK. This is the team. I predicted the tenures on this slide and the backgrounds. And we've had very good success hiring someone who's done extremely well at a University of Pennsylvania. Less focused on the schools these days. But I'm focused on success. And then a couple of years in investment banking, which is a bit of a grind, but it's good experience. And then typically two, three years in private equity. Sonal actually went right out of school to KKR. She was there for four and a half years. She'll be there for almost five years by the time she joins us.
And private equity really is the best training ground for what we do because we're looking at and we're assessing what businesses are worth as if we own the entire business. So I'm going to turn it over to Ryan. And he's going to tell you about the portfolio. Thank you.
Thanks, Bill. And good afternoon, everyone. Nice to see everybody. I'm going to walk you through each of our investments in a little bit more detail, supplementing what Bill had just discussed. And we'll go ahead and start off with Universal Music Group. So UMG is a high-quality business that we like to think about as a royalty on the future consumption of the growth in music. Music is one of the highest value forms of entertainment, yet it's really the lowest cost by a very large multiple. And that's finally starting to change as music is becoming monetized at a higher rate. UMG, along with other industry participants, calls this streaming 2.0. And that's going to be maintaining subscriber growth while also significantly, over time, being able to bring up the price points to the value that they deliver to consumers.
One of the ways they're going to do this is by better segmenting the customer base. They're going to be bundling products that more people can subscribe to. At the s ame time, they're going to be creating new tiers such as super fans where people have shown a high propensity to have unique experiences and further artist engagement, and they're willing to pay a lot more money in order to do that. Last fall, UMG provided a capital markets day where it gave new financial targets over the medium term. They're targeting 7% revenue growth driven by streaming growth of 8% - 10%. And they're going to have profit growth of at least 10% annually for probably the next three to four years. We actually think these targets are pretty conservative as the company several years ago had had another analyst day, and they'd outperformed their targets.
We're expecting something similar this time around. So the business is very high quality. The business is growing very nicely. Yet we still believe it's undervalued. And there are two catalysts that we're looking towards that might help the company re-rate to what we think is a more appropriate level for the stock. First is a U.S. listing. We believe this is going to allow for greater liquidity, a broader investor base, and potential index inclusion over time. And then secondly, they're looking for a new CFO who we think will better improve communication and engagement with shareholders and help close the valuation discount that we see. Last year, as Bill mentioned, the shares were slightly down, about 2%. Yet they've more than fully recovered. And they're up about 12% as of last evening. Next up is Google or Alphabet.
Very high-quality business where financial performance was incredibly strong in 2024 due to both revenue growth as well as strong profit growth for margin expansion. In terms of revenue growth, the company grew 15% last year, and that was really fueled by their advancements in artificial intelligence or AI. Some of the peers in AI basically have these apps that you have to use like ChatGPT. What Google has done that we think is very advantageous is incorporate this directly into the Google search home site. They call this AI Overviews. You basically don't have to use an app in order to get the same information as some peers. We think people are habit-based, like going to Google. Now they can get the same best of the old Google as well as the new AI Google. That's been very successful.
What users are telling the company and the company is telling us is that people are there more frequently to search, have more detailed queries. They spend more time on Google's website. And ultimately, that is beneficial for Google when it tries to monetize that traffic on its website. Last week, the company reported earnings. And they stated that they're actually able to monetize AI Overviews now at nearly the same rate as a traditional search, which means not only is this good for users, but it's actually good for Google as well. The company over the last year and a half has also brought down the cost to do AI Overviews significantly, down more than 90%. So what this has done is allow the company to roll out this product more quickly to a lot more people.
Over a billion users now have access to it and over 100 companies. At the same time, the company's cloud business is benefiting from artificial intelligence. It's growing very rapidly, 30% growth year over year, which is about double the rest of the business. Very impressive results. At the same time, the company is growing revenue. It's also significantly expanding profit margins, just under 400 basis points last year, as they're very focused on controlling their costs. As an example, over the last two years, the company has grown revenue nearly 30%. But they've actually decreased their employee headcount by 4%. They're also using the same artificial intelligence tools publicly as they are internally. That's helping reduce their inefficiencies in the system and improve their workflows, and that's helping keep costs down as well.
The new CFO, who came from Eli Lilly, stated on her first earnings call a couple of quarters ago that she's committed to further accelerating these efficiency initiatives. The company is doing very well, both revenue growth of 15%, profit growth of nearly 30%. We think they're very well positioned. Some investors are concerned about headlines and risk from the DOJ antitrust legal actions. We spent a lot of time looking at this. When we studied all the potential outcomes, we think any reasonable outcome, Google will be very well positioned to continue its strong growth going forward. For the share price, the company's shares were up 36% last year. They're basically flat, down 1% year to date. Next up is Brookfield.
We think about Brookfield as being a leading asset manager, which is basically a royalty stream on investing other people's money in a primarily long duration and permanent capital format. It's a very good business. We think it's very cheap, as Bill mentioned, relative to its intrinsic value, which is why they're buying back a lot of shares, we think, over the next three to five years. The primary asset for the business is their 73% interest in Brookfield Asset Management, which itself manages other people's money and gets a royalty stream on that, nearly $500 billion in primarily long duration and, even more importantly, permanent capital, which we think is great. Brookfield is really the category killer in infrastructure and renewable energies. No one else can really compete with them because they have a long history of doing this. They do it incredibly well.
They're benefiting from the major themes of digitization. So think AI infrastructure, decarbonization, deglobalization. A lot of capital will be coming into these themes over, we think, the next decade. And they're very well positioned for that growth. As a result, their earnings are growing incredibly rapidly. Last fall, they held an analyst day and put out a $10 per share earnings target in 2029, which would represent about 25% annual growth over the next four years. That's really coming from all aspects of their business. But in particular, there's a step function increase in their carried interest, which are the profits that they get to receive from successfully investing other people's money. That's going to have a big step increase. And they're also scaling out what they call Wealth Solutions, which is really their annuities insurance business that has been very popular from Apollo.
And we think is going to be a big growth source for the business over time. All of this activity and rapid earnings growth should allow the company to generate about $30 billion over the next four to five years, which should equate to about a third of its current market cap. We think a lot of that's going to be coming back to shareholders in the form of share buybacks. So the company is doing great. The earnings are growing rapidly. And we think the next leg up is a re-rating in the valuation multiple. Brookfield has a very similar business mix and growth profile to some of its peers like KKR, Apollo, and Blackstone. Yet it only trades at 15 times earnings, whereas those companies trade between 20 and 30 times earnings. So a very substantial gap. Management recognizes this as well and what they're doing about it.
Bill mentioned they're trying to get a US inclusion for their primary asset, Brookfield Asset Management. We think after that's successful, they'll look to do it at Brookfield Corporation, which we own. At the same time, they've engaged some leading investment banks to initiate sell-side research very recently, which we think has been a big positive, and they're also trying to further enhance their engagement with a US shareholder base to further broaden their base beyond Canada. Since we made our investment last year, the shares are up just under 50% for 2024, and they've been up about 3% this year already. Next up is Restaurant Brands, which we think is a very high-quality business. Effectively, think about it as a royalty on the future growth of fast food consumption all around the world. The business is performing very well recently.
Yet, as Bill mentioned, it's trading at one of the widest valuation gaps to its peers and to its underlying value that's really existed in over a dozen years of our share ownership. The vast majority of the profits come from the Tim Hortons business and the International Burger King business. They're over 70% of the profits. And those businesses are doing incredibly well in 2024. For example, Tim Hortons had same-store sales of 5% growth, which was primarily driven by increased customer transactions. It was above all their Canadian peers. The International Burger King business had same-store sales of 3%, which were better than McDonald's internationally. And that's actually been the case every year for the last five years on average since COVID happened. So the biggest businesses are doing very well. Burger King US gets the lion's share of investor attention.
But it's actually less than 20% of the profits, so a relatively small part. Even that business, which has been undergoing a turnaround for several years, is starting to show a lot of green shoots. We think most importantly, the company is helping improve the profitability of its franchisees. They've recently hit this year's targets that they set out for that profitability target for the franchisees. That's really beneficial to Restaurant Brands as a whole because what it means is they get to pull back some of the advertising investment they were making on behalf of the franchisees. And the franchisees now have to feel their commitment of increasing advertising dollars off their own balance sheet. So what that means is we would expect Burger King U.S. profits will go up from reduced investment.
At the same time, they should benefit from the same-store sales increase that would happen as the franchisees are putting in more marketing dollars. Burger King U.S. also bought up for about $1 billion its largest U.S. franchisee called Carrols. They're going to do that in order to accelerate remodels. And then they plan to refranchise out that business into a handful of smaller and really well-positioned operators, which we think will be a benefit to future growth. So the company this year outperformed its long-term targets of 8% profit growth. We think 2025 is setting up very well for them to further outperform. So despite strong business performance, the company is trading at what we think is the largest discount over time. Bill mentioned 17 times earnings over a 30% discount to its peers.
On this page, we've kind of laid out more graphically relative to its closest competitors, Yum, McDonald's, and Domino's, what its long-term stated objectives look like, and you can see the company is growing operating profit at about 8%, which is in line with Yum and Domino's. It's actually slightly higher than McDonald's. Yet those companies are trading for, let's say, a mid-20s multiple, whereas we're trading for something about 18 times earnings, and interestingly, we're the only one of those companies that's actually doing better right now than its long-term targets. As Bill mentioned, we think potential for index inclusion over time as the company takes more steps to address that discount, combined with stronger share buybacks, could also help close that gap, so last year, the shares were down about 14% due entirely to multiple contraction, as Bill had mentioned.
They're up about a couple% year to date. Next, we'll talk about Chipotle. Chipotle has been a fantastic investment because it's been a fantastic business that has shown a very strong level of growth during our entire ownership over the last eight years. 2024 was no exception to that. The performance was fantastic. Same-store sales grew 7%, which is up more than 50% from where it was before COVID, just five years ago. The vast majority of that has been driven by increasing customer transactions as people are responding to new product innovations and advertising. Only a small portion of it is actually due to pricing.
Given the strong growth of same-store sales, the company was able to expand its profit margins inside of its restaurants as well by 0.5%, which is actually pretty impressive given that the company decided to make a big investment into increasing portion sizes to make sure consumers felt like they were getting larger sizes that they were very happy with, and they've also had to put up with increased wage inflation very significantly from state laws in California. Yet they still expanded margins and grew profits nicely. Long-term, we expect more of the same from Chipotle. We think they have the ability to grow their store base to more than double the current levels, primarily coming from North America, where we think they can pretty much like clockwork increase their units by about 8% - 10% a year.
We also think they're starting to show some progress in Europe and the Middle East, which proves out the concept that Chipotle can expand internationally very nicely. And then inside their stores, we expect that new investments in equipment and technology, some of which could be AI-related, are going to be rolled out over the next several years and should improve the efficiencies, which they can serve their customers, which will hopefully get more people in more quickly, thereby increasing sales, but also reduce the cost to serve, which would be good for profit margins. In longer term, we think daypart expansion is a big part of the story. We think breakfast at Chipotle and a Mexican concept would work very well and could be a significant driver of future same-store sales. So the business did very well in 2024. We also think it'll do well going forward.
And that's despite having Brian Niccol, who was a very successful CEO over the last six years, move on to a new opportunity. But fortunately, one of the great hallmarks of a good CEO is the team that he recruits underneath him. And we've had a very seamless transition to the chief operating officer, Scott Boatwright, who's become the new CEO. And the vast majority of the leadership team has come along with him. And they're all doing very well because Brian prepared them incredibly well for the next stage of leadership before he departed. Last year, Chipotle's share price increased 32%. And it's down a little bit, about 4% year to date. So next up is Nike. Nike, as Bill mentioned, is in the early stages of a turnaround, which we think will ultimately be successful.
What they're looking to do right now is to rebase to create a sustainable foundation for future long-term growth. Nike as a business is, we think, a very good business. It's in the high-growth segment of the athletic footwear. It's one of the most valuable and iconic brands in the world. It has a very dominant market position, which effectively is an oligopoly in that industry. We think it's got very strong barriers to entry. The current profit margins right now are about half the level that we think that they can ultimately achieve over time if they get to the success that we're expecting from them. But 2024 was clearly very disappointing. As you can see, analysts' expected estimates for May of 2025 have come down by 45% since last year. That's really due to two things.
One, the company is reducing revenue by pulling back inventory in their key lifestyle shoes. For example, Jordan, Air Force 1s, those got a little overdistributed. They are taking back the inventory and making sure that they don't have nearly as much going into the channel. Secondly, they became very promotional in their own digital channel, Nike Digital. They've decided to stop doing that. They're going to go to a more full-price strategy. And they're going to be working with their key supplier partners, the wholesale and the specialty running channels. Those have both hurt revenue in the short term. At the same time, the company has not pulled back on its investments. It's actually leaning more into marketing and product innovation around key sports and key sports events. And that's actually elevated the cost structure so much.
The result of those things is a compression in margins and a significant reduction in earnings per share. All that said, we think these are the right long-term actions to create a better base for future growth. We think the new CEO that was hired in October, Elliott Hill, who's a 32-year veteran of the company, is exactly the right person to lead the turnaround of the company. Provide a brief update on the financial structure of our investment. We converted earlier this year our common stock position into a deep-in-the-money call option structure, which we think allows us to have the best of both worlds. We're maintaining a similar level of dollar upside if the investment performs like we think throughout the turnaround over a several-year period of time.
But at the same time, we were able to extract capital today from the position in order to make a new investment that partially funded our new Uber investment, which I'll talk about shortly. So what we like about the structure is it has a positive intrinsic value today, a very low break-even, which means there needs to be only a modest rise in the share price from current levels in order to avoid losing any money on it. At the same time, given that turnarounds can be a little bit challenging to predict the exact timing of when they work or if things get a little worse before they get better, we think we've reduced the amount of capital in the position to not have as much short-term volatility in our investment while allocating it to a very exciting opportunity in Uber.
And the financial payoff, if we're correct, we think will be twice as high on a percentage basis in these option structures than what holding the common stock alone would be. So as we mentioned, disappointing year for Nike last year, down 17% and is down about 6% year to date. But still very early in the turnaround as they've only had a new CEO for about three months. Next up is Hilton. Hilton is a great business. And we think about it effectively as a royalty on the growth of future business travel all around the world. And it's got an amazing management team that has just delivered very solid execution for the last dozen years. 2024 was a very good year. Their asset-light, high-margin fee growth was 9%, which was driven by a combination of new units all around the world, which they don't pay for.
The franchisees invest the capital, as well as their same-store sales metric, RevPAR, which increased by 3%. Due to some strong cost control, we were able to leverage that revenue growth into 15% earnings per share growth, also with a nice buyback program as well. We think a continuation of this 2024 results is very likely as we think the near-term outlook is bright. The macro backdrop is very stable. Business travel continues to recover, and the combination of those factors, we think, will allow the company to grow its units closer to 7% this year due to some new brands that they've originated and conversion activity where people are going from competitor products or independently owned hotels wanting to convert to Hilton's flags or their variety of nearly 20 brands. Longer term, we think the business is well-positioned for attractive performance.
The company offers a best-in-class value proposition to its franchisees, which is going to allow them to increase their market share, get an outsized proportion of net unit growth, which will allow them ultimately to grow their fee base by, we think, close to 10% a year, and with cost control, a very active, engaged buyback program should lead to something of 15% plus earnings per share growth pretty consistently over time, so while the business has done incredibly well, the share price over the last few years has done even a lot better than the business has, and as a result, Hilton is trading at one of the more elevated multiples of earnings in the near term than it has throughout our ownership.
We use that as an opportunity, while still a core position, to reduce the size of the position to allocate to new investments such as Uber. Last year, the shares were up about 36%. They're already up more than 8% year to date due to a strong fourth-quarter result last week. Howard Hughes. Bill talked a little bit about Howard Hughes, but just quickly to touch on a couple of points. We think the uniquely advantaged business model of owning master planned communities is showing a lot of strength in the current results where basically every segment has had very strong performance last year. From a macro backdrop, there is a shortage of existing home sales in the United States. That is providing a big opportunity for people who sell lots, like Howard Hughes, in order to have home builders build new homes.
And so they've done very, very well the last several years under this environment. The management company is guiding that the 2024 performance in terms of operating profits in the MPC segment should be similar to last year's record performance. And their rental business, same-store sales net operating growth, grew both due to rental rate increases as well as an increase in occupancy among their properties. And they were very successful in a number of financings in the last year. They also completed the spinoff of the Seaport Entertainment Group, which primary asset the Seaport District in New York, as well as the Las Vegas Aviators baseball team and the Jean-Georges restaurants. As part of that, we appointed a new CEO, Anton Nikodemus, who came from MGM.
And when they were spinning off, we helped backstop a $175 million rights offering where we put in about $73 million to increase our ownership in the company now to just under 40%. HHH's share price was down about 6% last year and is roughly flat, just down 2% year to date. So next up, Canadian Pacific. We think the acquisition of Kansas City Southern has now provided the combined CP with just a one-of-a-kind network that's going to be yielding strong performance for many years to come. The business model is very high quality and inflation protected. Essentially, it operates in an oligopoly where there's incredible barriers to entry, which gives them an opportunity for significant pricing power.
Rail is often the cheapest or the only form of transportation for heavy freight over long distances, which means they have the ability to recover their costs and some over time. Now that they have a complete network across all of North America, Canada, U.S., and Mexico, we think they're going to be benefiting from being a more efficient mode of transportation, as well as the trends that we see continuing, such as onshoring in North America and particularly the U.S. now. 2024, the company had very good results, even though the industry backdrop was somewhat challenged due to what a lot of commentators say is a pretty weak freight market. The company grew earnings per share at 11%. That was despite having some labor disruptions multiple times and the weaker environment. Their results significantly outpaced all their competitors.
The company has been doing a very good job of outpacing their initial estimates for synergies, both on the revenue side and the cost side, since they completed the acquisition of Kansas City Southern. And we think the combination of these things and the underlying growth in the business is likely to allow them to grow their earnings per share at something approaching a 15% annual rate over the next several years. CP share price performance last year was flat due to a contraction in the valuation multiple. But it's already made up some of that flat performance with a 7% increase so far this year. Next up is Fannie and Freddie.
Obviously, as you know and Bill talked about, the stocks have done incredibly well since President Trump received his victory in November, as people are, we believe, correctly pricing in a much higher probability that the companies will exit from conservatorship, as President Trump is committed to previously privatizing Fannie and Freddie. There was a lot of progress made during President Trump's first term. Former Treasury Secretary Mnuchin ended the net worth sweep about four years ago. And in that period of time, the companies have added up to over nearly $150 billion of retained earnings. So they're well on their way already inside of conservatorship to becoming fully recapitalized. Our perspective is that over the next couple of years, they'll be fully recapitalized and they will be released from conservatorship. And we think a lot of the Trump's recent appointees also have stated their support for that plan.
Treasury Secretary Scott Bessent believes that conservatorship should be temporary. The new HUD Secretary, Scott Turner, said prioritizing the GSEs or privatizing them as a priority. The new FHFA director nominee, Bill Pulte, he said that he wants to implement President Trump's agenda and he will be their key regulator once he is confirmed. And Craig Phillips, who is a key counselor to former Treasury Secretary Steve Mnuchin, in the first administration, he advocated for the release of the GSEs from conservatorship. He's now joined Freddie Mac in a key role there. We think that also shows that the companies believe there's a high probability of exiting from conservatorship.
So as Bill mentioned, a little under a month ago, we gave a presentation on the entities titled The Art of the Deal, where we outlined that we think it's very likely they will be privatized and that we think it's possible that the shares are at least five to six times their level once they are privatized over the coming years. So the shares were up between 2% and 300% last year. And they've been up about 100% already in the first month and a half in January and February. All right. Last but not least, I'll talk about our new investment in Uber. So Uber is the world's leading rideshare and delivery marketplace and platform. We think that the business model is very advantaged as it has incredibly strong network effects on both the supply side and demand side. And those give a nice reinforcement to each other.
So for example, Uber has 170 million customers around the world, eight million drivers, and they operate in over 70 countries. That large base of consumer demand is great for the drivers because it increases the driver utilization, which increases the driver's daily earnings. At the same time, that attracts more drivers to the platform. More drivers coming to the platform, having a large base of drivers, will decrease wait times for consumers and decrease user prices. Both of those things work together where more drivers come in leads to more consumers on the platform, which leads to more drivers. And you get a positive, virtuous cycle from that network effect. In terms of the scale of the business, annually, the gross bookings value, which is a proxy for the trip value, is about $160 billion.
It's roughly equally split between their mobility or rideshare and their delivery or Uber Eats business. At the same time, inside of that 160, about half of it is a fast-growing international business, which has even less competition than Uber has in developed markets like the United States. The CEO, Dara Khosrowshahi, is excellent. He's been there for nearly eight years, took over from the founder, and has really instilled an operational and capital allocation discipline that was lacking under the prior management team. And about a year ago, the company had an analyst day in which it outlined targets that would imply it's going to grow its earnings per share at over a 30% rate for the next three years as it grows its revenue at a mid- to high-teens rate.
It is very focused on minimizing the growth in costs and buying back a lot of shares. We see a business that is trading for only 29 times earnings in light of 30% going forward annual earnings per share growth over the next several years. It is very cheap. One of the reasons we think it's cheap is that people are concerned that longer-term autonomous vehicles may pose a risk to the business model. Our perspective, which I'll walk through shortly, is that a very limited risk and is more likely to actually be a positive for Uber's business. If we're correct, we think Uber's share price could more than double from the current levels in as little as three years. Our thesis overall, Uber is a high-quality business with strong growth potential.
I've discussed why we think the network effects are very strong in this business and that exists on both the demand customer side, the supply, the driver side. We think the revenue model and the company's targets are very achievable as the company has been able to grow its customer base, which is contributing to revenue growth, and take the existing base of users and increase their frequency, which is also contributing. The company can continue to get new customers really from all of its markets. Even in the more mature markets, the level of penetration, how many people are taking an Uber ride once a week or once a month, is very low and we think will grow over time, and they're also expanding into new geographies and they're expanding into new products.
For example, their Uber for Business product is the fastest growing product across the company at over a 50% growth rate, and we think has a lot of room to run because it's solving a lot of inefficiencies in that market for the business community. All this revenue growth, when combined with strong cost control, which the company has demonstrated and committed to continuing, is going to lead to very rapid EPS growth over the next several years. As just one example, the company has grown its annual bookings or trip value at a 20% rate over the last five years annually. Yet they've actually only grown their headcount by about 3%, demonstrating the significant cost leverage in the platform.
Ultimately, we think the rapid increase in earnings is going to come back to shareholders, primarily in the form of share buybacks over time, which we think is very value-creating due to the high value and low price relative to value in the stock market today. This page more graphically demonstrates some of the points that I was just making. The company basically turned profitable in 2022 on an EBITDA basis, turned profitable on a net income basis in 2023. We see a rapidly growing earnings profile over the next several years. As an example, the company has a long-term target of its EBITDA as a percentage of gross bookings margin being 7%. Today, the company is only at 4%. We think that they have the headroom to nearly double that profit margin over the next handful of years.
In terms of the share price, since Uber's investor day about a year ago, the company's shares are actually slightly down 3%. And what's interesting, though, is analysts are very excited about the management plan. And they have actually increased their earnings for next year's earnings estimates by 50%. So what that means is a roughly flat share price combined with significant growth in earnings. You've had a massive contraction in the valuation multiple to what is now 29 times and was lower at our cost basis, both of which are very cheap in the context of what we think will be 30+% earnings per share growth for the foreseeable future. So the company looks pretty cheap relative to its current earnings trajectory and relative to its historical trading multiples in the marketplace. And the question is why.
And a lot of people are very worried about the long-term outlook for the industry. We've done a very deep dive and study on this. And we actually think the long-term risks are very limited. And it's actually more likely to be a positive than a negative for Uber when in the distant future, AVs are ultimately commercialized in a big way. So first, we think that AV companies are likely to partner with Uber over time because the company offers an incredibly strong value proposition. The company charges about a 20% fee, which they call its take rate, for each ride that the company's drivers deliver. And we think that's very low relative to the value it provides drivers in two ways.
First, as I mentioned, they do much better partnering with Uber in terms of having occupancy or utilization of their car during the day, which means they make more money than if they tried to go to a different platform or try to attract customers themselves. And secondly, Uber is providing a lot of services that would be much more expensive if drivers tried to effectively provide themselves or if AV companies tried to replicate over time. So we think it's irrational for people to try to rebuild Uber's network rather than partner with them. An example of some of these services that Uber provides to drivers that would still be necessary for AVs is their driver routing and mapping technology. They have a pricing algorithm. They provide driver insurance. They provide regulatory support. They provide customer support.
There are over 70 million items that are lost in Ubers each year that need help, and Uber provides that, and they have fleet management services in order to clean vehicles, park vehicles, and do anything that a driver or lack of a driver would not want to or be able to do. As a testament to that, Uber already has 14 partnerships across the AV landscape. We think that is likely to increase over time as the technology gets closer to commercialization. When you look at Uber's business mix from both a product and a geographic standpoint, we think the company is very well diversified against the risks that autonomous vehicles might pose. For example, the delivery business is half of the overall business of Uber, and due to the courier involvement, we think it's very limited risk from AVs.
At the same time, the international market is over half of Uber's business. That business, for different reasons in different markets, is unlikely to see a lot of AV competition. For example, in emerging markets like Brazil and India, the trip price points are so low primarily because people ride on bikes or motorcycles or two-wheel vehicles. The AV commercialization right now is clearly on a four-wheel vehicle. Those markets wouldn't be touched. It would be hard to have them be at a lower price point anyway. Then you have more developed markets like Europe, where we think there will be very stringent regulations that may never ultimately allow for broad-scale AV rollout. Inside the US, while we think over time it is very possible that AVs will have wide-scale adoption, we think the timeline is many, many years out.
It could be more than a decade. That's for several reasons. First, on a technological standpoint, you don't just need safety to be on par with a human driver in order to get people to want to take an autonomous vehicle. You actually need it to be at almost a superhuman level because the headline risk of an AV vehicle crashing is so great that it would prevent consumer adoption until it is vastly safer. And we think we're a ways away from that. At the same time, from a regulatory standpoint, the AVs are regulated state by state and by federal transportation agencies. And a lot of those regulators are appropriately cautious at this stage on the technology.
And even after we get over the regulatory hurdles, there's going to be a very long time frame and a very expensive capital infrastructure investment required in order to improve the road infrastructure for AVs, to provide car charging in an efficient way, and to provide the massive parking spaces that we will need, particularly outside of urban areas, to store all these vehicles that will be going along the roads. So in short, we actually think Uber is very well protected. But long-term, once we get past these risks, we think that AV is going to actually be seen as a positive for Uber's business model. And the reason is very simple. Ridesharing today is less than 1% of the total annual vehicle miles driven across the world. And the reason for that is everybody owns cars.
If you can actually have autonomous vehicles bring down the price points and have enough of those autonomous vehicles on the road where you bring down the wait times, it could ultimately be a more effective way for some people to decide they don't need a car or to not have a second car. And what that would ultimately do is significantly expand the addressable market for Uber. And as we talked about, given the strong value proposition, we think the company will do very well punching above its weight and maintaining and growing market share. And ultimately, this could accelerate Uber's growth over a long period of time. So as you heard, we think we're very excited about Uber. We think a lot of the risks in the market today that people are concerned about are misplaced. And we expect the business to do incredibly well over time.
So we're very excited about our new investment. With that, I'll turn it back to Bill for Q&A.
OK. Who would like to ask the first question? Emmanuel, is that your name?
Yep, correct.
See, I know everyone's name in the room. If we can get a mic to the front, and if we can also get a mic to the investment team because I may want to call on someone.
Thank you very much, Mr. Ackman. So firstly, thank you and the team for the in-depth presentation on the art of the deal for Fannie Mae and Freddie Mac, to which really my question relates to. I'd love to know, as I'm sure you're aware and the team is aware, Treasury Secretary Scott Bessent, who came out last week and said the most important metric is the mortgage rates to decide what to do with Fannie and Freddie. So I'd love to know, in your view, what is the kind of mortgage rate level which you expect to see Fannie and Freddie exiting faster than the market expects? And then a follow-up would be, I was fortunate enough to speak to the former head of the FHFA, and he said the timeline is kind of the second half of the Trump administration.
So I'd love to know, what are the sort of risks you see to the 2026 - 2027 IPO timeline?
Sure. So the Treasury Secretary said that mortgage rates will be a key consideration in the release of Fannie and Freddie and the timing. What I think he means is not the kind of general level of interest rates, but rather, will the release of Fannie and Freddie cause rates to go up for the day before and the day after? Will rates go up as a result of the release? That would be a negative, obviously. They don't want to do something that's anti-consumer. Our view is the release of Fannie and Freddie in the way that we've proposed the release take place will have no impact. They'll have all the same benefits they have today in conservatorship. They'll actually be better capitalized, better governed in a public context post-IPO, and I think the Treasury Secretary will come to that conclusion after he does his analysis.
But that has to be, obviously, politically a very important consideration. You wouldn't want to release Fannie and Freddie and all of a sudden consumers have to pay 25 basis points more to borrow money. In terms of timing, we clearly don't know the exact timing. I do think the President is going to be very wary of what happened the last time. What happened the last time is he ran out of time. I don't see this as something requiring three or four years to be resolved. I think Fannie and Freddie could be resolved in a matter of 12 months. Is it the first priority of the Treasury Secretary? The answer is no. But they will get to it, I think, promptly. And our estimate is two years.
Sorry, what? Are you in touch with the administration and spoken to about it?
We have not spoken to the administration about Fannie and Freddie. I think we will have an opportunity to do so. The Treasury Secretary said very publicly that he's going to be open to input from all market participants and others. I have a nice relationship with the Treasury Secretary. And we made our presentation. This is a case, interestingly, where one of the ways we reduce the risk of this investment is to get buy-in from a very broad collection of other investors.
The more that there are millions and millions of Americans that own Fannie and Freddie and believe that the right outcome is for them to be released from conservatorship, for them to come out in a way that preserves the hierarchy of claims among the various participants, really is risk-reducing for all shareholders, including us, which is why we made a public presentation and laid out our thinking. And I am quite sure that the administration paid attention to the presentation. But we will have a chance, I think, to the extent they have further questions to address them.
Next. Yes, please. Mic over here. Thank you.
Thank you, Bill and team, for the presentation. My question is regarding Uber and its risk. Have you thought about structuring some kind of hedge in case all the risks that are outlined materialize instead of in the long term, in the short term, and avoid a BlackBerry moment but for Uber?
Yeah. I don't know that there's someone who could say you buy call options on Tesla because Tesla, if they succeed in self-driving and becoming the pervasive answer. We've really thought through the various scenarios. And we believe that in this case, the value of the platform exceeds the value of any one sort of autonomous vehicle company. And there's some risks that don't make sense to hedge. But we like this a lot. We think it's quite interesting. And we've done a lot of sort of the game theory on what can happen here. If you think about it from the consumer's perspective, the consumer wants to be able to push a button on their phone, get a nice clean car as promptly as possible at the lowest possible cost.
It's hard to envision how you could do that toggling between an app for Tesla, an app for Waymo, an app for make your list of AV companies. And there's likely to be a proliferation of AV companies. I think Tesla is as likely to license its technology as it is to be in the business of producing cars. A world with multiple AV players is further sort of evidence. And in the meantime, we have, we think, a pretty long runway for Uber to take more and more mind share of the customers. A bit like Google. You go there first to do a search. You want to get a car. You want to get food delivered. More and more people are going to be going to Uber versus any other competition. It's a very, very dominant company.
It fits into, as you can probably tell from the presentation, we like owning royalties. This is a royalty on delivery and mobility. It's clearly a dominant market position. Very, very hard to displace what they have. Over here. Yes.
Hi there. I'm Ashwin Pillay, Deutsche Numis. Thank you very much for the presentation. I know you mentioned that sort of one of the key sort of factors in improving the share rating for some of the holdings was index inclusion. When you delisted Pershing Square from Euronext Amsterdam earlier this year, you mentioned that you were in conversations with UMG about a potential delisting and move over. Is there more of an update on the timeline of that or any further on that?
Universal has made a public announcement that they intend to have a U.S. listing, at least by mid-September of this year, but not a delisting from Amsterdam, an incremental listing on NASDAQ or the New York Stock Exchange. Thank you. Yes, in the front row here. I apologize that mic people are running back and forth. I should probably do this more systematically. Yeah, go ahead.
Thank you. Hi. Shravan from SaltLight Capital . We touched on mortgage rates a bit before. Can I ask, are you surprised at the sort of resilience of the U.S. economy, generally speaking, given where rates are? And second to that, does this sort of elevated cost of capital and how long that's likely looking change in any way the types of companies that you look at? Thank you.
Yeah. So on the latter question, I don't think the cost of capital is elevated. I think the cost of capital is very low. I mean, you think about the components of cost of capital. It's debt cost of capital, the equity cost of capital. I think equity cost of capital on historic terms is relatively low. Debt cost of capital on a long-term basis is also pretty low. A mid-4 type 10-year Treasury is a pretty low rate. We got spoiled with something approaching zero. With respect to the economy generally, quite bullish on the economy. And that really has a lot to do with the new administration. The new administration is extremely pro-growth, pro-business. This DOGE effort, as you've been watching, is a serious one.
You're going to see a lot of cost reduction, but I would say probably more significantly in terms of the economy, you're going to see a lot of elimination of wasteful, unnecessary regulations that are interfering with, I mean, in the United States, to build a bridge or a road or a factory is a very cumbersome exercise, not just the federal rules, but some of the various state and other rules. And that impedes, makes things much more expensive, vastly outweighs the importance of interest rates, just the actual cost to get things done, the time frames, the approvals, et cetera. And as we can, I expect, make those more efficient, it's going to lead to a lot of investment. Trump is very, as you know, America first. He's talked about a 15% tax rate for companies that make goods in the U.S.
I would say pretty much every major international company that doesn't have a presence or manufacturing presence in the U.S. is looking for one or looking to make an acquisition or looking to partner so that they can lose the fear of Trump waking up in the morning and sending out a tweet about tariffs. One way to mitigate that, of course, is having a presence in the U.S. I think all of these factors are going to be very pro the business cycle. So I think it's a very good backstop for investment. It's the first time in a long time, at least since the first Trump administration, but more so because he's much more prepared and organized now, where the business community, I would say, is extremely confident, and business is a confidence game, as I like to say.
Not a con game, but a confidence game, and the more confident, in order for a CEO to make a decision to make an investment, they have to believe, they have to make a prediction about the future, and I think certainly we've got four years of runway with this administration, and I think it's a very good backdrop, so I think pretty low cost of capital on an absolute basis and a very pro-business environment, deregulation, efficiency, things happening that probably should have happened for decades are finally getting done. I think that's a very good, and so that's not affecting the companies that we're investing. In fact, we made another investment that we have not yet talked about, but it was specifically a business that doesn't meet the highest quality business standards.
But the nature of the business and the capital structure enables us to make an option-like multiple of our investment if we're right about the economies. So we actually made an investment. It's relatively small. We're still making it, which is why we haven't disclosed it. But it's one where the payoffs are very large if the economy is strong as we expect. It's a bit of an asymmetric. It's not a hedge. It's a bit of the opposite. But it has that same kind of asymmetry.
Bill, we have a few questions from our online participants.
Sure.
What was the decision process for buying deep-in-the-money options for Nike instead of out-of-the-money options? The latter would have resulted in lower cash usage and more leverage.
Sure. So a deep in the money option, I've always thought of a deep in the money option as a bit like you own an office building and you borrow non-recourse against it. You put down a down payment. There's a certain cost of capital. You can look at a deep in the money option that way. SOFR rates, the benchmark for pricing, at least the yield component of an option, are actually low relative to absolute rates. So that's a nice fact. And volatility is less of a factor when you're buying a deep in the money option. Really, it performs much more like you can look at it economically as a borrowing. And so the cost of a deep in the money option here was actually very low.
As Ryan pointed out, the break-even, how much the stock has to go up to recover our full investment, was modest relative to the stock price. It still offered a very, very attractive return. Out of the money option, a very big component of the value of the option is volatility. Volatility for Nike is high because of all the stock price movements. Interestingly, the multiple of your capital for an out of the money option wasn't much higher than the multiple of your capital for an in the money option in this particular circumstance. An in the money option has much lower risk characteristics. The way our mistake in Nike was that we underestimated how disruptive the necessary changes would be to the business in the short term in order to get to the goal in the long term.
We were right that they were going to replace the leadership. We were right in terms of who they chose. It was at the top of our list. We were wrong, at least in terms of our initial entry price. We should have waited, I guess, in retrospect, because the announced disruption, the market doesn't like it when analysts take their expectations down 45%. We think the ultimate outcome will be similar to what we expected. But we could have bought the stock, I would say, better. The nature of a deep-in-the-money multi-year option is, interestingly, a better investment, in our view, than the stock outright. And that's why we, I guess I'm talking this way, but I should be talking to the virtual audience. Yes, Tony, you want to give me another one?
Sure. How might the increasing prevalence of passive investing ETFs pose risks to Pershing Square's active management strategy? And what potential opportunities could this trend create for Pershing Square?
Sure. I don't think there are risks. But the dynamic of the world that's happened that we think creates Uber-like opportunities is that more and more money is passive, which means a bigger percentage of the shares are owned by effectively a permanent owner that's buying a little bit more every day. That's kind of the index funds. And then on the marginal daily trading, more and more capital is controlled by highly levered so-called pod shops, Millennium being a kind of a famous Citadel, other examples. These are firms where they highly compensate people. But it's very short term, very tight risk limits. You can't lose more than X or you get fired at Millennium, for example. And they get, of course, participation in the upside. And those are two very powerful forces that affect the price of securities. So an announcement comes out about autonomous vehicles.
An Uber stock price can drop 25% or 30% as the index funds don't change their position. So the float, in effect, becomes smaller. People think of index funds as part of the public float of a company, but they're effectively not. And when you take them out of the float, the marginal buyer and seller has a much bigger impact on where a stock trades. And to the extent the marginal buyer and seller is betting on earnings or betting on events and they get surprised, in order to minimize, they sort of have stop losses, in effect. We have a whole bunch of investors with stop losses. You have a reduced float. You see big gaps in stock prices. And we saw that in Nike. And we bought on the gap. But we should have waited to buy on a wider gap.
But we sort of took advantage of it, if you will, in Uber. So I think it means that, one, there are going to be more short-term volatility based on events. That's a big positive for us in terms of identifying mispriced securities. Because with the benefit of permanent capital, we can invest based on where we think Nike is going to be in three, four, five years as opposed to where it's going to be in the next three months. That's a big competitive advantage in a world where most investors have much shorter-term capital. And the other benefit is the sort of pod shops and others create an enormous amount of liquidity. And so we can buy a very big percentage of a company in a very short period of time. And that's helpful, of course, as we grow. So we think both factors are positive.
What's the negative? The negative, I would say, for the capital markets generally is it means that I think securities are more likely to be divorced from intrinsic value over time if you have these sort of, in some ways, uneconomic forces. Permanent index fund continued ownership, if you're in the index, you trade at a big multiple. Benefit, if you're not, you trade at a discount. I don't really see a real significant negative. Question in the room? There you go.
Bill, this is an easy question.
By the way, if you have a question, instead of making the mic runner run around, why don't you just go to where the mic person is and you can ask a question. We can save. By the way, I'm sorry to call you the mic person.
Come in here. The water's warm. Yeah.
Go ahead.
Bill, congratulations, firstly, on your podcast with Lex Fridman. I think you got over 1.2 million views on that. And it was really informative. But one of the things that it didn't cover in enough detail was actually what you're doing as a flagship team of people running Pershing Square. And there's a whole generation of investors. If you look around this room, probably the average age is around 50. We've got a whole generation of investors in the U.K. that know very little about investment trusts. And they simply haven't been educated. And they rely upon social media, which is something which we haven't been very good at doing in the U.K. So my question for you is, what would it take you to do a podcast with me in the U.K.? Now, I know your lifetime ambition is to outperform Warren Buffett.
How many followers do you have?
Well, I know your lifetime ambition is to outperform Warren Buffett. And you told me that when you gave your presentation at Omaha last year. But Terry Smith is the UK version of Warren Buffett. And on a recent podcast I did with him, we had over 750,000 views and about $5,000. So please, if you want to ask the audience whether they think it's a good idea, do ask for a show of hands. But we would really love to have you here in the UK.
OK, we're going to crowdsource this. Who thinks it's a good idea? OK, I'll do it. Next question. By the way, there's another question mic here. If you have a question in this side, why don't you just go to the microphone? Yes, please. Number two.
Sorry, I do the clear analyst thing and say two from me, please. The first question would be a bit of a tough one. But Pershing Square.
Tough is fine.
Pershing Square SPARC. Last year, when I was here, you kind of mentioned that it was one of probably the most interesting parts of the portfolio. Today, it doesn't even get mentioned. So I was just wondering what's happened in the year since, but also in the context of the potential transaction around Howard Hughes. Just where does that now fit in in terms of the management kind of priority and hierarchy?
Yeah. So we should have mentioned it. I would say it's very so Pershing Square SPARC Holdings is an acquisition company. It's almost a dirty word because of the so-called SPACs. But it's not a SPAC. It's a SPARC. And it's sort of a creation of ours. We got it approved by the SEC at the end of 2023, September 2023. And we have 10 years, effectively an infinite amount of time, to find a target. But we're not waiting around to find a target. And the answer is this is a structure that enables us to take a large company public in an extremely efficient manner. For those of you who follow SPACs, there are no founder shares. There are no underwriting fees. There are no shareholder warrants. These are all very dilutive instruments that contributed to SPACs' sort of underperformance.
The only economic difference between us and the other participants in the SPARK is that the sponsor, which is in this case the Pershing Square Holdings and our other two funds, gets a warrant on up to 5% of the shares of the company, struck 20% out of the money. So it's a very efficient, interesting way to go public. And we can guarantee to the counterparty that it's a certainty they're going to go public, subject only to the SEC approving a prospectus. We can guarantee the price per share, obviously the valuation at which the business goes public. And we can commit $2 billion from our own capital so they know they're going to raise a minimum amount of capital. So very attractive vehicles. The question is, why haven't we done a transaction yet?
The answer is it really relates to why have there not been more IPOs? You have this benign economic environment. Rates are reasonably low. Everyone's interested in investing in IPOs. There aren't a lot of IPOs. The reason for that, in my opinion, and the reason why we haven't done a Spark transaction, is that the private market carrying values of both private equity companies and venture-backed companies, in many cases, are above where they would trade in the public markets. And so the private equity sponsors and the management teams and the shareholders don't want to get a public mark. And so therefore, they're kind of waiting for the business values to grow enough so that by the time the companies are ready to go public, they can actually trade up. And we're looking to buy a very high-quality business.
But we have to buy it at a price that makes sense to us as a major shareholder of the company where the Spark investors get the benefit of a nice uplift at the time the company goes public. And I think what happened was we were in a very low interest rate environment. We were in a very ebullient venture environment. Companies raised a lot of capital. Valuations were set. And then rates went up a lot. The kind of bloom went off the rose, so to speak, in the venture-backed business. And so if you're sitting with a private equity portfolio or a venture portfolio that's carried at a certain level, I think you should look askance at some of those carrying values because I think they're above what the businesses are worth.
And we need that sort of those stars to align before we can do a transaction. But we are actively talking to people, looking at transactions. And so in terms of where it fits, so let's assume for a moment we get our Howard Hughes transaction done. We're going to have the Pershing Square, and let's assume PSUS gets done. So we'll have a public securities strategy where you buy minority stakes in large-cap public companies like Uber and Universal and businesses like that. That's in PSH and PSUS and the two small Pershing Square hedge funds. We're going to have Howard Hughes, which is going to buy private companies of relatively modest size because of the scale of that entity. It's like a $5 billion equity, $4.5 billion equity company. And these are control investments. So controlling interest in public companies, 100% interest in private companies.
And then we're going to have Spark, which is a vehicle we're going to use to take private companies public, generally large-cap private companies of a kind that would fit into the PSH portfolio once they become sort of public. And so the good news is none of these strategies compete with each other. They're actually sort of complementary.
Great. And then my second question would be it's actually a paraphrase and an old Buffett statement of the desert island indicator. So Bill, if I kind of.
You're routinely on a desert island for the next five years. And I kind of took your phone and your email away from you. What would be the first.
If you took my phone and my email away from me, I'd probably die. No, but go ahead.
I'm on a desert island. I have no phone. It's a scenario.
At the end of those five years, what would be the kind of one piece of information about any of the names of the portfolio that would be burning in your mind, the first thing you want to look at? And you're not allowed to say check Twitter either.
OK. So I would say the best way to answer your question is with respect to pretty much all of our companies. I would be very comfortable that if I went away and lived on a desert island for five years with no phone or anything else and I came back, all of them, I wouldn't worry at all about the businesses. In fact, I would be very confident that five years later, the businesses would be worth something in order of two to three times what they were when I left. So it would be a very nice time. And one of the nice things about this strategy is we don't need to do anything to generate returns. If we don't buy another security or sell anything we own over the next 12 months, we're going to make a lot of money.
I think that's relatively subject to somewhat of market conditions and so on and so forth. And that's not a guarantee. We have a compliance person here. But the businesses we own are compounding their earnings and their economic value and their intrinsic value. And they're growing. The market may choose not to recognize that growth for a short period of time. But over a five-year period of time, I'm very confident the market will recognize that. So the best answer to your question is there's not one thing in particular I'd be interested in because the businesses will be doing fine. Let me take the next person.
Hi, Bill. Thank you so much for the presentation. A lot of interesting portfolio updates, and I'm here to ask a question about Nike while wearing an Adidas sweater. So I guess my question really was Ryan mentioned that Nike is a market leader in the athletic footwear segment, and they're essentially an oligopoly with a lot of barriers to entry. But speaking to, I guess, the younger generation, they seem to resonate a lot more with the challenger brands like On or Hoka. So it just really my question comes down to what do we think about these newer challenger brands? Me personally, I believe in Nike, the brand. And the share price volatility made no sense to me. Why would such an iconic and valuable brand go down 40%? So just trying to get your thinking on that.
I'm going to let Anthony answer that if you stand up.
Sure. Thanks for the question. Look, I think part of the reason that On and Hoka have had the success that they've had is the prior CEO of Nike, John Donahoe. I think if you were trying to destroy the company, you couldn't have implemented a strategy that was any more effective. He basically literally opened the shelf space to competitors. So his strategy was twofold. One, push really hard into digital. They restructured the company instead of being organized around sports verticals. They started organizing the company around men, women, and kids. I think it's kind of inspiring running the basketball business. I connect with top basketball players and design shoes for them. Designing shoes for men, that's a much more vague assignment. So I think.
But less vague now than it was a few weeks ago.
That's true. So look, I think the core of Nike that powered their success decade after decade was being centered around the athlete. And sport drove everything they did, so they kind of moved away from that. That was a big negative in terms of their ability to innovate, but another big negative was they literally withdrew distribution from a lot of these wholesalers. And unfortunately, as a big consumer brand, you don't get to pick where the consumer wants to shop for you. You just have to be there in the path of the consumer, so I think that Nike took its eye off the ball in terms of centering around sport. And they literally took their shoes off the shelves and let the wholesalers put competitor shoes on there. And a lot of those shoes gained resonance.
The good news now is you have Elliott Hill back as CEO of the company. He is the ideal person to turn this around. In my 12 years at Pershing, I've done a lot of reference calls on CEOs. The only reference calls that were as positive as the ones we did on Elliot were Brian Niccol at Chipotle. So that kind of gives you a sense for my confidence in how effective Elliot will be. He's super passionate about sports. And he built up all of the wholesale relationships that powered Nike's growth over the 32 years he was there until 2020. What's interesting going forward, so I think Nike is now executing. That will help them. And the structural advantages they have are just massive.
I mean, the retro library of shoes, the athletes that they partner with, their spend dwarfs all competitors, massive economies of scale, et cetera, et cetera. But what I think is really interesting is there's a cyclical element here. Hoka's and On shoes, they each have a distinctive look. Eventually, the consumer wants something different. And Nike has a really wide range of looks. The Adidas Samba is another one where that will kind of ebb and flow. That's not going to be like the it shoe forever. So I think there's an idiosyncratic turnaround here. And there's also kind of secular within the shoe space. I think both of those are big opportunities for Nike. So stay tuned. We're super confident. And they should have some exciting product coming over the next few quarters.
Thanks, Anthony.
Thanks, Bill.
Good evening. I noticed that a number of the organizations that publish financial information relating to investment trusts either inadequately cover Pershing Square or don't cover it. An example of that would be Morningstar, which was in the inadequate class. But I noticed for the last two or three weeks, they no longer allow it to be listed in people's portfolios. This must adversely affect the discount. What can Pershing Square do to address that problem?
One, I was not aware of that. That's one thing. But maybe Tony, is this something you're aware of? And what are we doing about it?
Yes, I think it looks like they fixed it this morning.
Oh.
I don't have any feedback on that.
Apparently, it was fixed this morning in anticipation of activism. But Tony, what do we know about that?
Because my mic's working. OK. So I think there was an issue during the period when we were dual-listed on the LSE and the Euronext in Amsterdam, and they had trouble using the sterling quote as a basis for what they were presenting to the market. I think now that we have dropped the listing on Euronext, it should be moving towards getting resolved, but that was one of the main issues.
If it's not, who could I contact to point that out?
You can contact me.
Thank you
How about an online question, Bill?
Sure. Please.
How does the trade policy of the new administration impact Pershing Square's investment universe? Does the threat of trade wars impact your screening?
Sure. So again, we like businesses that are royalty-like, royalty on music, a royalty on mobility, for example, royalty on restaurants. Those businesses also have the benefit of not really being involved in some of the trade wars, so to speak, although you can envision a world in which tariffs on avocados have an impact on Chipotle, for example. Our view on President Trump and what he's trying to accomplish is really to level the playing field. If you go back to World War II, Europe was destroyed, Japan, et cetera. They needed to rebuild. The United States made a major investment, the Marshall Plan, to help the world recover, and as part of that, in order for these countries around the world to kind of build their industrial base, they put in place tariffs that encouraged kind of home consumption of product to kind of rebuild their base.
Those tariffs stayed in place, and many of them to the present day, even though Japan, for example, France, other countries have certainly made a massive recovery since World War II. President Trump is of a view that why should we have not been able to sell American cars into, for example, Europe for a very long time? Part of that is the tariffs that Europe puts on our cars. So I think he intends to use tariffs as a tool to kind of level the playing field. He's going to use them in a very nimble fashion. He's going to use them also to achieve certain strategic political objectives for the United States. You've seen this, of course, with Mexico and Canada on the border. He's serious.
But if he gets a rapid and appropriate response to address whatever the particular issue he's focused on, he's prepared to, as quickly as he puts the tariff in place, withdraw the tariff. I also think the president is very pro-America, pro-economy. He views the stock market as kind of his, to some degree, judgment of how he's doing as president, certainly economically. So I don't think he's going to take steps that he'll take in the short term that cause the stock market to be volatile. But I don't think he'll take steps that will impair the U.S.'s economic position. And I think that tempers the kind of tariff risks that could come in place if the tariffs are sort of put in place irrationally. So I think it's very tactical on his part to achieve kind of longer-term strategic objectives.
And I think he's so far doing a good job with it. Our approach is to buy really high-quality businesses that can endure almost anything. The goal is to own a business that we can go to a desert island without access to the internet. And we don't have to worry about trading securities. We're happy to own the businesses we own. And one way you get there, even in a world with tariffs, is you own a business that has pricing power. If what you sell consumers want to buy, you can adjust prices to deal with increases in costs. And so that's the best protection that we have in kind of the intermediate longer term on some of the trade and other issues. But I do think the president's going to behave rationally, ultimately, about tariffs.
And my advice to Europe, UK, is to be responsive to whatever the president's goals are, assuming that you agree that they are reasonable goals. So next.
Hello, there, Mr. Ackman. My name's Charles Bromley Davenport. I'm from the London School of Economics. I just have a question regarding an industry which a lot of investors, certainly this side of the Atlantic, have been discussing quite a lot over the past year, that being the global luxury sector. I think you mentioned just now about pricing power, which I think is very timely given my question. But I think it's home to some of the highest-quality companies, arguably, in the world, with extremely high returns on capital. And they have been quite severely impaired, their share prices this past year due to different macroeconomic headwinds. I'm curious, just as shareholders, have you been looking at any luxury companies? Maybe you could talk around that. That'd be great.
So it's a space that we've looked at. We spend time on. We obviously admire what Mr. Arnault has done with LVMH in building really a mega incredible company. It's a business that we could own at the right price and the right terms. I think of luxury, however, a little less of a recurring cash flow, if you will, than I think of, for example, mobility or ordering groceries that get delivered to your home. I think it's an amazing category. I think there's some really great each one of these brands is a little bit of a mini monopoly. But there is fashion risk. It suffers from some things that other kinds of companies we own don't suffer from. But there have been various moments where we've taken a look, but not ultimately pulled the trigger in that space.
Thank you very much.
Hi. Just a quick question on AI. You seem to, in terms of having Google position being long AI, but AI is going to be good, but not so good that it's going to disrupt Uber. If you think about the second round effects of AI, I know that you can't talk about in terms of which stocks that you're going to buy. But in terms of what goes into the second round effects in terms of thinking of which type of company sectors that you're going to buy on the back of that?
Sure. I think our job as an investor, and I'll ask Bharath. I'll call him our dedicated AI expert for the moment. Bharath has done a lot of great work on Alphabet and other companies in the space. AI is an enormous. I should have added it on to my answer to the question about the economy. I do think it's going to be an accelerator. It's going to enable business formation. It's going to lead to meaningful efficiencies. It's going to lead to, I think, higher economic growth. But it's going to be very disruptive. If you're a call center company and you've got people answering phones, I think that business is very high probability of being disrupted. So we try to look at every company that we own, certainly, and then companies we're looking at investing in saying, is AI going to be a positive for Chipotle?
Because they're going to, the company will predict what you're going to order before you order it. It's going to make the drive-through times more efficient, if you will, or the ordering more efficient. Or is it somehow going to disrupt the business? That's the analysis that we do, and it's really a company-specific analysis, but Bharath, why don't you comment?
Yeah. And maybe I can add sort of a real-life example of how our business uses AI tools and how we think that is indicative of how our portfolio of companies can benefit. So on our macro research side and for our equity research, we've had a huge productivity unlock from just using Bloomberg's AI offerings. And for some research projects, it could be as much as a 2-3x improvement. And that would be understating it. And we think it's an interesting example because Bloomberg, as sort of the dominant player in their industry, has access to the highest quality data and integrations and has huge distribution advantages through their terminals. And we kind of go through our portfolio.
A lot of our companies, including Google, obviously, are similarly situated in their respective industries where they have a dominant franchise, huge distribution advantages, access to really amazing consumer data, and they can leverage those strengths to sort of incorporate AI in their own businesses in a similar way to how Bloomberg has done it, so I think a lot of these second-order impacts we're looking forward to seeing.
Thank you. Next.
You briefly mentioned that you briefly talked about the swaptions that are still in the portfolio and briefly mentioned that you are considering spinning off a company dedicated to that kind of strategy. So can you expand on that? What's the view? And what asymmetric opportunities are you looking at and the team is looking at, if any? What piques your interest?
So we generally don't talk about investments before we make them. So I can't tell you what we think might be interesting. But the way that we've approached the macro space, if you will, there's sort of macro funds that operate with a lot of capital. And they take kind of long or short positions in the underlying in credit or in rates or currencies. And it's a high-leverage strategy. And it's one that's prone to volatility. And macro funds are always doing stuff. Like every day, they're buying and selling and making bets. Our view is that this macro area is only interesting on a very episodic basis. And there are times where it makes sense to do nothing. In fact, most times, there isn't something to do in the macro space.
That doesn't mean we're not looking today every day to find interesting hedges or opportunities for asymmetric investments in the space. And we think those, as we get better at it, we find more things to do. But we've had a lot of sort of inbound interest from investors who said, look, I love what you did in COVID. I love what you did during the financial crisis. I love what you did with rates. Is there a way you can design a fund that can enable us to participate? And we have a pretty interesting idea on what to do there. We're not ready to kind of announce it. But it's something that I think it won't look like any other macro fund. I'll give you just kind of a high level. Imagine, if you will, there was a fund that looked like a money market account.
It invested in U.S. Treasuries, and so in the ordinary course, you'd earn a short-term Treasury return, which today is something in the fours, let's say, high fours, and what if the budget for asymmetric investments was the interest income that that fund generated, plus up to, let's say, 5 percentage points of principal, and that you only invested capital when you identified a really interesting asymmetric opportunity and you had kind of a variant view versus the market on rates or currencies or something along even interesting equities. General Growth might fit into that asymmetric quality when the company was on the brink of a bankruptcy, but the budget, again, is just interest income plus up to 5 points of principal.
It means that if every one of the investments you make over the course of the year go to zero, you use up the entire budget, you're down 5%, but because these investments offer very high degree of asymmetry, you can make many multiples of your capital. We've literally made 100x on some. It presents as a very interesting asymmetric fund. We can feel very safe being an investor because you own U.S. Treasuries. That's the portfolio, and it's only the interest income and a modest amount of principal you're prepared to spend, and that's what we have in mind, something along those lines. Query whether we do it initially as a private thing or we do it in the public markets. We haven't decided that, but thank you for the question.
Google is one of the leaders in AI. In that sense, it might be one of the biggest beneficiaries. On the other hand, like if we take the downside, it might be one of the companies that may be hit the hardest because they are the information gate. 75% of the revenue is on ads and on that reality. On the one side, it might be good. On the other side, it might be a big risk. Because of this disruptive technology, we might have more possibility, like more Kodak times coming. Are you thinking of Google in that sense? For the next 10 years, like how unpredictable the investments can be compared to the past and all that because you invest in that type of stories with great growth that things hopefully won't change? Thank you.
Sure. So I'm going to hand this off to Bharath or Ryan. But I would say the essence of our analysis on Google relates to the question you asked. Is AI a threat or an opportunity for Google? And we did a pretty deep dive. And sort of another it's very analogous to Uber, where the world has said in the Uber case is AV is such a threat. And therefore, the company's going to trade at a very low multiple because we're concerned every time there's an announcement about a Waymo service in Miami opening, this is somehow bad. If we determine it's actually good or neutral, that presents an opportunity to make a meaningful investment. We bought Alphabet or Google in the, I think, low 90s per share at a time where people were concerned about the AI threat.
Maybe, Bharath, you can talk about the research we did and the conclusions we came to and that we continue to do. Go ahead.
Yeah. So, our research on AI and how it affects Google really centered on the structural advantages that Google has that will allow it to integrate AI in its business much more than upstart competitors like OpenAI. And those structural advantages really begin with its distribution moat. So, Google has six different products with over two billion users each. Sorry. Tony, you were saying something?
No.
Secondly, they also have access to the highest quality consumer data. They've seen two decades of queries that allows them to anticipate the long tail of queries that only show up once or twice. And then thirdly, their technical infrastructure is very differentiated and allows them to sort of integrate AI Overviews, which Ryan had talked about, and deliver it to 1 billion users at a very low cost. And they've been able to offer their services for free when they're competing with OpenAI, who has a subscription-based business model at $20 per month. And for a consumer to switch from a free service to a subscription-based service, the product has to be much better than sort of the parity that Google has been able to demonstrate with AI Overviews and ChatGPT. So we just think these structural advantages are really hard to overcome by competitors over time.
Just a quick follow-up. OpenAI hasn't anything to lose. But Google haven't also has the risk of cannibalizing its own self, which OpenAI or Kronos/ OpenAI. That's a quick follow-up.
Yeah. So on the cannibalization point, this view that as Google starts integrating AI answers into its queries, there will be a sort of a monetization falloff. And that's sort of what the cannibalistic risk is versus OpenAI. But they've already started integrating ads into AI Overviews. And as Ryan mentioned in his portion of the presentation, those AI ads are monetizing at the same level as regular ads. So we feel quite comfortable about the substitution or the cannibalization risk of Google as they start integrating all these AI offerings in their service.
Go ahead. Question online, Tony.
Sure. We've had a number of questions about share buybacks, and I think the overarching question is to understand how we think about them, and the subtopics are, are they capital allocation? Are they discount closure mechanism? How do we feel about consuming capital away from other ideas? How do we feel about not doing enough? There's a recognition we've bought almost a quarter of our shares back since the IPO of the entity, but there have been times when we've bought back shares, and there have been times when we haven't, and how should shareholders think about those different periods?
Yeah. So I think we've proven that share buybacks are not a discount closure mechanism. I don't think. I think we have empirical evidence of that. We think of share repurchases as part of a capital allocation decision. What is a CEO's job? The CEO's job, particularly in our industry, is allocating capital among the next Uber versus the next share in the market. We think discounts, 37%, 35%, gotten really wide. We've got cash on hand. There isn't a new investment we're about to make. And the amount of stock we can actually buy over several months is limited by law to 25% of the average trading volume. So I would say it's an incremental benefit to the long-term shareholders of Pershing Square that we can buy in our stock at a meaningful discount. And on the margin, it helps drive return.
But I think it really is an incremental factor. It's not a major one. We're going to make a lot more money for people finding the next Uber, I believe, than buying in the marginal share. So it's another tool in the kit. But at this point, I would say it's of limited use. But I do think, looked at over a long period of time, it's actually, I like the fact that we've canceled 20 whatever 7% of our shares. OK. Another online question, Tony. Is there one? Or should we go to.
Sure. I think there was a couple of questions about balancing your time between your portfolio management responsibilities and your kind of outside-of-the-business activities on X.
Sure. So the good thing about being in a long-only strategy is to the extent that one believes that on the margin on X, they can move the world in a place that's positive, we get the benefit in the portfolio. The best, perhaps most extreme example of that is I had grave concerns about the extension of the Democratic administration into another four years for a whole host of reasons. I would say most significantly, geopolitical risk. I felt that the risk of continued we had real weakness in the White House. And weakness led to, in my view, the Ukraine war issues in the Middle East. And that's bad for obviously, that's life and death bad. It's also bad for economic factors. But I also had a very strong view that the Trump administration would be much more favorable for the economy.
So I actually my activities on X go through all the various issues. I think they're just sort of pro-America, pro-growth, pro-the-world, at least in my assessment. So I actually think that time ends up inuring to the benefit of owning some of the great businesses of the world. My participation on X is episodic. I was flying over here. So I was very active on the plane in the last sort of period. And I tend to be active on X to my wife's disappointment on vacation. But it also is a very, very powerful tool. Fundamentally, this organization built a lot of its early success on activism. And activism is getting companies to do stuff they weren't doing in order to make them more successful. This is the most powerful activist tool in the world. And it sort of happened by chance.
But I have a pretty big platform on X on broad issues, but certainly on business issues. And I'm posting to the CEO of Uber about things they can do to fix the app. And then he's devoting engineering resources responding on various things. So I think it's actually an accelerant for the portfolio. And you would not. I don't think it's likely we're going to have another proxy contest. But would you want to take us on in a proxy contest when the CEO has no presence on X and we have 1,700,000 followers? So it's a very powerful tool. But I think one of the things you learn over time if I do what I do, I've always had outside activities, philanthropic activities, family activities, everything else. How to balance those things is really important. But what you're hearing from some members of the investment team.
Each one of the people on the team today, if they wanted to, could go start their own firm and could be incredibly successful building their own portfolio. And a big part of the success of the firm is the strength we have on the investment team and the strength we have in the rest of the organization. And my job as CEO, an important part of that is delegation, incentives. And then every once in a while, putting the pedal to the metal on something or putting the brakes on something or coming up with an interesting idea or doing something strategic. But I would say I've become less essential to the success of Pershing Square than I was, obviously, 20 years ago or 15 years ago or 10 years ago. And that's a really good thing for the long-term success of this business. But I'm all in.
I'm very focused. But I do like this X thing. I think it's pretty good. OK. Please.
Hi. Great presentation. Joseph Walker here. I had a question regarding short sellers. So obviously, I know Pershing Square don't do any shorts anymore. But how do you think obviously, given the Hindenburg Research just closed its operations, how do you see the role of short sellers changing over the next five to 10 years in public markets?
So look, I've really respected the folks at Hindenburg Research. I thought they did very high-quality work. And I've always had respect for, I would say, good short sellers. And I think they're sort of the watchdogs of the market. Regulators, the SEC and European UK equivalents generally don't identify fraud. They generally go in after the fraud has taken place. And they punish the people responsible. But having people who have an economic incentive to find fraud uncovered, et cetera, I think is sort of good for markets. Markets where there aren't short sellers can really get out of control. If you look at the housing bubble in the United States going into the financial crisis, it only burst when Wall Street developed a mechanism to go short housing. The subprime CDOs were really devices used to create short positions in the credit of housing.
That ultimately caused the market to kind of readjust. I do think it's a healthy thing for markets. It's just not a healthy thing for short sellers. It's a very challenging profession. It's very difficult to do in scale. Everyone hates you. Again, I just answered the last question. The problem with being a short seller is there's a part of your brain that just wants the world to end because that will help your portfolio. The benefit of just being long-only is you can just be you just want the world to be a beautiful place. It's just a much nicer way to live. I don't recommend that you become a short seller.
Thank you.
But everyone seems to try it in our industry. It's just like it has a certain sex appeal. I don't know quite why. But yeah. OK.
Thank you. If Howard Hughes acquisition is successful in the end, will Pershing Square Holdings be a recipient of 20% of the 1.5% management fees? And if not, why not?
Sure. So the participation in management fees is for entities that invest in public securities. So PSUS will be an entity that invests in public securities. And we're going to share 20% of those management fees with PSH by reducing PSH's management fees by a like amount. The benefit that PSH investors will get from our Howard Hughes transaction, if it occurs on the terms that we've proposed, is that we're going to reduce the management fees that PSH pays by an amount equal to the management fees we collect from Howard Hughes. And that will be. We think it will take management fees from 150 basis points to 135 basis points. And to the extent that Howard Hughes' market cap grows faster than the market cap of PSH as in its entirety, the fees will get reduced further.
So for example, in this world in which Howard Hughes uses stock to make an acquisition, the portfolio grows. The fees get reduced. So there is a meaningful benefit for PSH.
Hi, Bill. Just a question on your investment on Brookfield. When you made the investment, wondering if you did any work on BN versus BAM, just the asset manager versus BN, which has balance sheet assets, especially offices around the world?
Sure. So obviously, when you own a company where its principal asset is 73% stake in BN, you've got to do work not just on Corp but on the subsidiary. But Charles, why don't you talk about the work we did on BN.
Sure. So the principal value we see in BN is the ownership in BAM, which is really their crown jewel. And BAM is an amazing business. It's an asset manager which has this large and rapidly growing fee-paying AUM base, market-leading returns, and has great secular kind of exposure to renewables, infrastructure, real estate, which we've become more constructive on. But so BAM is a high-quality business. The reality is the market knows BAM is a high-quality business. And so when you looked at it and when we looked at it, BAM, at the time we acquired our position in BN, was trading at probably 25 times earnings. Today, it's trading at close to 35 times earnings. So the market kind of agrees. What's fascinating about Brookfield, the corporation, is the parent at the time we bought it, BN, was trading at 11 times earnings.
It's trading today at 15 times earnings despite having this super valuable asset that it owns in BAM. Typically, when you see that type of valuation, you'd say, OK, there must be like a good business, bad business dynamic here, where this is great, but the rest isn't great. What's fascinating about BN is that doesn't exist. Basically, every single cash flow stream is growing at an attractive rate. BAM is actually probably more in kind of the middle of the pack where you see accelerated earnings growth and their carried interest, which, by the way, is a byproduct of BAM, and accelerated growth in what they call spread earnings, which is this insurance vertical that they're building, which shares very strong parallels with Apollo Athene.
It was a major decision both in terms of the asset value that we see in BN and then also the kind of the sum of the parts in different ways you can kind of bifurcate the cash flow stream. We think BAM is a great business. We think BN is, on a relative basis, the more interesting way to play that investment at current relative valuations.
Thank you.
Hi, there.
There's a quick question over here. We've got a couple of people who've been waiting. Apologies.
Yeah. Hi, Bill. I was just wondering, perhaps when we think about DOGE, have you thought about perhaps what it might the results perhaps they might get and whether you think this will sort of catch on? I mean, I'm very excited by it simply because it's actually just bringing a level of accountability we've never seen to certain expenditures. So I'm just happy to hear any thoughts you might have about it and whether perhaps it might catch on globally.
I think that would be good. DOGE Global. That'd be great. So, look, I think any time there's been very little accountability in government, as some of the more absurd investments of our government become known publicly, I think the public, by the way, I think is very much behind DOGE. There is a subset of people who are very opposed to it because they're the beneficiaries of all this sort of funding. And they're trying to stop it. And you've seen litigation and other things. I think ultimately, DOGE will be successful in cutting a very material amount of cost in the U.S.
I think it will be very successful in cutting or eliminating regulations that make no sense or where there are regulations sort of just. I think politicians and others, and really people who work in the administration, part of what they consider their success is putting a new rule in the books, and so what do people do? They put rules in the books, and they don't look to see whether this rule conflicts with that rule. We see it in our own industry. We still have to make these crazy filings that no one reads, and they cost money, and they take time. I mean, I can put Halit up here, and she can walk you through the litany of filings we need to make that. It reminds me of the Raiders of the Lost Ark.
At the end of the movie, they take the ark, and they put it into some government warehouse. And it's got like thousands of boxes of arks. That's where our filings get done. And so I think to the extent it's successful, I assume that other states in the U.S. and perhaps other countries will look at this model. But the same metastases of regulation and waste exist. And government, the benefit of, for example, the public markets is transparency, scrutiny, governance, the ability to run a proxy contest, litigation, activism, all that kind of stuff that helps balance what happens when someone gets control of a large amount of assets. And the ownership of those assets is diffuse. If you think of the United States as a business, you've got 330 million nominal shareholders.
None of them really have a meaningful. They can't run a. The only proxy contest is once a year. You can vote for the president. That's the only, and the president has a limited time frame for possibly eight years and lots of other distractions, and so we have this sort of unique opportunity where a private sector individual who's very capable, very smart, very good at this has the support of the president and of the people because Elon helped the president get elected. The president said he's going to be my guy to run DOGE. That's really set up for a really interesting opportunity to address what we need to address because we have this massive deficit. We have massive waste, and not just waste. Some of the money that's being, like, I'm sure you're following what's going on with USAID.
We've been funding our enemies with this entity. We've been funding terrorists with this entity. Getting to the bottom of that and resolving it is critical. That's not to say there's not going to be enormous pushback from people who principally the people who've been the beneficiaries of these sort of entities. I was on the plane flying over. I didn't really appreciate what an NGO was until I started thinking about what's really going on. You have these entities. The U.S. government puts $40 billion in an NGO, or they put it in a government agency that in turn invests money in NGOs. The NGOs, 197, 100% of their funding comes from the government. But it's called a non-governmental organization. When you go on Alphabet and you do a search, what's an NGO?
They say it's basically an entity funded by the government where the government has no oversight or control. I'm like, OK, this sounds like a problem. And hopefully, we're going to resolve a lot of these problems. And hopefully, that becomes a model for the rest of the world. So maybe next here.
Thank you. I was wondering if you could say a few words about how you manage investments after you buy them. So do you trim and add during the life of an investment? And then what is the process that goes up to making a decision whether to exit? Because you're obviously avowed long-term holders. And when I think back and I should thank you and your team because fantastic returns, et cetera. And that does make a real difference to people's lives in the end. But when I think back to your sales decisions, Netflix was an understandable one that went wrong. And on your quarterly calls with Lowe's, you just seemed really frustrated at how the market wasn't valuing it in the way that it was Home Depot. And that gap was never growing, never closing, rather.
So yeah, what do you do after the decision to buy has been made?
So one, we keep very close touch, obviously, with what's going on in each company. So there are typically two people that sort of take the leadership with any one investment in the portfolio at the time, doing the kind of initial deep due diligence. Ultimately, it's the full team's decision. Ryan and I do varying degrees of work on every investment in the portfolio before we ultimately make the investment. We have a subset of the team that's done no work, but they've got a voting interest in what the and an economic interest in the outcome. That's how that leads us to make an investment. Thereafter, the two-person team is responsible for keeping the portfolio, keeping the rest of us fully informed of the company. So the company announces earnings. Obviously, they're on the conference call. An issue emerges.
They're doing expert network calls to go deeper on what's going on with Nike, for example, and then reporting back to the team on a regular basis. Each quarter, the lead person will write kind of a summary of the earnings, our assessment of what's going on, update the model that we built for the business. Do they meet or exceed our estimates? Are they below? Why? Understanding those issues, and then we're always weighing investments we own with other opportunities that exist in the world because we've got a finite amount of capital. Pershing Square Holdings doesn't have an insurance company pumping out cash every day, so we always have to worry about where to invest the marginal dollar. Buffett very rarely sells things because he doesn't generally need to sell things to create capital to make a new investment, so his decision-making is a bit different.
With Howard Hughes, by the way, we will have precisely that. We'll have an entity that will generate a lot of cash, this real estate subsidiary, over the next decades that we can then redeploy in buying interest in businesses. But since we have sort of a finite pool of capital, if we find something better than something we own, we just sell something we own. And then we sort of have a hierarchy of what we own. And we'll have certain things. As we mentioned, we trimmed our investment in Hilton. We think Chris Nassetta, the CEO and the team, has done a superb job. We've made a fortune. It's been a 4x or so return. We think it's a great business going forward.
But at the current market price, the kind of IRR going forward has dropped somewhat from somewhere in the mid-20s when we bought it, maybe even higher, to probably the mid-teens today. And let's say we think Uber has more of a high 20% - 30% IRR potential. We need to free up capital. We'll trim a 15% IRR to buy a 30% IRR. That's kind of how we think about it. On the Netflix decision, the team did superb work on Netflix, predicated on a certain business model and implementation of that model. And then the company made an announcement that totally surprised us, that caused us to reassess how we thought about the business. And they made an announcement they were going to go from they had forever written off advertising as part of the Netflix model. And then they said, look, we're going to change.
And we're going to introduce advertising. And we decided to exit. And part of the money we exited from Netflix was effectively redeployed in Alphabet. Why? Because we felt this is a strategy about very high certainty investments. And if we lose confidence in the predictability of the future, we'll exit investment to find something that offers that very high certainty. Netflix got to a place where, at the price we sold, we felt there was too much uncertainty. The mistake we made is after we sold, the stock dropped another 40%. And at that price, I think we could have gotten there, although we had redeployed the capital at that point sort of elsewhere. But when we sent a letter to shareholders when we sold Netflix, we said, look, we think management's very capable. They're likely to get it right.
But this investment has now gotten to a place where it's gotten to a level of unpredictability. The kind of dispersion of outcomes has gotten sufficiently wide that we think we can find something that's more core fit for the portfolio. So those are some of the things that we think about. OK, a question here?
Hi, Bill. I was just wondering what your opinion was on international AI competitors, maybe such as DeepSeek, and how that would impact U.S. companies and Alphabet and their usage of it.
Sure. Maybe I'll give that to Ryan. He looks sleepy. You've got to wake him up.
Thank you. Look, I think we've looked at a lot of the different AI competitors. What I would say is most of the companies, setting aside DeepSeek for a moment, look very similar to a lot of the US competitors. You think Mistral in France and others. So I would say those are kind of one category where actually US and non-US companies look pretty similar in terms of their models, in terms of what they're trying to accomplish. DeepSeek is very interesting for two reasons.
One, if we assume that so far what has been written about them and what the papers they have published tell the full story, they have basically, through ingenuity and sort of the mother being the invention of all necessity, necessity being the mother of all invention, they have basically figured out a way to rewire the entire system from the NVIDIA chips that are being used to the processes on which these large language models work to provide something that can provide effectively very similar performance at a fraction of the cost. If that is correct, and we've been told and what we've read is correct, we actually think it's a great thing over time for consumers because it will drive down the cost of using these models to something very much approaching zero. Google is a huge beneficiary of that. Meta and Facebook, a huge beneficiary of that.
A lot of the existing companies who are paying increasing amounts every day in order to build out very expensive models or have this enormous infrastructure that needs to use every time a model runs, they're going to be the winners. So we think if DeepSeek has ultimately created a new mousetrap, that's great for Google, for example. Who it's not great for would be companies like OpenAI that are trying to create something that has a competitive advantage based upon it being a very unique model that has been incredibly expensive to train. That would go away. The reason I keep using these ifs is I still think that we're probably not getting a full understanding of everything that has been deployed in DeepSeek. It's probably we know that it's way more expensive than what they put out in their paper.
It's not clear how much additional training has happened. It's also the case that it was probably built using other models that are already established, which may or may not be a roadmap for other companies that are looking to do the same thing in the future. That said, it does seem like they have certainly done some things that are more efficient that a lot of companies could use. So I would say in terms of Google, I think it's probably going to be a very good thing for society. I think not DeepSeek in particular, but some of the methods they used will really bring this technological cost down from a very high level to something that's at least a lower cost or more normal level for the service, and that's going to probably result in a much wider spread and faster adoption over time.
Thank you.
Why don't we take, let's call it, three more questions, and then we'll break for cocktails. Maybe you'll get even more profound answers if we get enough cocktails. Tony, anything else online?
Sure. A couple of questions on U.S. markets versus other markets. What is Pershing Square's view on current U.S. equities valuation compared to other tier one markets? Moreover, is Pershing Square open to make meaningful investments in other countries, like, for example, the U.K.? And a similar question, does the manager consider investments outside the U.S. to help diversify against a possible U.S. bubble?
Sure. So we don't make investments outside the U.S. to diversify against the U.S. bubble. We're not an index investor. We don't own the market. We own very specific companies in a very concentrated fashion. I would say our universe, we really focus on North America. We occasionally invest in companies. I mean, Universal Music is nominally outside of North America because it's a Netherlands-domiciled company. But it's really a global business with half of its business in the U.S. and the true headquarters out in Santa Monica as opposed to elsewhere. So I would say our competitive advantage to some degree relates to proximity. We've got a very good relationship with the new administration, which is a helpful thing, investing here. And we're very bullish about the United States generally. So we think it's a very good backdrop.
The fact that, as I mentioned before, the overall market multiple is not something that really has an impact. We're looking at individual companies, kind of very much special situations. How about another question? OK, he's looking. Is there anyone else? You have a question?
Sure. Is this working?
Yes, please.
Bill, thanks as always for the time. I think there may be some disappointment among PSH shareholders that we're in the same position this year, at least it appears to us as outsiders with respect to PSUS as we were last year. And if there is skepticism in the market regarding the Howard Hughes deal, as there appears to be currently, what assurances can the board offer to shareholders that if we are again here next year in a similar position, there are other strategic alternatives and contingencies being considered? And it might be good to hear from Rupert on this as well.
Sure. Are you saying the position you're referring to, the discount, or what are you referring to?
Transactions which may be discount narrowing by virtue of fee reducing.
What if they don't happen, is your question?
Yeah, are there other strategic alternatives being considered or contingencies that would result in the discount being, say, materially lower than where it is? I would point, say, to TPOU versus PSH and the relative discounts between or the relative greater discount here.
Sure. So let me touch on that. And of course, Rupert should share his point of view. So the only transaction other than what we've discussed, which is transactions that we think PSUS, if it's successful and gets done and is of reasonable scale, could have a very material impact. And I think the best evidence of that is the almost 1,800 basis point reduction in the discount up until the day that we abandon that transaction. A reasonable expectation would have been if that transaction happened, the discount would have narrowed further. The Howard Hughes transaction, again, not a certainty. But I think on the margin, reducing fees, of course, is helpful. But beyond those transactions, the only thing you can do, I mean, what Third Point did to narrow the discount is they basically went into liquidation.
Our view is we can, while the short-term investor benefits by a discount going away over the next year or two because you're effectively liquidating over that period of time by doing a combination of tenders at premiums or whatever, what you give up is you give up the ability of the entity to compound over decades. Our view is the ability to compound over decades is a much better thing for the long-term investor here than a pop in the stock because we decide to liquidate over a year or two years or whatever the period is. I don't know of anything else that's sort of guaranteed to produce a discount other than a liquidation strategy.
The beauty of the discount for a long-term investor is actually beneficial, interestingly enough, because it gives us the ability on the margin to add some return by buying in shares. It's something we'd like to resolve. I personally own 43 million shares of stock. I care about where the stock trades. I'm not going to live forever, hopefully a long time. At some point, the price of the stock's really. I have no plans to sell. I view it as a measure, a bit like the president measures his success by the performance of the stock market. I measure my success by the share price performance of PSH. Obviously, I'd love the boost that would come from the discount narrowing significantly.
But I would not be in favor of liquidating the entity to make the discount go away and then we give up a vehicle that I think can compound at a high rate over the next many, many years. That's how I think about it.
Right. I mean, I think Bill is an incredibly transparent person. You've seen him here for a couple of hours. You've listened to the podcast, or if you haven't, I would recommend it, and really, I hope you're all following him on X, so his characteristics, the question is, what if it doesn't work? I mean, Bill is incredibly creative. He's incredibly resilient, and he's incredibly determined, and if you think his mind is active on X, it is even more so on PSH, so I think there's lots more to come, and I'd be surprised if nothing exciting has happened by this time next year.
I'll take the risk of saying I'm cautiously optimistic on both of the PSUS. I'm more than cautiously. I'm uncautiously optimistic on PSUS and Howard Hughes. But we shall see. OK, let's take a last question right here. There you go.
It was really just a follow-up to say that if people here may be following Saba's attack on various UK investment trusts, and their latest tactic is to try to force fund trusts to essentially open-end themselves, and I just wondered, you said there's no alternative to liquidation, but might open-ending the funds be an alternative, which of course eliminates the discount?
Right. And what open-ending does is basically it's tantamount to a liquidation. We go from having permanent capital, which is, as you've seen in the last seven years, has been an enormous advantage, to having capital that can disappear overnight. And you can't manage a scale concentrated strategy where you own large percentage interests in companies in an open-ended format without the potential for disaster. Right? Open-ended means anyone can redeem overnight. Effectively, it's a mutual fund. And then you're forced to sell the things you own. It has pretty catastrophic consequences. There's a reason why mutual funds own 200 securities and they don't sit on boards and they don't have a concentrated portfolio, because if the money can leave literally overnight, you've got an asset liability mismatch problem. The reason why this strategy works is because we have the permanency of the capital.
We operated in an open-ended format with multi-year lockups, quarterly, with still a certain amount of our capital that could be redeemed each quarter. And it was problematic in terms of our ability to implement the strategy. Since we've gone to a permanent capital model, we've vastly outperformed the S&P markets, our competitors, et cetera, because we have this really unique asset. And we'd be, I would say, more than reluctant to give that up for the short-term benefit of a discount narrowing. And you're guaranteed to get NAV in that world. But NAV in a world in which Pershing Square became open-ended would be a lot less than market, because people would say, oh, anyone can redeem tomorrow. They'd be forced to sell Universal. That stock would start trading down. Howard Hughes would start trading. You understand my point.
You get NAV at a discount, plus the liabilities associated with a windup. OK.
I was just going to say.
Please.
There's an example, which isn't exactly the same, but Fundsmith is not that different. It has 20-odd stocks rather than 10 or whatever it is. But they are open-ended. They have GBP 20 billion-ish of market cap. And they cope with having to sell a bit of their holdings each day or buy a bit. And they're mostly in, obviously, they're in liquid stocks. But you're mostly in liquid stocks as well, maybe.
I think the difference is, first of all, I would ask what Fundsmith's returns over the last seven years have been versus ours. I think we've vastly outperformed them. The other thing I would say is there's a difference between owning $20 billion of liquid stocks and people caring about what you own, sitting on boards of directors, being intimately involved in companies. We've got to be thoughtful when we exit. And we've got to be thoughtful when we buy, because people care what we do. And if no one cares what you own, you can operate in that world. But when we are recruiting a CEO to Chipotle, part of the reason why we got him is we said we're going to be a permanent holder. We're going to be a very long-term holder of your stock. And we're going to protect you from Wall Street.
We can't protect someone from Wall Street if all of the money can be pulled overnight. And the same thing's true for a lot of our asymmetric hedging stuff requires counterparties to take our credit risk. Right? That's not a business you can do if your money can disappear. When we put on our CDS hedge, we bought $76 billion notional of credit default swaps. We committed to make $500 and something million of payments annually for the next five years. If you can't do that, no one will take the other side of that trade if your money can disappear overnight. Right?
So there are things that you can do when you operate in a corporate structure because of your ability to take credit risk, your ability to make commitments, your ability to be a standby purchaser for rights offering, all these things that we have the ability to go to Howard Hughes and say, propose a transaction, a merger, et cetera, those things go away in a world in which you're an open-ended fund. That's why there's no open-end fund manager that's doing transactional investing, because you can't without permanent capital. Anyway, I hope I haven't kept people past the men's room time or ladies' room time. But really, these are excellent questions. An excellent meeting. Thank you.