Pershing Square Holdings Ltd Stock

Good day, and welcome to the Pershing Square 2026 Second Quarter Earnings Call. Today's call is being recorded. [Operator Instructions] It is now my pleasure to turn the conference over to Jill Chapman, Head of Corporate Investor Relations for Pershing Square.

Thank you, Sara. Good morning, everyone, and welcome to Pershing's Second Quarter 2026 Earnings Call. Joining me today are CEO and Chairman, Bill Ackman; and CIO, Ryan Israel.

Yesterday evening, we issued our earnings presentation and letter to shareholders, which are available on our website at pershingsquareinc.com under the Investors section. We expect to file our 10-Q after market close today. Before we begin, I would like to draw your attention to the legal disclaimers at the end of our earnings presentation.

Today's call may include forward-looking statements, which involve risks and uncertainties and are not guarantees of future performance. Actual results may differ materially from those expressed or implied in the forward-looking statements due to a variety of factors described under forward-looking statements in our earnings presentation and IPO prospectus filed on April 30 as updated by our most recently filed Form 10-Q.

We do not undertake any obligation to update forward-looking statements. We may also reference non-GAAP financial measures in response to questions. Reconciliations are included in our earnings presentation available on our website. Finally, please note that nothing on this call constitutes a prospectus, an offer to sell or a solicitation of an offer to purchase our common stock or any interest or security in any Pershing Square fund or securities of any other person. Furthermore, nothing on this call constitutes investment advice or an invitation or inducement to deal in securities. And with that, I would like to turn the call over to Bill Ackman.

Thank you, [ Joe ]. Welcome to our first earnings call for Pershing Square, Inc. One of the -- we spent the last 22 years listening to other people's conference calls, and we learned from that, which is why we've taken the approach of the night before releasing earnings, releasing a detailed letter kind of covering what we think are kind of the key issues and considerations for the quarter, leaving the full hour for questions from analysts, shareholders other investors.

We're going to follow this call with a space on X. If you go to X, you can find the link. We're also posting that effectively, replaying it. You'll be able to listen to it afterwards. Expect that discussion to be more focused on the kind of the underlying investments in the Pershing Square portfolio, that we're happy to take some of those questions now.

But the emphasis on our underlying holdings, one of the points we tried to make in the letter. What's interesting about this company is that if we never raise another investment vehicle, we just sit with the 3 permanent capital vehicles we have today, this business will grow at a very high rate is our expectation because the underlying companies in which we've invested in, we expect will compound at a very high rate over time. In fact, if we do nothing, we don't make another investment, we don't sell another security.

We just sit back and allow the compounding of a dozen or more of some of the highest quality businesses we know to occur. Those earnings will compound. We believe those stocks will [ rerate ] to kind of a higher valuation. We think they're cheap as of this particular moment. That will cause a rise in our net asset value of the funds that we manage. That will increase the fees and the performance fees that we receive from those vehicles and the earnings stream will flow into the company.

We can just sort of sit back. And that's what makes this a really interesting business. And of course, we want to optimize those portfolios over time. So we'll make some adjustments. We'll sell something that's kind of reached our expectation of value. We'll buy something that's become very attractively valued. We'll actually use some financial leverage in the way we manage those vehicles by issuing investment-grade debt to give us kind of long-term returns. But on a quarterly basis, what you'll see is a lot of the inherent volatility in stock prices.

One of the things we talked about in the letter that while the earnings trajectory of our companies is pretty continuous over a long period of time, the multiple that the market assigns to them, particularly in, I would say, an increasingly short-term market is very volatile. So expect volatility in the underlying holdings. But if you look at this business on a multiyear basis, think of it as a royalty look-through basis into the underlying growth and profitability of a business like Amazon, Meta, Microsoft or [indiscernible], Netflix or so many others. Why don't I use that as just a high-level discussion, and why don't we open the call for questions?

[Operator Instructions] We'll take our first question from [ Craig Siegenthaler ] with Bank of America.

So first one on fundraising. Can you update us on the timing and size of future fundraises, including asymmetric crossover and opportunistic?

Sure. So we don't have any specific time frames in mind. And in fact, we hadn't thought of the idea of Pershing Square Ventures until recently when it sort of became an obvious thing for us to do. So I would say future fund launches will be episodic. It will depend on what's going on at the time in the business and when we think it's appropriate to do so.

Our first fund launch will be Pershing Square Ventures. Obviously, we're targeting kind of fall end of year timing for that entity. Yes. But again, interesting point, maybe I didn't make it clear enough, [ Mark ], we'd love launching new funds over time. But the big driver here is going to be the underlying performance of the existing entities. And let me just talk through a few thought experiments.

So for example, we own something like 230 million shares of Fannie Mae and Freddie Mac. Stocks are trading at something like $5 a share. Our view, in the event the administration does what the President has suggested they will do, these are $40, $50 stocks. Overnight, our AUM goes up by potentially $8 billion, $9 billion on the day the administration decides to release Fannie and Freddie or relist them, uplist them, if you will, on the New York Stock Exchange and address the outstanding senior preferred stock. That's just one investment in the portfolio.

With a base of AUM of about $23 billion of fee-paying assets, an overnight increase of a successful outcome of Fannie and Freddie could be a 30% increase in our permanent fee-paying assets. We have -- we finished the year strong. We're up 20%. Our fee-paying assets grow by $4.6 billion. So our first priority is always going to be generating returns for our investors because, one, that's the business that we're in; two, that's how you make a lot of friends; three, that's how we compound the value of our assets; and four, that's how it makes it more likely that we can launch new vehicles in the future.

So yes, we love the kind of notion of launching new funds over time. But our first priority is going to be driving the performance of our underlying investments. What's interesting about Pershing Square Ventures where it's not overnight going to be a material addition to our fee-paying assets. Our plan is to start small we do think it actually is strategically very valuable to us. For among other reasons, one of the reasons why I got interested in venture 20-odd years ago is one, it's fun and interesting and it gives you optimistic about the future.

But for our core business, it tells you what's coming. The biggest risk of investing, particularly in the current technological advancement world is the risk of disruption. Well, where is disruption coming from? It's coming from the 19-year-old that dropped down to Stanford that's building a company in a garage, where you want to understand what's coming. So just spending time looking at what's coming is interesting, so that's useful to our business.

And two, really, it's probably the best time in American history in terms of identifying fast-growing, interesting disruptive companies, launching a vehicle, one of the biggest, I would say, complaints of the investor, the average investor today is while SpaceX is an amazing company and still has a great trajectory, their first chance to invest in SpaceX was at a $1.5 trillion valuation. I got to invest in SpaceX and [ X ] and [ X AI ] at much lower valuations.

We want to kind of that opportunity to the average person on the street, so to speak. And that's what we intend to do with Pershing Square Ventures. And we're going to seed it with investments, so people will know what they're investing in, and then we'll raise capital off of that base. We're limited in our ability to talk about that vehicle to basically what I've just described. But our plan is to -- you'll find it interesting. We'll talk more about it once we've actually in a position to file a document with the SEC.

We'll move to our next question from [ Matthew Heinerman ] with Citi.

Two questions. One was just 2Q was kind of an extraordinary period in the market in terms of lots of things being on sale. Just we know how the [ PSU ] portfolio is shaping up. I'm curious, have we not had quite the market volatility in some of the subsector declines we saw, how different the portfolio might be because it is certainly giving you some diversification benefits in terms of the intermediate-term performance. And related to that, just curious how maybe intense the competition for your capital deployment was over that period of time?

So look, I think if we -- one of the things I think I said on the roadshow, I said the ideal circumstance for us once we complete the IPO of [ PSUS ] is that we have enormous volatility in the market, and we're able to buy -- create this portfolio at an attractive valuation, and we were really served up with precisely that opportunity. It's much easier to buy stocks when they're going down than they're going up.

Now we're at [ PSUS ], we're 95% invested. We're not going to mind if the market goes up from here because we've deployed our capital. I would say in terms of competition, no one wanted to buy Microsoft or Meta or [ Alcon ] or Netflix or ICE, these were stocks that people still are valuing at certain discounts, although we -- same Visa, Mastercard. So some of these new positions that we put on as well as existing core holdings became available at really significant discounts beginning sort of around the time of the IPO. So it was kind of not something that we could control, but obviously very helpful to us.

And I would just add, Matthew, I think on your point about the competition for capital, really, the way we think about it, and we wrote this in the letter is that we've maintained this library of hundreds of companies that we think in our business standards, some of them we followed for more than a decade. A lot of them we followed for many years. And so we're always sort of making this calculation of price to value based upon following these companies, seeing what we think the potential returns are over a longer time period.

We actually wrote about for at least the investments that we hold, giving a little more insight as to how we think about that in terms of what these businesses could produce from their earnings, how we think about potentially the development of the changes and multiples that investors should assign if we're right in the future on those earnings -- and I think the point is broadly, we're sort of always looking at our portfolio and saying, we follow all these companies, what are the best opportunities at any individual time.

And to your question and your point, when the market is more volatile, that creates a much more interesting opportunity for us to find where investors have thrown out certain securities that we followed for a long period of time. And as a result, we think we can earn extraordinary returns that are generally, if we're fully invested, even better than the things that we own.

So for some of our vehicles where we've had more investments, we had to make this decision about taking things that we liked, where the returns were good or great and then deciding to sell some of them in order to fund even better opportunities. In PSUS., to Bill's point, we were very fortunate that we've raised $5 billion in a very volatile market. And because we had this library and because the market was giving us this opportunity through volatility, we didn't have that same dynamic of trying to sell or needing to sell a position we like to find something even better.

We were able to deploy capital into positions that were very attractively priced. We've seen a little bit of that attractiveness as the shares have rebounded really after the quarter ended to a large degree. We still think our opportunities are very attractive in what we own. And I would say there's -- that library continues to grow, and we continue to monitor it. So as the developments change in the future, to Bill's point in the opening remarks, there likely will be additional changes over time, but we feel very comfortable that if we just held this portfolio for the next 5 or even 10 years, we would get a very, very good result.

I guess the follow-up question to that is with respect to the investment-grade leverage that you'll eventually add to PSUS. I'm curious if from the outside, we should think about the timing of that being dictated in part by whether or not you see a period like we just had in 2Q or that, that is something that will be -- that would influence the size of the -- how much leverage you put on as opposed to the when you put leverage on.

Sure. So our timing for that is it's kind of full court press. We'd like to -- we like a capital structure for PSUS, which is basically 15% to 20% debt to total assets. We take a very conservative, typical -- I mean, typical hedge fund manager or some use leverage 8, 10, 12x. This is -- we're talking 0.15 to 0.2x. So very much an investment-grade unsecured bond approach to financing high-quality durable growth companies. It's kind of a component of our strategy. So we want to do it as promptly as practicable. We're beginning, I think, early September of kind of conversations, meetings with the rating agencies. We need to get the vehicle rated and then the plan would be to launch that offering. And actually, we -- if we had the incremental capital today, we have places to put it.

We'll take our next question from [ Dominic Gabriel ] with Loop Capital.

Congrats on the first earnings call. So I guess I just wanted to ask about the economic EPS and the fact that there's a pretty small equity risk premium, I believe, in the market today versus historically. And I'm just wondering how you guys think about a period of time where the equity risk premium is low like this and how you account for that in your kind of expectations for risk management in your investments? I just have a follow-up.

Sure. So the answer is we don't think about it very much in the sense that we're really not investing in sort of -- we're an index investor. We're trying to time deploying capital in one market index or another. We're thinking about the overall valuation of companies. Obviously, you want to be deploying capital when people are assigning real higher rates of return to equity than lower rates of return.

But what we're doing is day-to-day here is we're running a very concentrated portfolio. And within the construct of 500 companies in the S&P 500, you can find a handful that are extremely attractively priced where the market is assigning a very low value and offering you a very high rate of return for a very high-quality business. So really don't spend too much time thinking about the overall market metrics.

We spend a lot more time focused on one company at a time, the fundamentals of that business, what price we're paying, building a model, what that business looks like over time, kind of determining what our expectation of return is going to be. And we think about overall levels of speculation in markets. We think about that in the context of hedging. Maybe, Ryan, do you want to add to that?

Yes. I think it's a very interesting question on the equity risk premium. One of the things that we thought about conceptually is when you compare sort of the bond yield to the implied earnings yield and you kind of capture that spread to see what the equity risk premium is, one thing that calculation misses is that equities, unlike bonds, have a growth profile attached to them.

I think we're in a very interesting world right now at a high level where the reason why the treasury yields are up significantly, particularly longer on the curve, although on the short end of the curve as well, is because there is an expectation that AI investments are creating stronger growth. One of the challenges that is missed by looking at the equity risk premium in a vacuum and ignoring that growth is we think that the earnings profile for businesses over at least the near term in aggregate is much higher.

So if you look at consensus expectations for earnings per share growth, they have risen significantly since the beginning of this year, and a lot of that reflects that equity build-out. So to the extent that those estimates are correct, you could argue that you would be willing to accept a smaller-than-usual equity risk premium because the growth in that earnings yield is going to more than compensate for that. So I think that's just kind of one concept that sometimes people maybe don't think through to as kind of logical implication.

To Bill's point, though, while we think about the broader market backdrop conceptually, we're very focused on selecting individual securities. When we look at our portfolio, we actually put this in a table in the letter, we compare our earnings yield, if you will, or the inverse of the multiple relative to the market, where we compare more favorably. So when we look at our portfolio, we have a higher earnings yield than what the market is giving. And more importantly, though, we're getting nearly double the level of earnings per share growth.

So I would say at the high-level concept, I think our portfolio is significantly outperforming what the market would look like. So for example, our earnings yield being higher relative to kind of that bond yield, if you will, through equity risk premium and then the growth of our companies being significantly in excess of what the average company is going to be giving on a multiyear basis makes us feel really good that not just perhaps that the market has a reasonable chance of doing well from here, but more importantly, that the individual kind of 12 to 15 securities that we hold at any one time have a very good chance of doing significantly better than that.

Another way to ask yourself the question, would you rather -- the tenure we're at 5% today. And our portfolio is sort of an average PE of 20% or sort of a 5% earnings yield, which would you rather own a 5% fixed coupon paid over the next 10 years or a 5% earnings yield on businesses that are compounding their earnings mid- to high teens into the 20s. I just think it's -- so on that calculation, I'm all in on owning the equities versus the fixed income securities. Thank you for your question.

Yes, I can't agree more. And maybe just as a follow-up, just -- I was going to ask something else, but sticking with this topic, I guess, when you look at -- because I know the table you're talking about with the excess growth and it makes a ton of sense.

I guess when you're thinking about -- you're using the S&P of like 20.1x as like the benchmark, but then you did talk about in the letter how a very small amount of the companies in the S&P are actually creating some of that growth versus a lot really aren't. And so I was just curious of why you focus on the stated S&P multiple versus the equal weight, which might be maybe -- I don't know, maybe that's a little closer to like your actual portfolio of companies versus those like 2%, 3% that 8% that you mentioned in the note.

Yes. It's a great question. So maybe if I could just clarify a little bit. The point of notes we talked about a very small percentage of the companies, we're talking about how much of the current year-to-date gains as of 6/30 that those companies were representing. Interestingly, though, if you look at the S&P more broadly, and we actually like to look at all the individual companies to make these estimates rather than looking at just the overall market or the weighted -- excuse me, equal weighted.

But interestingly, the earnings growth is very strong and much stronger than it is historically, even for a lot of companies that sit outside those very select few that are driving the growth of the overall index in terms of price performance. And so whether you look at the equal weight, you look at kind of the median of all the S&P 500 companies or the index average, you see a consistent story where earnings growth is broadening out and accelerating beyond levels that you've historically seen, particularly if you look at the next year to 2 years.

And so I think that kind of furthers the point that while investors are very focused on a small subset of companies, which has created a really great opportunity for us to deploy capital recently, there is a broader trend where economic growth appears to be driving the earnings per share of many, many businesses. And I would say, to levels that seem to be in excess of what they've historically been. And to the extent that those estimates prove accurate, that should generally be something that would justify a higher multiple on the overall index for companies in general.

Our next question comes from [ Ryan ] with Wells Fargo.

I was wondering if we could go back to venture and understanding that you are limited in what you can say. But to us, this kind of looks similar to some [ Robinhood ] funds that have done quite well this year and one that just priced. Is this something more of a late-stage growth equity to it in what you're contemplating for venture? And if the holdings are going to be pre-IPO, what would you plan for after a given company in the portfolio goes public?

Sure. So it's going to be actually a reasonably broad spectrum of companies in the several hundred million market cap or valuation range to in the multi-$10 billion -- $10 billion [ decahorn ] kind of range. So companies that are on the brink of going public, as well as businesses that are kind of at an earlier stage. So it's going to be a mix as opposed to just really early stage or very late stage. And the beauty of the vehicle, and if you think about venture capital today, number one, funds are -- require very long-dated lockups.

The fees are substantial, 20 to 30. And frankly, you can't get into them even if you're -- the best venture funds are really sort of oversubscribed forever. So they're inaccessible to kind of the general public. What we're doing is -- now the issue with venture funds generally is the vast majority of venture funds once the company goes public, they sort of have an obligation either to sell down or distribute the securities to their investor base to kind of return the capital.

We view this as a permanent capital vehicle. We want to help companies kind of the full life cycle of their development. So we help them as they're private, we help them go public, and then we can retain the option of continuing to own the businesses for the very long term. So this is one of the things we can offer a private enterprise is we can help them navigate the challenges associated with going from being a private company to a public company, and we can continue to be an important shareholder of that business over time.

So the idea is for this to be a vehicle that will compound with the underlying holdings. We'll have the flexibility. We believe because of the scarcity of this opportunity to the public markets because investors won't be able to replicate any of these positions directly themselves. We expect it will trade well, and that will give us flexibility in terms of once the capital is deployed to issue new equity to make new investments.

So it's -- we think it's a pretty interesting vehicle. And I think we have kind of a unique proposition to offer in sort of a competitive world. And people frankly want us on the cap table. Their venture investors bring real value. We're sort of a crossover investor, so to speak, and we have a lot of experience, obviously, in the public markets. And we can commit to them to be a long-term shareholder, which is something that the vast majority of venture funds can't do because of the mandate. And those are sort of the differentiating elements that we hope to achieve.

Okay. As a follow-up, you mentioned expectation of good trading value. For your other funds that were contemplated at the time of the IPO, now that we see where PSUS is trading on NAV, how has that factored into the equation of what may happen when on the longer-term asymmetric crossover opportunistic?

Sure. So number one, we think the trading of PSUS is frankly absurd, and we're going to take some steps to fix that. And I think it largely relates to sort of how the company came public. We might have made some mistakes in terms of how we allocated. We -- again, we've taken a very sort of -- our approach here is kind of democratization of finance. We gave retail a full allocation and we cut institutions back substantially.

We thought we were doing solid for retail. And my sense is people put in for more stock than they expected to receive, and that led to a kind of a crazy opening. And then there have only been sources of supply, and we haven't done a good job in creating demand for the vehicle. So a very high priority for us. And by the way, on relatively low volume, the stock has kind of traded poorly. And that's because I think there are -- the marginal seller, but there really has not been the marginal buyers.

The next tick to be always down. NAV is approximately $50 in the stock, I haven't checked today, but high 30s. We think that's a solvable problem. There are no restrictions on marketing PSUS. We're going to get much more forward leaning. We've got a whole plan. We'll be meeting a great security for financial advisers, particularly after the IPO. And financial advisers don't love buying -- problem with the closed-end fund and an IPO is they have to take capital away from their client on which they're earning a sort of a management fee.

The beauty of buying shares in the secondary market that doesn't apply and now they can invest at $0.80 on the dollar. And there's a big push in the kind of FA universe for their clients to have more exposure to alternatives. Now most alternatives come with high fees, giving up significant liquidity. And here, we have the lowest cost hedge fund in the world in a liquid New York Stock Exchange format and it happens to become available now at a 20% discount to its liquid underlying asset base.

We need to tell that story a lot better, and that's sort of number one. With respect to new vehicles we intend to launch, our plan is for them to be sufficiently differentiated a bit like Pershing Square Ventures that people won't be able to create the portfolio themselves. And I think that's an important dynamic in terms of where something will and should trade over time. Think about a crossover vehicle, which is a mix of private pre-IPO type companies as well as some public securities for Pershing Square asymmetric.

We're investing in instruments where a public market investor can't recreate the instruments and also, frankly, won't be able to -- there are no filing requirements for these kinds of positioning. So it's not something they can sort of say, "Oh, I can replicate at the next day by myself. I think there's a little bit of a marketing argument, oh, Bill, we can just replicate your portfolio by just buying the securities once we know that you purchased them, we did that analysis a couple of times. We'll update it more recently."

But we don't -- we didn't tell people we were buying Microsoft. And by the time they became aware, the price they had to pay was materially higher. And the fee structures here are low enough that, yes, people feel free to replicate our portfolio. But historically, we've done a lot better buying our -- investing with us than trying to copy our portfolio on the day that we're required to make a disclosure about a holding.

So we're not happy with the trading at PSUS. We've been taking significant steps to address it. We don't think it affects our ability to launch future vehicles, particularly ones where we're like Purasequare Ventures, we're launching something that the public markets can't create on their own. But that doesn't make us feel good about where the SUS trades, and we think that's a sol.

We'll take our next question from Dan Fannon with Jefferies.

So maybe just following up on that, if you could maybe get a bit more specific in terms of what your plans are? Is it just getting in front of advisers more marketing PSUS a little bit more? Is there a brand campaign? Or I guess, anything more, I guess, that formulaic or things that you have planned out to kind of boost the recognition of that product?

Yes. I think it's a very comprehensive approach, which could include any and all of the things that you -- we -- the one public vehicle we've had historically, we've had all kinds of regulatory and other restrictions on marketing. We can't talk about it on CNBC. We can't talk about it in the U.S. We can't sponsor a podcast. We can't be very forward leaning. We can't really talk about it at all, whereas that none of those rules apply to PSUS.

We can be quite forward-leaning in telling the story of that entity and a very compelling one. We mentioned that it was an ideal environment to take PSUS public in terms of the ability to deploy capital in a volatile market, not the ideal environment to remind to launch something new that no one's ever heard of before. And so we really need to get the word out about the existence of this entity. We're going to make a real effort and the team is going to make a real effort. I'm going to make a real effort.

Understood. Okay. And then as just a follow-up, I mean, historically, you have had hedges across your portfolio that have created a lot of value. Obviously, you've been making -- you're quite bullish on the investments you have. But is there anything from a tail risk perspective that the portfolio is looking out for that you have in place to kind of as a broader hedge currently?

Yes. So thanks for the question, Dan. As we talked about in the letter, the asymmetric hedging strategy in terms of actually having on hedges is sort of by the construct going to be episodic because we are really trying to look out for and then hedge when it's economically feasible, what we kind of would call the [ black swan ] risk, the real market moving sort of paradigm-shifting type things that occur pretty infrequently, but when they do, they're very big.

So I would not expect to have hedges on most of the time or all of the time. Now don't let that to say that it doesn't mean that we are not doing the work. We spend several hours a day. We have a team inside of Pershing Square that includes Bill and myself, thinking about what could be potential [ black swan ] risks, doing the work, looking at the variety of hedges that we have in place.

We talked about -- we think there are several dozen instruments that we periodically refresh on a very consistent basis to look at and compare to the economic and other risks that we see. We do not have anything on at the moment. That said, there are a few risks that we are watching. And to the extent that our work further develops, we'll become more concerned about those risks and then we find it economically attractive to create a hedge that would help mitigate that risk, then we absolutely would do something.

But as of the moment, we're doing the work, but we don't think that there is anything on the horizon where we think that an asymmetric hedge would really fulfill the requirements we have. And just to remind you, when we're putting on these hedges, we are looking to make a minimum of 5x, 10x our money. But where we've done very well in the past has been when these hedges are returning 20, 50, 100x. And moments like that are relatively infrequent. But we're certainly doing the work and our hope and expectation is that we'll continue to have that work ultimately lead to something when it is appropriate and timely for there to be a hedge in place.

Yes. Just for clarity, what we're not trying to hedge is like a short-term technical 10% decline in the market next month, right? It's a fundamental factor, COVID, the Fed having to massive inflation popping up that Fed has to hedge financial crisis type development. Beyond that, in the time that we spend looking at interesting macro stuff, occasionally, less groundbreaking, less black swan type things occur where we just see an anomaly. We have a view that oil prices will go up, oil prices should go down, 30 years mispriced, things like this. And occasionally, we can find interesting asymmetric payoff structure or something like that. But as of this moment, we don't have anything.

[Operator Instructions]. We'll take our next question from [ Kenneth Lee ] with RBC Capital Markets.

Any updated outlook around capital returns and more specifically dividends over the near term?

Sure. So our dividend policy is to return substantially all of the kind of free cash flow that we generate on a quarterly basis to our shareholders. The beauty of our business is it really is no CapEx of any consequence in the business. The only capital we require in the business of consequence is when we launch a new fund.

So for example, we took PSUS public. The management company invested $200 million. Why? Because we think it's important to have skin in the game. And two, it gives us the opportunity to participate -- eat our own cooking and participate in the success of new funds that we launch. Kind of long-term plan for those stakes is to finance them with investment-grade debt in the same way we're going to use long-term investment-grade financing at PSUS.

Our plan is to replace our existing credit facility with a kind of a long-term bond and we'll use those proceeds. You could sort of match up to some extent, our debt against some of our balance sheet assets. Today, we have 9 million shares of Howard Hughes. We've got 4 million shares of PSUS. We've got actually $50 million of PSUS. Preferred, and we've got about $230 million of our credit facility that's drawn. That's my call.

Yes. But I would say the goal as Bill was talking about is our distributable earnings, which we view as a proxy for free cash flow are available to capital return. Given kind of the current market dynamics and the supply and demand of the PSI shares, I think the dividend distribution is the most likely thing that investors should be expecting for the foreseeable -- so we always plan to be opportunistic based upon any sort of changing.

For sure. So actually, the point I was trying to make was what enables us to distribute our free cash flow is these big capital commitments that come with a new fund launch, we expect we'll be able to finance in the credit markets as opposed to using -- have a buildup cash on the balance sheet in order to fulfill them. So the flow to the company is sufficiently small that buying back shares at this point is not that practical. But we certainly understand the economics of buybacks and wouldn't be shy about doing so if we felt it was our best use of capital and it didn't impair the trading of the security. At this point, we think we need to be helpful for the market to have a greater flow.

For our next question, we'll return to [ Matthew Heiderman ] with Citi.

Just I enjoyed hearing Mark's voice on the Howard Hughes call earlier this month. I'm curious on 2 things related to that strategic holding. One is how should we think about the resources Mark and David will have at their disposal to address or even accelerate the opportunity set for Vantage? And then secondly, I guess, what is your advice going to be to that company in terms of disclosure changes to better track Vantage since it will be the primary engine of the transformation at Howard Hughes?

Sure. Important question. Glad you asked it. And so one, we could not be more pleased to have recruited [ Mark ] first to the Board and then to take on the Executive Chair role Vantage, which is Howard Hughes insurance subsidiary and then the opportunity to recruit [ David Gansberg ] to be CEO and really have, argue the dream team. We also brought in [ Lucy Fato ], who is the former Vice Chair of [ AIG ], General Counsel. I mean it's a bit like bringing in Michael Jordan and company to run a high school basketball team in some sense in terms of the scale of the -- in terms of what they were used to. They were playing at Madison Square Garden and now a little small playing field.

So obviously, when you have a team like that, you want to put capital behind them. So the highest priority of Howard Hughes today is a focus on the monetization of -- for those who are less familiar with the story, Howard Hughes kind of began its life as a real estate operating company. the nature of the business is it has actually important self-liquidating components.

We sell $400 million, $500 million of lots to homebuilders each year. We have approaching $4 billion of condominiums under contract to be sold over the next several years. And the company generates approaching $300 million of net operating income from its real estate assets. But the market clearly looks at the company today as a real estate company. And the best evidence of that is the stock went from $89 in the beginning of the year to the mid-60s basically on rates rising.

And because people think rates going up, it is bad for real estate, particularly a company that owns a lot of land and selling to homebuilders. Well, the reality is rates rising have had no negative effect on Howard Hughes. And if anything, the company has put up consistent quarters. But the market is not interested in a real estate development company.

Our business plan here is to convert Howard Hughes, transform it into a modern day Berkshire Hathaway and the path to getting there is deploying more capital in insurance. Now that we have the team, we have the asset in terms of Vantage, we begin with a very good insurance platform. We've got a great team that we've brought in to run the company, and now we're going to get them more capital, and we're exploring transactions that would enable an acceleration of capital into the insurance from the real estate subsidiary.

A big focus for us for obvious reasons. Now let me give the perspective from Pershing Square Inc. to remind, we have, call it, $4.9 billion of -- what's the market cap, maybe $4 billion of market value or fee-paying assets Hughes. But the way that arrangement works is we get paid basically 35 basis points or $15 million on the current market cap and 1.5% on the market cap we create in excess of this $66 kind of base.

So if we're correct that we can transform Howard Hughes into a company that people want to own, the stock should fairly quickly rerate to its kind of current intrinsic value, kind of the liquidation value of its real estate assets, which we put north of $100 a share and then compound with the compounding of our insurance company. As that happens, what is today a $15 million fee stream very quickly becomes a very, very important contributor.

So obviously, a big focus on getting the team in place, big focus on getting capital invested and mature. And then the last point is how do we give the market information so they can understand what's being accomplished. And you should expect the same way we've taken an approach at Pershing Square to give you the information we would want to understand the Pershing Square story.

We're going to do the same thing at Howard Hughes so that insurance investors are used to investing in insurance companies are getting the kind of disclosures they need in order to understand the progress there. And what's interesting about Vantage, the Howard Hughes subsidiary is we think we have one of the best teams in the world to manage the liability side of the balance sheet, and we're going to -- we have been managing the asset side of the balance sheet for Vantage at no cost.

So that combined capability and lack of fees, we think, enables Vantage to earn a very high return on equity. So to the extent we can put more capital into that business, we can grow that capital more quickly. We think the market will assign a very nice value to those earnings.

And if I could add, Matthew, in terms of sort of helping the market better understand kind of the Vantage story with disclosure, last quarter, we created a supplement that we talked about on Howard Hughes' first quarter earnings call, where effectively we, working with the company, help lay out a sum of the parts analysis.

And the way that we actually think about the value drivers of the business, pretty similar to how we laid out in the letter, how we think about the value drivers of Pershing Square, Inc. we wanted investors to better understand the component parts, particularly as we're going through this transformation from what has historically been a very high-quality real estate business and what is in the future going to increasingly become an insurance-led operation under Mark and David's leadership with the investments acting on Pershing Square.

And we sort of talked about how, to Bill's point, we believe looking at the sum of the parts starting out with Vantage at a relatively small size, today that we think the intrinsic value is north of $100. And we sort of laid out a plan where by allocating kind of the $2.5 billion to $3 billion of free cash flow we expect the business to generate over the next 3 to 5 years, we think with that capital primarily going towards Vantage, how we could build up to a sum of the parts if the business is able to earn kind of a high teens or 20% return on equity, where Howard Hughes intrinsic value by the end of 2030 could be something north of $200 per share, sort of highlights the way that we think about the business.

What we've been doing on a quarterly basis, and we did last quarter since that was the first quarter in which we had owned Vantage, even though we only owned it at Howard Hughes, for about a month of the quarter was we laid out a supplement so that you really have the same information for Vantage as if you were looking at any other publicly traded insurer. And I think increasingly, we're going to be providing more of that disclosure so people understand the materiality of the insurance business as we build it to Vantage.

At the same time, we're going to be providing periodic updates, perhaps maybe on an annual basis, tracking how we think about the increasing evolution of Howard Hughes' business model and what that means for a sum of the parts analysis for investors. As Bill mentioned, the standard is we want to give the investment community, we want to give the analysts and other shareholders the ability to see things the way that we see them if our worlds and roles were reversed.

And so we're going to be providing kind of frequent disclosure about how we think about the intrinsic value of Howard Hughes. But as Bill mentioned and as we talked about even last quarter publicly, we think that the intrinsic value for the business over time for Howard Hughes could be many multiples of the current share price and Vantage is going to be an increasingly important consideration of that.

I think for people who want to get into the story early, this is sort of your moment. The shareholder base has been historically a dedicated real estate shareholder base. I think they've largely been selling because they're not insurance analysts. And the insurance story is still obviously only a couple of months old. market has really only been in the for a few weeks. So super early, but a great insurance platform, very strong team and existing platform and Vantage. And the Howard Hughes real estate team is best-in-class.

One of the things that we're looking at there, how do we make Howard Hughes real estate a much more asset-light business, make it look a little bit more like Herging Square Inc. We have a team with incredible talent. We have amazing assets. And there are investors who like to invest in these kind of assets with very talented teams. So we're really starting to look very closely at how can we take the billions of dollars of equity value that's in real estate and port it over to the insurance operations. So that's an important priority for us.

We'll take our next question from [ Edmund ] with [ Armada Capital ].

So I have, I guess, 4 questions. One of them is more a demand rather than a question. The first one is, how should the general public think about the difference between Pershing Square U.S. and Pershing Square Holdings. I think the leverage levels are different, the discount to NAV is different. And I believe there's a tax issue for U.S. shareholders. But I guess the question is, what makes them comparable? So regarding that is what makes the vehicles comparable? And then how should an investor decide on which one to buy or if there's any material difference, I don't know what do you guys think about that?

Regarding your letter -- so the second question is regarding the letter. You told us that on the library, the way you assess the expected IRR, I guess, is by having a terminal PE ratio or a terminal earnings ratio for each given position. Can you give us some color on how do you decide the fair ratio for each company? So how does a 30x [ P/E ] ratio company looks like versus a 20x? I don't know if that makes the question clear.

The third one is, I guess, there's a lot of questions regarding the return on invested capital regarding the AI super cycle or the AI investment super cycle. So I don't know how are you guys thinking about this? I'm particularly concerned about the sustained levels of maintenance CapEx for the, I don't know, hyperscalers, if you will. I don't know how you think about your positions in particular. So how do you think about when does the initial investment and high investment cycle ends? And then how does the normalized CapEx to sales ratio looks like? I don't know if you have some color over that.

And the last one, at demand, Ryan, I'm afraid to inform you that you are no longer a private person by being the CIO of the [indiscernible] firm. So when can we expect your first long-form interview? I think it's going to be very, very useful for shareholders to get to know you. I think you have a great story to tell. And then I'm quite sure if there's more than one bright interviewer willing to task. Thank you guys.

So thank you for 4 excellent questions. So Ryan's long-form interview. We're going to work on scheduling right away because I think it's an excellent idea. We should put them on the podcast circuit. Why don't we do this in reverse order. Ryan, why don't you take the hyperscale ROIC question?

Sure. And I think it's a really great and timely question. What's been very fascinating, and I'll talk more specifically about some of our holdings, although I think this applies to more broadly, but in particular, I would say, Amazon, Microsoft and while we sold it recently in some of the funds that we manage, we've had a multiyear holding period in Google as well.

What's been fascinating is these companies have operated these cloud businesses that have grown at very high rates before the AI super cycle really kicked off starting maybe a couple of years ago, and they really operate in an oligopoly. And what's important, though, is they are the nexus point for the security for the inner workings of many enterprises where they are mission-critical systems that they provide.

And what's happened with AI is now you have the additional -- and we think AI is going to be a very transformational technology, both at the enterprise level and at the consumer level and a lot of other ways increasingly as you get things like robotics, but there is a huge demand for more of these data centers and a lot of the services that the data centers provide.

One of the challenges, we think, from an investment perspective is the companies themselves because they have these deep relationships with customers and increasingly have had a pretty close relationship with a lot of the frontier model companies who are taking up a lot of the compute usage in the data centers, they have seen that there are really good lines of sight into returns on their CapEx. And so they've been spending ahead of that because they believe these are very good returns on capital.

Problem is that they have not, until very recently, really on a few weeks ago on some of their earnings calls, given investors a lot of clarity as to the returns that they expect from that capital expenditures. And so from a public markets perspective, what a lot of people have observed and candidly based upon most of the share price performance this year have not liked is that the hyperscalers are taking what was a relatively thought to be capital-light business model, investing a huge amount of growth, which has made it a much more capital-intensive business model.

And that was not showing up in any of the near-term metrics such as revenues or earnings per share that you would expect if there were good returns on capital here. Now the problem, and I think Andy Jaffe put this best on Amazon's call, but Satya and some others also talked about it at Microsoft's call, is there's a gap in terms of timing. There is a lot of line of sight to the ultimate demand when Amazon or Microsoft or anybody else spends $1 of growth CapEx in their cloud business as to what those numbers will look like.

But first, you have to build incremental data centers. And they talked about it, that could be a 2- to 3-year time period where you would not be able to get any revenue from your customer until the data center is operating. Then after you get that data center up, it may take 6 months to get the GPUs or other computing equipment you need set up, and that would take an additional 6 months.

And so the challenge is from when you start building a data center to meet this enormous level of growth, there could be a 2.5- to 3-year period before you're recognizing revenue. And so what we expect and we think what we've seen is huge levels of CapEx, which are continuing to grow because these companies think they're good opportunities. No near-term earnings uplift from that. And we think investors until recently were incorrectly believing that, that meant that these were bad investments.

The way we look at it, and I think we wrote about this in the letter, is similar to how we look at all businesses, we really try to think about how these businesses are going to develop over a multiyear, sometimes multi-decade period of time, and we really build on our expectations that way. And so the way that we're effectively thinking about the hyperscalers, investors will start to see the returns in a couple of years as the actual customers come into these data centers.

The good news is the companies have an incredible line of sight, but they feel very confident in noncancelable multiyear contracts to generate those returns. And the way we think that's going to flow through to your questions about CapEx to sales ratios, about margins and things is effectively analyst estimates for these companies earning several years out are going to go much, much higher. We think there's going to be much higher revenue growth as the returns start to layer in from the incremental revenue they generate.

There are a lot of fixed costs to get these data centers up. And therefore, when you get the revenue, margins should expand. And ultimately, the increasing levels of revenue, a flatlining or even a decline in 2 to 3 years of CapEx means the CapEx to sales ratio is going to go down. I thought Angie Jasi described this as best and he said this is the single best kind of generational opportunity they had at very, very high rates of return. And if that's correct, a lot of the estimates that even we have on how these businesses will perform, I think, is going to be incredibly conservative.

Yes. Maybe sometimes the best way to understand something is by analogy. It's a bit like -- imagine you had an apartment developer, and they own a whole bunch of apartments and the apartments were in, I don't know, Phoenix. And then some massive company opened in Phoenix, and they brought 100,000 new workers in and they were short of 100,000 apartments.

The builder said, "Oh my God, this is an incredible opportunity." And he goes and builds 100,000 apartment units. The result is he's got to spend a huge amount of upfront money, but it's going to take a couple of years, probably 2 to 3 before the first renter is going to move into those units and start generating cash flow. If you don't have confidence in the developer, then you don't want to invest in his company.

But if you have confidence that the demand is real and they're good at building apartments and the cash flows are going to be there, you get excited when he says, "Oh my God, there's an incredible opportunity. And by the way, when you have that much demand coming in at one moment, your ability to drive price is very different than in the ordinary course. I think that's really the best analogy, my version of analogy for what's going on with the hyperscalers.

On terminal PE, obviously, a very important question, depending on the nature of the business and the kind of entry price, that can be a huge factor in ultimately what the business is worth. But maybe, Ryan, how do we build such a model? How do we think about that?

Sure. So I think the way that we think about terminal multiples is ultimately reflecting 2 factors, risk and growth. And so one of the principles that we have for anything in order to increase the likelihood that we're right and effectively make sure the terminal multiple doesn't go against us, if you will, is we want to reduce the risk factor.

So we are looking for businesses that are simple, predictable free cash flow generative businesses, strong competitive positions, very strong management teams or ones where we can upgrade the management team to be strong and good capital reinvestment value creation, very shareholder-friendly -- if we get that right, ultimately, we think that the risk element of sort of the terminal PE is something that is going to be in our favor.

And therefore, businesses that are more predictable businesses that have less levels of competitive risk and businesses that are run better operationally, less levels of risk should all else equal for a given level of growth, trade at a higher multiple than other one.

The second aspect of that, though, is the growth rate longer term of the business and ultimately, the per share growth rate of the economic earnings of the business over time. And so we try to think about that based upon the secular growth drivers, the competency of management, the productive use of reinvestment, and that really gives us a characteristic.

Now I think to Bill's point, and importantly, the way we think about it, and we wrote this in the letter is that is an inherently imprecise exercise. And so while we try to use the factors of risk, we try to use the growth, we try to actually look historically at what companies have traded at and think about why they traded there.

We look at the broader multiples such as we wrote about the stock market multiple relative to growth, help give us a better insight as to the range of potential outcomes because we don't ever look at just one scenario. We're always thinking about valuation of businesses for a range of potential developments and a range of potential outcomes. And that really gives us a perspective as to how to think qualitatively about what a multiple could be.

The most important point, though, and we wrote about this in the letter, is we want to own businesses where we make the majority of our money because of the underlying earnings and the growth of those underlying earnings that the businesses generate rather than trying to bet on how much multiple expansion that we'll be getting in order to achieve the levels of return that we're looking for, we talked about generally 20% plus type levels of return over a multiyear period during which we hold.

And the reason for that is the more that we're betting on earnings growth and the higher that rate of earnings growth, the less getting precisely the right multiple that we put on the business matters to generating very high levels of investment returns. the same time, it means that we can hold businesses for a longer period of time while generating those high returns.

And so while we think a lot about term rental multiples conceptually, and we certainly try to do our best to evaluate them, we really want to be focusing on being correct on the earnings growth because that can be the primary driver of ultimately the business performance, and that becomes even more so as we wrote about the longer that you hold the business.

Okay. And your last question on PSUS versus PSH. The answer is they have different attributes depending upon where you're domiciled. If you're a U.S. person today, the tax characteristics of PSH make it really not a security that you want to own. U.S. investors is considered a passive foreign investment company and U.S. investors have to experience or include the gains when we sell a security at PSH in their tax return even if they have not experienced the return on that gain.

If you were to buy it today, you step into our basis and our existing holdings. For offshore investors, PSH is a more tax-efficient entity. And so that's a positive. It trades at a wider discount to NAV than PSUS, which is a positive. It charges an incentive fee, which on the margin is a negative, and it has a slightly lower management fee is a positive. So it's got -- and it has very attractive low-cost financial leverage.

We got about something like 18% debt to total assets with leverage with an average cost of something less than 4%. So it's got very attractive financing at PSH. But again, for a U.S. investor, it's really not your thing. PSUS has lower fees with no incentive fee. It's in the U.S. markets. Today does not have any leverage. We do intend to market conditions depending, add something approaching 20% debt to total assets, which will allow us to have a similar kind of capital structure with more flexibility in terms of marketing that vehicle to investors.

So you sort of have to do your own analysis, trades at a lower discount. And then you have to make some assumptions about our ability to cause those discounts to narrow over time. I think they'll both do very well over time, but you should talk to your tax adviser and before you make a decision.

Those are 4 excellent questions. Let's say, almost out of time. Let's take this last question because we have one more investor will like to accommodate, and we'll go to the spaces.

We'll take our next question from [ Ron Raskvick ] with Ras Holdings.

Would you clarify the current status of [ Spark ], what your plans are? And how does [ Spark ] and your plans relate to the other opportunities to invest in your publicly traded vehicles?

Sure. So [ Spark ] is a special purpose acquisition rights company. It's -- think of it as an acquisition company without the negative attributes of a [ Spark ]. There's no founder stock, there are no shareholder warrants, no underwriting fees. It's a very, very efficient way for a company to go public. We basically -- Pershing Square backstops the vehicle so that we can guarantee to a private company that they can go public at a fixed price per share regardless of market conditions and they'll raise a minimum amount of capital, the capital that we commit to the offering.

So we think it's a very appealing structure. We have regular conversations with potential private companies that are considering going public. In order for us to do a transaction, it has to be a business that meets our standards for quality and growth and valuation. We have not yet made that deal. But we are seeing actually significantly more deal flow, I would say, recently in that regard.

So it is -- the economics of [ Spark ] are entirely owned by the Pershing Square funds. So if we do a transaction, it will be an opportunity for us to deploy capital in a private company going public, you should expect at an attractive valuation. And we get some incremental economics in the form of -- we have these sort of sponsor warrants or [ Spark ] warrants that give the Pershing Square funds up to 5% of the warrants on up to 5% of the target company, up 20% from the -- effectively the price at which we take the company public.

So think of it as a vehicle that we can use to take a large private company public where the economics of that will flow through to our investors. And then ultimately, to Pershing Square Inc., we do a great deal and take a company public of significance. We invest a couple of billion dollars of capital and we earn a bunch of warrants that are valuable. It will contribute to our returns, our growth in AUM and thereby contribute to the fee stream that we earn at Pershing Square Inc.

With that, I'm going to end the call and thank everyone, and we're going to head over for those of you who have time, it will be recorded, so you can -- there will be a playback. But if you go to my Twitter handle, you'll find a link to the spaces that we're going to launch very shortly. Thank you all for joining our first call.

This concludes today's call. Thank you again for your participation. You may now disconnect, and have a great day.

Hello, and welcome to the Third Quarter 2025 Investor Call for Pershing Square. Today's call is being recorded. It is now my pleasure to turn the call over to your host, Bill Ackman, CEO and Portfolio Manager.

Thank you, operator. So welcome to the third quarter conference call. We've had a strong year-to-date, certainly through Q3 and even up to the present, north of a 20% return and nicely in excess of the S&P for the year. But despite overall strong performance, we don't get them all perfectly right. So I thought we'd start the call just focusing on a couple of investments that have not performed well this year. And why don't I turn it over to Anthony to talk -- let's talk about Chipotle. Let's start there.

Thanks, Bill. So we actually sold our remaining shares in Chipotle this year following the company's third quarter earnings report. This concluded an investment in the company that was over 9 years old. So a very disappointing conclusion to what had long been a very successful investment for us. The stock IRR from our inception to exit was just under 16% versus just over 15% for the S&P 500. But fortunately, we have previously sold 85% of our initial 10% stake in the company at various times over our 9-plus year holding period. That resulted in a realized IRR on the position of just under 22% and $2.4 billion in cumulative profits.

So the big question is, obviously, why did we decide to sell the rest of it this year after a stock decline of nearly 50%. So just to give you kind of some context for our thinking, from the first full quarter that Brian Niccol was CEO of Chipotle, that was the second quarter of 2018 through the end of 2024, quarterly same-store sales averaged 9% and no quarter outside of one quarter that was impacted by COVID was below 3%. And if you look under the prior management team, in the 10 years prior to the 2015 food safety scandal that predated our investment, same-store sales also averaged 9%.

So as the company started to report weak quarterly same-store sales this year, we believed based on the various sales-driving initiatives they had in the pipeline and also the remarkable long-term historical performance since the company went public, that trends would eventually improve. And unfortunately, underlying trends progressively worsened throughout this year including another step down during the current fourth quarter that was disclosed on the Q3 call.

We do believe that macroeconomic weakness amongst low- to middle-income consumers and younger consumers is the primary cause of this same-store sales slowdown as evidenced by similar trends that peers are experiencing. But we don't know how long this weakness is going to last. We don't know if it's going to worsen before it gets better. And it's pretty clear that Chipotle and competitor management teams don't know either. They're doing the right thing by reinvesting in the customer value proposition by not taking price despite mid-single-digit food cost inflation, and they're, therefore, accepting kind of lower near-term margins. But we don't know if this will be sufficient, and there might be more kind of to come there.

Year-to-date, of the kind of nearly 50% stock decline, forward earnings are only down 8%. Now that's not good, right, because they're supposed to actually grow. But forward earnings are down 8%, but the PE multiple is down 44%. So the vast majority of the year-to-date stock decline is due to multiple compression. While the current valuation of about 25, 26x forward consensus earnings is cheap if the company can quickly get back to achieving its long-term growth goals, we just didn't have enough confidence to underwrite this at this time.

So the business has a high degree of operating leverage. So it's possible that if sales weakness persists for however long it persists, that consensus margin levels will be below even current levels. And this investment now has a much wider range and dispersion of potential outcomes around the company's near- and medium-term earnings power. That's just much wider than we had foreseen at the beginning of the year and frankly, at any time since we own our investment in Chipotle. And this made it a lot more difficult to continue holding the investment despite the fact that the company is now trading at one of its lowest multiples ever.

And there's a new CEO running the company since Brian left for Starbucks in August. He's a talented operator, but he's certainly off to a rocky start as a first-time CEO. And in light of this, a return to the company's historical premium valuation multiple is uncertain. We do have tremendous respect for Chipotle, and we wish the company all the best as it navigates what's proven to be quite a challenging environment for them and for the industry.

Yes, we wish the company well. We think highly of Scott. We think he's a very good leader. He did a great job running COO of the company for a long period of time. So we wouldn't bet against Chipotle. And maybe someday, we have an opportunity to become a shareholder again.

Totally agree.

So on the topic of less than successful investments this year, let's talk about Nike and maybe feel free to jump in as well, Manning, if you'd like. But Anthony, go ahead.

Sure. So we also exited our investment in Nike Options earlier this month. Unlike Chipotle, Nike was an unsuccessful investment for us. So much shorter holding period. We first invested in the company this time around in June -- or sorry, in the spring of 2024. The cumulative return on Nike since we first invested was negative 30% versus the S&P, which is up 33% and the cumulative P&L was over negative $600 million.

So the big mistake here was the initial underwriting. So as we've previously communicated, we underestimated the degree of near-term revenue declines and operating deleverage, aka margin declines that would be necessary to effectuate a turnaround here. So the prior CEO had lost the organizational focus on sport. They overemphasized direct-to-consumer sales at the expense of wholesale relationships, and they failed to create innovative performance products while overproducing big lifestyle franchises, and this really damaged brand heat in the eyes of the consumer.

The prior CEO had admitted to kind of these mistakes in early 2024 and outlined a series of corrective actions, which is why we thought that the ship had kind of been set in a better direction, but the magnitude of the corrective actions that were required were far greater than we anticipated.

Fortunately, for Nike, the company's controlling shareholder, Phil Knight, and the Board of Directors made the ideal management change in September of 2024 by bringing back long-time Nike veteran, Elliott Hill. We believe Hill is a fantastic CEO. He has an excellent strategy to return to profitable growth by renewing Nike's obsession with sport, accelerating innovation, creating bold marketing and rebuilding wholesale distribution, which he led for a very long time. At the start of this year, we converted our Nike common stock position into a deep-in-the-money call option position. We did this to preserve the upside potential of owning the stock while unlocking capital to make new investments.

Since the start of this year, the turnaround is progressing a bit below where we projected for revenues, but materially below for margins. And the reasons for that are twofold. About half of that margin decline versus what we projected at the beginning of the year is due to tariffs, which were new this year and the other half is due to more aggressive clearance activity of legacy inventory. So Nike is down about 17% year-to-date. Most of that is forward earnings, which are down 15% and the multiple is effectively unchanged, down 2%.

While we have confidence that Nike has the right CEO and the right strategy, we grew more uncertain of what long-term margins would look like as this year progressed. Can the company really get back to pre-COVID margins in light of tariffs, which don't seem like they're going away anytime soon and in light of the more competitive nature of the industry. It is a more fragmented competitive landscape in athletic footwear and apparel now than it was kind of for most of Nike's history. And to meet our return thresholds for a turnaround at the time of our sale would have required us to assume stabilized margins of at least 13%, which is consistent with what they did pre-COVID. And we didn't have enough confidence to make this assumption kind of in light of these new margin headwinds.

We do believe that Nike's turnaround will be successful, but we don't know what success will look like from a margin perspective. The company has articulated confidence in getting back to double-digit margins, very different outcome for shareholders if that's closer to 10% than 13%, 14%. So we have tremendous confidence in Elliott, a tremendous admiration and respect for what he's doing at bringing Nike back to greatness, and we wish him and the team at Nike the best of luck.

Obvious question would be with respect to Nike. It's a company we've owned before and got right in the past in a meaningful way. Any sort of overarching lessons from either the Nike or the Chipotle experience that will help us avoid similar mistakes in the future, either a better exit from a Chipotle or a miss -- a better timing on our acquisition of shares of Nike.

Yes. Look, I think we're still reflecting on kind of lessons learned, but I think I would point 2 high-level ones, one for each. On Chipotle, I think high PE multiple stocks can be dangerous when things turn. I think that if everything is going right and you have a very proven leader running the company, you can afford to hold it for a while longer. But I think with a high multiple stock, if kind of the trends slow for any reason, it's better to exit faster than to give management the benefit of the doubt.

For Nike, I think one lesson that I and we, I think, have learned there is return thresholds for turnaround situations, even if the turnaround doesn't look like initially that it's going to be that severe, should be higher. So I think had we gone in with kind of a higher required -- had we had a higher required IRR for that one, perhaps we would have avoided making the initial investment.

Great. Why don't we focus on one other underperformer for the year, and then we'll get to why we're actually having a good year, but I think it's good. Let's focus on the negative first. Universal Music. Let's talk about that. Ryan, go ahead.

Sure. So Universal Music, the business performance has continued to be strong. In their most recent quarter reported a few weeks ago, the company showed, for example, that revenues grew at about a 10% rate on a constant currency basis and their adjusted EBITDA profit metric actually grew a little bit in excess of that about 12% rate. Those levels of business performance are actually very consistent with what the company has done since we helped facilitate a public listing nearly 4 years ago.

So the business performance remains quite strong operationally in our view. But as you mentioned, Bill, the stock has underperformed this year. And in particular, it's really underperformed since the summer. So the share price was in July, a little bit above EUR 28 per share. And as of earlier this week, it was as low as about EUR 21.50, which is about a mid-20s percent decline in the share price. And actually, at one point earlier this week, the company was down to a 20x PE multiple based on consensus analyst earnings for the next year, which is the lowest multiple that the company has ever traded at in our little over 4 years of ownership.

And we think the primary reason for the decline in the share price over the summer to now really due to technical factors. So for example, the largest shareholder of the company, the Bollore Group, there was a ruling in July by a French court that they would need to buy out another publicly traded company. And so there was a fear or perception in the marketplace that Bollore, who is the largest owner of UMG would be a forced seller for a chunk of -- a very large chunk of their shareholdings in order to fund this buyout that a French court was requiring.

And so that forced seller dynamic, in our view, made it difficult for other people to want to buy the stock ahead of what could be a forced seller in somewhat unknown time frame and potentially unknown quantity. As we transition from that happening in the summer to the fall, the U.S. government shut down. And so the SEC was unable to kind of fulfill any sort of request for a U.S. listing and UMG's example, which we think created potentially further technical headwinds.

Stepping back a little bit, our view has been that the business performance remains very strong, as I mentioned on the quarterly basis, this quarter as well as really over the last 4 years. And we think that a share buyback really could address the technical concerns that would have happened. So for example, the market perception that there is a forced seller that could be around the corner, hard to get market participants to want to buy shares in advance of that. Yet if the company is buying their shares, that could provide somewhat of an offset for the technical demand. And in general, for a company that has very strong operational performance, we think a buyback at the lowest multiple that it has traded at for the last 4 years would be a good idea as well.

But maybe I can turn it back to you, and you can talk a little bit more about the upcoming U.S. listing.

So one of the package of rights we received when we became a shareholder of Universal Music was the ability to catalyze a listing in the U.S. And we felt strongly that it's a U.S. headquartered global business, but half -- even more dominant in the U.S. and a very significant percentage, effectively half of their business is a U.S. company. It is listed in Euronext that has limited the universe of people who can own the stock. Many U.S. investors by mandate are not permitted to own Euronext listed securities. And our view, materially more demand can come into the stock with the U.S. listing.

We also think the kind of cadence of quarterly reporting and the kind of information that becomes available when a company is registered in the U.S. will provide -- enable better analyst coverage. The fact that the peers are U.S. listed companies will make, I think, easier, I would say, comparisons and I would say, better understanding of the company. And so we catalyze that listing by exercising our registration rights. Our registration rights require in order for the company to be obligated to register our shares in the U.S. and create a listing here for us to actually sell some stock. So we've agreed to sell $500 million of shares as part of the listing of the company.

Now in light of the share price, we are not a -- we're a very reluctant seller, but we believe the value in terms of improved transparency as well as the improvement in the supply-demand dynamic overwhelms the cost to us of selling a portion of our position at the current share price. Now we've approached the company, and we've asked the company to simply seek a listing in the U.S. without the requirement for us to sell stock. At this point, the company has been unwilling to let us withhold the $500 million of stock in the offering. So we're going to go ahead with the offering, selling a portion of our stock at whatever the price is at the time the listing in order to catalyze what we think is a value-creating transaction for the company.

Just further to Ryan's point, this is a company -- I've been on the Board -- I was on the Board for a number of years. I think it's an excellent management team that understands the music industry, where there seems to be a gap in understanding is in how the company approaches the capital markets and using -- taking advantage of the company's balance sheet, the free cash flow it generates and optimizing the company's use of capital.

This is a business that's not going to require billions and billions of dollars of capital for acquisitions. The company has made that, I think, very clear. The nature of the company's dominant position in the marketplace also makes clear that it's very difficult for the company to do acquisitions of any kind of meaningful size in the industry. So we remain puzzled really as to why the company is not a more aggressive buyer -- or actually why it doesn't buy back stock at all and why in addition to pointing out that the stock is trading at the lowest multiple it traded at, it's also approaching the highest valuation for Spotify, a significant asset on the balance sheet. The company has intelligently held on to it at this point in time. But again, another opportunity for monetization and returning capital to shareholders. So that's our strong view on that topic.

Okay. Let's focus to the positive. We are actually having a very good year. Let's talk about our largest investment at this point, Alphabet. And that's Bharath, who's going to take that on. Go ahead, Bharath.

Sure. And maybe to rewind back to when we originally initiated our position in Alphabet more than 2.5 years ago, our investment thesis was that Google's leadership position in AI was being severely underappreciated. And our view then was the company had a unique full stack approach to AI that came with several structural advantages, namely frontier research capabilities, world-class technical infrastructure, scale distribution and the access to immense training data.

And you could argue then that the main open question was around execution and whether the company would be able to harness all those inherent competitive strengths into their product road map. I think since we made our investment and one of the reasons the share price has appreciated meaningfully both this year and over the life for our investment, but we still continue to remain very optimistic shareholders, is they've really stepped up to that question and done an excellent job on the execution front and leveraging their strengths.

And maybe to just provide a few recent examples of that. Earlier this week, Google released their latest and very widely anticipated Frontier AI model of Gemini 3.0. Not only did it immediately jumped to the top spot on all of the benchmark evaluation leader boards, more notably, they integrated Gemini 3.0 directly into search and the Google apps the same day that it was released, kind of highlighting the company's focus on improving the product velocity. Gemini 3.0 was also led by the DeepMind team, which was a start-up that the company had very presciently acquired all the way back in 2014, and that lab continues to be the leading kind of frontier research lab.

On the hardware side, the company has spent the better part of a decade optimizing their technical infrastructure to specifically run machine learning and AI workloads. And as a result of that, they can now run those workloads at sort of industry-leading lowest cost per token. And they've developed their own proprietary TPU semiconductor chips, which has not only reduced their reliance on NVIDIA's GPUs for running internal workloads, but I think what we've seen more so over the last year is they're gaining increasing traction from third-party Google Cloud customers.

On the scale distribution front, Google has incredibly valuable digital real estate and consumer mind share. And that's probably best seen through the rollout of AI overviews, which are the summary AI search responses that are directly embedded in search. AI overviews is now being served to more than 2 billion users. And if it were to be considered its own stand-alone app would be by far the most widely used AI app.

And then lastly, kind of on the data front, we believe Google's ability to train kind of on a wide corpus of first-party data, including YouTube videos for image and video generation as this is a very valuable long-term differentiator. Tying all those advantages to the operating results, those advantages are now being clearly reflected in the company's ability to grow at scale.

So for context, Google generated $100 billion of quarterly revenue in Q3, and those revenues grew at a 15% rate, right? Just their core search and YouTube franchises, despite their maturity, are continuing to grow at a low teens rate, and their cloud business, which is now a very scaled $50 billion run rate business, growing at an incredible 32% rate. So while the share price has appreciated meaningfully this year, we still think that the valuation is quite reasonable in light of the business quality, their leadership position in AI and their ability to continue to grow earnings from this point on at a high teens rate for a very long time.

Great. Thank you so much. Why don't we go to Uber, Charles?

Sure. Thanks, Bill. So as a reminder for everyone, we invested in Uber early this year, what we believe was a very highly dislocated valuation with extremely strong fundamental and operational performance overshadowed by concerns regarding disintermediation risk. And big picture, we feel increasingly confident that the market structure is evolving consistent with our underwriting hypothesis.

And over the course of 2025, basically, what Uber has done is they've advanced a number of partnerships with various autonomous vehicle and technology companies. And taken together, they're strategically advancing geographically focused commercial pilots with line of sights to thousands of autonomous vehicles covering major metro cities on their network within the coming years.

And since our last update, one notable call out is a marquee partnership Uber announced with NVIDIA this past month. The partnership is interesting. It coalesces around NVIDIA's DRIVE AV platform as a reference compute and sensor architecture to make any vehicle an autonomous vehicle, i.e., L4 ready, which enables OEMs and developers to accelerate their AV technologies, respectively. And it offers an extremely credible counterpoint to Waymo and Tesla's respective architecture.

So you essentially have what was looking like a potentially 2-player market developing to a credible third alternative, which can help some of these small long tail of AV players kind of accelerate their respective technology developments. And Uber's role here is they're going to be contributing valuable training data to an NVIDIA data factory, which will support a foundational model upon which others can draw. And the partnership overall, it's designed to lower cost of development and accelerate commercialization efforts for our industry participants. Now against this backdrop, Uber continues to operate commercial operations for Waymo in several markets, including exclusively in Austin and Atlanta with strong utilization data reinforcing Uber's unique value proposition.

We expect the market structure will continue to evolve over time to maximize vehicle utilization and operating profits. And we believe basically Uber is positioning itself to become a technology and hardware-agnostic partner of choice for the AV ecosystem.

Transitioning to discuss operating performance. In short, financial results continue to be excellent. Notwithstanding their market-leading scale, growth is actually accelerating with operational metrics achieving new all-time highs in users, engagement, frequency and trip growth. And so top line results also notably this growth is actually balanced across both the Mobility and Delivery business segments with 19% and 23% growth in the most recent quarter, respectively, which just gives you some scope of the scale and growth here. And that roughly 20% blended bookings growth translates to 33% adjusted EBITDA growth and more than 50% growth in earnings per share as the company is scaling margins off a relatively low base, which is very impressive.

Notably, the company is achieving this level of operating -- attractive operating leverage and earnings growth while continuing to make investments to see the next generation of products and geographies, which we believe will sustain Uber's high rate of growth over the coming years. And to just kind of double-click on this concept of investment, so the stock has been relatively weak the last few weeks. And part of this, I think, was actually -- some people may have seen DoorDash, which is a primary competitor in the delivery space, announced an unexpected round of major investments, which caught investors off guard. The stock was down nearly 20% in response to that, and that's their primary competitor in delivery in the United States.

So I think there was some concern, is Uber also going to need to make a similar round of investments? Or is the competitive intensity of the business increasing. And our perspective on this is basically DoorDash. They -- basically, the company has grown very rapidly. They're very strong operators, but they didn't have amazing kind of forward-looking vision on the product architecture. And so their technology stack kind of became slightly more outdated at a faster rate than one would anticipate for a newer, relatively speaking company. They've also done a number of acquisitions, and so they're using this as an opportunity to kind of integrate these acquisitions and rebuild their tech stack.

But primarily, this seems like it was a miscommunication around the kind of IR and external communications from DoorDash, and we don't think this represents a fundamental shift in the competitive intensity or kind of a desire for DoorDash to lean in. And importantly, we don't think that Uber has to make these same kind of investments. They're making such investments while simultaneously achieving their multiyear financial targets. And so we think this is kind of a unique issue to one of their competitors. And so big picture, taking a step back, Uber is basically trading at a mid-20s multiple today, which we think is an extremely cheap valuation considering their high rate of earnings growth and attractive outlook.

When does the Tesla overhang lift, if you will, the fear that Elon will -- there will be 10 million taxis driving around, charging people $5 to go unlimited distances.

What's interesting, what I'd say is a factual statement, right, is that Waymo is far more capable today from a technology standpoint than Tesla, right? Tesla has grand ambitions. But if you just look at the facts, the issue is it's hard to -- it's impossible to scale a business if you don't have unit economics that work, and it's a bit of a catch-22 where until you have a technology, until you have a cost structure that works, you can't scale. So it's hard to say.

I think 2026 is likely to be another year of kind of experimentation and kind of evolution rather than revolution. I don't expect to see kind of a major breakthrough. I think the nature, too, of scaling in robotaxis is there's a requirement to kind of validate and evaluate the models you're creating to make sure they're performing in real-world scenarios consistent with your modeled expectations. And that, by its very nature is kind of a slow methodical approach because if you released 100,000 robotaxis without knowing how the models perform in real-world settings, there's real-world consequences and people can die.

And I think actually, Elon has been pretty measured and thoughtful around making sure that they are cautious in terms of their rollout of the products to make sure that they're performing as expected. In this regard, we'd say Waymo is clearly -- has best-in-class data, best-in-class disclosure around safety, disengagement, et cetera. I think it will be positive if kind of Tesla demonstrated more of that.

If I could add maybe one thing to that. I think the Tesla risk or the Tesla overhang is really centered on 2 variables. Number one, that Tesla itself will be the dominant market player in AVs and that if it is the dominant market player in AVs, it will not choose to partner with Uber. And so I think the way that this can resolve itself is that either one of those 2 premises shows to not be correct.

So to Charles' point, if there are more AV companies such as Waymo and there's actually a handful of other potential AV companies that are showing very strong progress aside from Waymo, if those companies start to become more dominant in the space and/or they start partnering with Uber, I think the perception will be that this will not be owned by any one company for AVs, and therefore, it would be a much more balanced marketplace, which I think will help resolve some of that overhang. That may be knowable within the next, I would argue, 12 to 24 months, although the timing is a little uncertain.

Secondly, to the extent that Tesla does become further along in actually deploying robotaxis at scale, which, to Charles' point, does remain to be seen. They're certainly behind a lot of the targets that they have suggested over the last several years. But once they start scaling up, to the extent they are more willing to talk about partnerships, that could be the other way that this overhang results. So I think there are multiple ways that will become clear over the next year or 2 in which this could resolve in the way that we think, which will ultimately be beneficial for Uber.

In short, we basically think the Uber platform is enormously valuable to Tesla and to all the other sort of AV companies and it's becoming even more valuable over time, embedded in the mind share and the consumer experience, a bit like Google's presence in search. Okay. Let's talk Brookfield. Charles, go ahead.

Sure. So Brookfield, they've had a very active 2025 with strong operating performance, significant business building and corporate development activity, particularly in recent months, including the pending acquisition of Just Group, which is a U.K. pension insurer that they're going to be acquiring early next year and the recently announced buy-in of the 26% of Oaktree that they don't already own.

To start, maybe I'll provide some perspectives on their financial performance, and I'll focus primarily for now on Brookfield Asset Management or BAM, which is, as a reminder, kind of comprises roughly 75% of the value of BN Corporation, i.e., the parent entity, which we own. BAM is generating very strong results. So they're seeing roughly 15% growth in fee revenues with particularly strong growth in their credit and renewables businesses.

In renewables, they closed on their second transition fund earlier this year, which is driving some of that strength. That roughly mid-teens rate of fee revenues is translating into fee earnings growth at a slightly higher kind of 16% to 17% rate, which is basically strong operating leverage on the core BAM business, offset by lower margins at Oaktree, which we think is kind of a transitory development, which will reverse itself next year, setting the stage for even stronger kind of operating leverage.

And so as we look to 2026 for BAM, we think they're poised for an excellent year with accelerating organic fundraising, further step-up in capital from BN Wealth Solutions. Again, part of this is that acquisition of Just Group and then efficiencies, which they'll garner from fully consolidating Oaktree within BAM.

And so of note also, as you think about BAM for '26, they're going to be in market with multiple flagships next year, including their next-generation infrastructure and private equity funds and their recently launched artificial intelligence fund. And each of these flagships, these are large, chunky $10 billion, $15 billion, $20 billion, $25 billion funds, which drive step function increases in fee-bearing capital, fee revenues and, of course, operating profits.

Now moving beyond BAM to the broader kind of Brookfield ecosystem and the cash flow streams that roll up to the parent BN, 2 kind of call outs. So one, carried interest is beginning to meaningfully accelerate at BN, growing roughly 150% the last few quarters off a relatively low base. Earlier this fall, the company provided a forecast for $6 billion of carried interest over the next 3 years, which should begin to meaningfully kind of show up in 2026. It may be somewhat back-end weighted, but it's basically setting the stage for very significant growth next year.

And then second, I'd touch on Wealth Solutions, which is their annuities -- primarily the annuities business, that grew 15% this quarter, which was -- saw a strong earnings contribution from the relatively small P&C business they have within their wealth solutions portfolio, which is offset by lower growth in their annuities business. And here, what's happening is we believe they're repositioning the asset book for higher long-term yields, but it's driving some temporary dislocation, which we think will reverse itself in the near term.

Taken together, so BN is tracking towards low to mid-teens distributable earnings growth this year, which we believe will meaningfully accelerate next year with step function changes, increasing both the earnings contributions from Wealth Solutions and a step-up in net carried interest realizations. Also of note, the company hosted their Annual Investor Day this past September, and they established a target for nearly $7 of earnings per share in 2030 or 25% compounded growth from here.

And in that context, we note that -- we think Brookfield stock is extremely cheap. It's trading at roughly 15x our assessment of forward earnings, and we anticipate accelerated share price performance tracking with kind of the rate of earnings growth we anticipate to see from them over the next few years.

Thank you, Charles. So Fannie, Freddie, was it yesterday? It seems like a long time ago that we gave a presentation on our thoughts for a path forward for Fannie and Freddie. The President and members of -- Treasury Secretary and others have talked and posted on Twitter about potential plans for an exit from conservatorship and/or an IPO for Fannie and Freddie. We think someday, a public offering of shares by the government may make sense, but we do think there's an important step that should be taken beforehand. That's a much lower risk alternative.

So what we've proposed both privately to the administration, we had the opportunity to share these ideas with the President with Secretary Ludnick, Secretary Bessent as well as Director Pulte in the recent past, which we then shared in a public forum that the administration could get a sense of the market as well as the various commentaries view of this -- of our, let's say, trial balloon is really a very simple next step.

If you think about the Trump administration's first term where the President started to put Fannie and Freddie on a path to removal from conservatorship, the most significant step was reversing the theft or stopping the theft, I guess, I would call it, where Secretary Mnuchin basically ended the net worth sweep and allowed these entities to start building capital. That was a very important step for actually reducing risk in our housing finance system, making -- putting Fannie and Freddie in a position where they could, on a stand-alone basis, support the guarantees that they had outstanding. I think that was a critically important step.

But we think the next step should be an acknowledgment, really, it's an accounting for the payments that have been made to the government. So basically, U.S. government injected $191 billion into these companies after the financial crisis and extracted an appropriate pound of flesh, which is a 10% return on that capital as well as warrants on 79.9% of both companies. They basically took -- it was a distressed bail out with very onerous terms, the most onerous terms of any of the banking financially related companies, only, I think, tied maybe even -- actually, ultimately, the amended version of AIG, I think, was even less onerous than Fannie and Freddie.

Now the administration -- the companies have paid back $301 billion of the original $191 million, which is more than the 10% return they're entitled to. But from an accounting perspective, the preferred remains outstanding on the balance sheet. That's really a function of the net worth sweep previously -- never-seen-before transaction. So what we're recommending is that the payments to the government have to be accounted for. The result would be eliminating the preferred line item from the liability section or the equity section of the company's balance sheet.

And the next step, of course, will be exercising the warrants. The government will become now very large shareholders of both companies and then the businesses are in a position to be listed on the New York Stock Exchange. Importantly, we think they should stay in conservatorship. What that means is we're now -- there's literally 0 risk to mortgage rates. The government is still completely in control of both enterprises. And now the necessary next steps can take place over however long they take in a very measured, thoughtful manner. And we believe this accomplishes all of the administration's goals, at least the stated goals of showing how much value has been created for taxpayers.

The President did the right thing in not selling these entities in his first term and they've increased in value probably fourfold or so from the $100 billion offer that was apparently made to take these businesses private, I guess. And we think there's still a lot more room to run. So we think it's not a good time to do a public offering of shares because it would be dilutive to the taxpayers' ownership of both entities, but the government will be able to show a mark-to-market value and demonstrate incremental important progress without taking a risk to mortgage rates, and we shall see.

The good news is that transaction -- again, the President has got a lot on its plate, and we're approaching Thanksgiving, but it's actually theoretically possible. We've spoken to the exchange about a relisting. They're obviously prepared to do whatever is required to get that done. So it could be a nice Christmas present for the long-suffering shareholders of Fannie and Freddie, which include more recently some institutions. I mean, Pershing Square has been around here a while, but other institutions have bought stock over the course of the past year, and there are literally millions of small shareholders who are cheering for the President to save them, and this would be a very nice Christmas present for that group of owners.

Why don't we go to Amazon? Bharath, why don't you update us?

Sure. So earlier this year, we were able to opportunistically build a position in Amazon during the April market drawdown. It's a company we followed for a long time, and I always admired the fact that it operates...

What price did we pay in the drawdown?

Our average initial cost was around $175, which is a 25x entry multiple on forward earnings, the lowest multiple that the shares had ever traded at in their history.

Thank you.

So yes, it was a company we've been following for a long time, and we always admired the fact that they built and operate 2 of the world's great category-defining franchises between their cloud business, AWS and their e-commerce retail operations. Our view is that both of those businesses are supported by decades-long secular growth trends, occupy dominant positions in their markets and share the kind of core tenets of the Amazon ethos of focusing on the consumer value proposition and leveraging their scale to continue to reinvest and be the low-cost provider.

Despite those compelling attributes, there were concerns around the growth trajectory of AWS and then coupled with the broader tariff-related market volatility, that kind of provided us the attractive entry point. And our view was that those concerns underestimated the resiliency of the business model as well as the duration of its growth runway. And while it's still early days, the company's operating results since then have kind of helped validate our thesis.

So starting with the Cloud segment, AWS today is a $120 billion business that continues to grow at a high teens rate. And in fact, last quarter, the growth rate accelerated from 17% to 20%. Notably, that impressive growth rate was actually limited by capacity constraints as consumer demand for compute vastly exceeded the pace at which AWS is able to bring new supply online.

Is that constraint driven by just the time to build the new facility or GPUs or...

Yes, I think it's a combination of the above. So to that end, the company has been very focused on accelerating that build-out. So in the past 12 months, they brought online 4 gigawatts of power, which is more than any other cloud provider. And for context, Amazon has doubled their data center capacity since 2022 and are on track to double it again by 2027.

So in light of the kind of supply-constrained nature of AWS' growth, we actually think those investments today to accelerate the build-out are very efficient and high return use of capital. And then kind of shifting to the retail business, they've seen very minimal, if any, impact from tariffs. And over a longer time frame, we're very encouraged by the potential for significant margin expansion in that segment. So if you were to look at peer margins and adjust for Amazon's business mix as well as taking into account their much higher margin and faster-growing advertising revenue stream, we estimate that Amazon's structural retail margins could be several hundred basis points above the 6.5% margins they're expected to realize in 2025.

And in addition to that, they're also extracting a lot of productivity gains from their warehouse automation initiatives and their one-of-a-kind logistics network. And as just a proof point on that latter point, per unit shipping costs have been steadily declining for the last 8 quarters in a row. So stepping back, while it's still early days and while Amazon's share price has appreciated about 30% from our initial cost in April, it still trades at a very attractive multiple relative to peers like Microsoft and Walmart and especially in light of its ability to grow earnings at a nearly 20% rate for the next few years.

Thank you. Let's go to Restaurant Brands. Feroz.

Sure. Thanks, Bill. So Restaurant Brands actually continues to execute at a very high level, and its most recent results reinforce both the strength of its brands and the resiliency of its business model in what can only be described as a fairly tough economic backdrop for consumer businesses.

During the quarter, the company-wide same-store sales grew at 4%, units grew by 3%, leading to 7% system-wide sales growth and operating income grew by 9%. So looking at their biggest businesses, Tim Hortons in Canada, they increased their same-store sales by about 4%, which outperformed the broader Canadian QSR industry by 3 whole percentage points. This now marks the 18th straight consecutive quarter of positive same-store sales. And that, by the way, has primarily been driven by underlying traffic growth.

For several years now, Tim has been laying the groundwork in its Back to Basics plan with new innovation, both in cold beverage as well as afternoon foods while still maintaining their lead and providing good value for consumers in its core beverage, coffee and breakfast segments. Tim Hortons actually is also now growing its unit count in Canada for the first time in years, a market that many consider too mature. And these units are actually a lot more impactful to the company's bottom line than their units abroad because they're obviously higher unit volumes and Tims Canada has higher unit take rates as well.

In the international business, same-store sales grew by 6.5%, also above the primary competitor, McDonald's, which has also been the case for actually several quarters now. The company also brought on a new partner to manage the Burger King China business, who will actually invest $350 million into the business shortly, and that will allow that BK China business to double unit counts over the next 5 years, and that will help restaurant brands, the total company achieve their 5% unit growth algorithm in the coming years.

At Burger King in the U.S., same-store sales were up about 3%, again, also ahead of burger peers and one -- the results actually have also outperformed the broader U.S. burger category for multiple consecutive quarters. And that's really due to all the initiatives they've done under their Reclaim the Flame program. While investors were worried that competitors are pushing deeper into value, Burger King has actually done a really nice job striking a nice balance between innovation and premium offerings, doing nice tie-ins with movies and also providing everyday value with their Duos and Trios platforms.

In what is -- can be best described as a very challenging economic backdrop, as Anthony alluded to, we think Restaurant Brands' results highlight the very nice defensive qualities of its business. So while low-income consumers have pulled back from spending many often skipping breakfast, Restaurant Brands has still continued to grow its sales as it's benefiting from the trade down for middle and higher-income consumers trading down.

So are Chipotle customers becoming Burger King customers?

Look, that's a question we've been discussing at length. I'm not sure it's specifically from Chipotle to Burger King, for example. But we do think what's happening, it's really a twin economy. So people that own stocks that are wealthy are doing incredibly well, and they're continuing to spend where they used to. At the same time, the low end of the economy is doing very poorly, and they're basically pulling back.

So I think a brand like a Burger King or a Tim Hortons that caters to everyone is benefiting -- obviously losing those low-end customers, but it's benefiting from the mid-end trading down. But the fast casual space broadly, which obviously Chipotle is a member of, is missing that middle sort of demand vacuum where the high end isn't trading down, but the mid-end is trading down to the quick service category broadly. So that's certainly probably happening.

What's also notable about restaurant brands is that it's obviously primarily franchise business model. And so it's also not as directly exposed to the labor and cost inflation to the same extent as others. And so thanks to its consistent growth and defensive business model, we expect that Restaurant Brands will actually still grow operating income at 8% this year, which is in line with its long-term algorithm. And the business still trades at a discount to its primary peers. So it's trading at about 17x earnings, whereas McDonald's and Yum! are trading at about 23x next year's earnings. We think a business of this quality with these characteristics should trade at a much higher valuation. So we're optimistic about the prospective returns from here.

Okay. Great. So I'll just cover Howard Hughes. The short story here is the underlying real estate business of Howard Hughes is performing extremely well. The company reported an outstanding quarter really on every metric of net operating income, land sales, profits from their MPC business and the appreciation of their existing land portfolio. The management teams at Pershing Square and Howard Hughes are working very well together, which is great. And we are working, as we've publicly disclosed on a transaction to acquire an insurance company that would become really the beginnings of our diversified holding company strategy for the business.

Our goal is to complete a transaction as early as the -- at least announce a transaction as early as year-end or perhaps in the early part of the new calendar year. We'll have a lot more to say about that if and when we are successful in completing a transaction that makes sense. But the short version of the story is that, we intend to by a good insurance platform with an excellent management team that can run a profitable insurance operation with Pershing Square managing the assets of that insurance company, I would say, akin to the way that Warren Buffett has managed his insurance company's assets and the way really he's managed the insurance company operations itself.

Why don't we go to Hilton? Ryan, why don't you give us an update? I'll just point out, Hilton has been an excellent investment for us over many years now. We have enormous respect for the management team, and it's one of the best businesses that we've ever owned. It's become a smaller part of the portfolio, unfortunately, because -- or fortunately, because everyone else has recognized the qualities of the business. So we still think it's an attractive investment from here, but lower on the IRR thresholds than obviously when we originally acquired our position. But go ahead.

Yes. So I just wanted to make a quick point that I think this quarter's results are really emblematic of why we think Hilton's business model is unique and incredibly resilient. So for example, the company same-store sales metric RevPAR actually declined about 1.5% this quarter as there were some macro softness, which clearly has impacted some of our restaurant businesses, but that actually impacted some of the travel businesses as well.

And typically, what you would expect when a company has declining same-store sales, you would expect a decline in the profitability of the business. Hilton actually grew its adjusted EBITDA, its profit metric, 8% this quarter despite the decline in same-store sales, which is very unique and really reflects the 2 fundamental drivers of the business that are incredibly attractive to us, which are they have an enormous opportunity to grow their unit or hotel count around the world because the brands that they have are able to take advantage of the increased travel trends, and they are better than a lot of the alternative brands.

And other people put up the capital for that because it's a good return for them and Hilton is able to earn a very high franchise fee. And that is really adding 6 to 7 points a year of growth to the business, and that's a trend, I think, will continue for a while.

And the second factor is just incredibly strong cost control due to just overall great management. So the company is able to really limit the growth in its expenses despite having a very strong steady revenue growth base. So profits still grow even when same-store sales decline, which is a typical anomaly in business, but it's part of Hilton's core model. And then on top of that, this company has just superb capital allocation. So it continues to buy back about 5% of its shares on a year-over-year basis.

So with a kind of consistent underlying tax rate, the company would have grown earnings at a low teens percent this quarter despite not growing same-store sales due to some macro softness. And so I think to your point, one of the reasons why we continue to hold Hilton is those unique characteristics where if the business performs in a normal macro environment well, we think there's a clear line of sight to 16%, 17% earnings per share growth annually for a very long time. If the macro is a little weaker and same-store sales don't even grow, we're still able to get pretty comfortably above a 10% rate of earnings per share growth, which is very unique.

And so the market has recognized, as you pointed out, that this quality of the business and the growth characteristics should be deserving of a higher multiple, and the company trades at about 30x next year's consensus earnings, which is part of the reason why we've reduced our position is we think that the growth profile will offer us a reasonable return, but there's less opportunity for an accelerated annual return beyond the earnings per share growth when the multiples, I think are reasonable at 30x. But we still think it's very unique and a very strong management team, which is why we continue to hold the position even though it's somewhat smaller as you've been trimming as the share price and the multiple has increased over time.

Let's do an interesting compare and contrast. Let's compare Universal Music to Hilton. They have some fairly analogous economic characteristics, and let's compare the trading multiple of one versus the other. And why is Hilton traded at 30x earnings and Universal traded 20 or 21x earnings?

So I think you're entirely right, which is that while they obviously operate in different industries, the economic characteristics are very similar. They are both royalty-like companies that are very capital-light with very strong operating margins. In Hilton's case, we believe over time, the company is likely to grow at something along the lines of maybe 8% to 10% a year for revenue and that adjusted EBITDA is probably going to grow a little bit in excess of that. Those will sound very similar because that is exactly what UMG is growing at. Its revenue is about 10% right now.

And management guidance -- let's stick with the management guidance on those numbers.

Correct. And that is in line with the guidance over time. So it's interesting that they look incredibly similar on the operational performance, if you will. The key difference, as we pointed out earlier, is UMG has not bought back a single share, whereas Hilton pretty much like clockwork buys back about 5% of its shares. They allocate all of their free cash flow -- the substantial majority of free cash flow to share buybacks.

And because of the high margins and the significant degree of predictable revenue growth, they have a nice amount of leverage, which the business can support. And obviously, UMG has an unlevered balance sheet when factoring in its stake in Spotify. I think the U.S. investor base, U.S. listing of Hilton, combined with the capital allocation has given investors a lot of confidence, which has allowed them to price in a multiple of something like 30x. And as we mentioned earlier this week, UMG was trading at 20x, which is a very large gap between the 2 despite very similar economic characteristics and growth characteristics currently.

Let's go to Hertz on the other end of the balance sheet spectrum.

Yes. We're not unlevered, in fact, very levered and also has some operational leverage. But look, the interesting thing about Hertz is that it's actually making a lot of progress on its turnaround efforts, and the results in the third quarter showed those. So it was the strongest quarter in years. It actually generated their first positive EPS for the first time in 2 years and they demonstrated meaningful traction on the operational levers that we've discussed previously as our investment thesis.

Number one, the fleet refresh. When we invested, they basically had an upside down fleet. Now they've completely refreshed it. The average vehicle in the Hertz fleet is now less than 12 months old. As a result, depreciation per unit per month DPU, which is their metric, was $273 during the quarter, well below their long-term target of $300. And importantly, next year's vehicle purchase negotiations, which some investors are worried about given some of the tariffs and inflation, they're also nearly complete. And the management team is confident that, that will also support strong unit economics with depreciation of less than $300.

Operationally, the company is also making big strides. So this quarter, utilization was 84%, the highest level the company has ever delivered since 2018. Revenue per day or RPDs were down low single digits, but they continue to improve and improved in October as the company has been implementing changes and modernizing its pricing systems.

On the cost side, they also continuing to make progress through automating processes, lowering headcount and rationalizing some of their footprint. And we expect both SG&A and DOEs, which is their measure for expenses per day to decline from current levels. So the company is well on its way to delivering sort of a mid-single-digit EBITDA margin next year and has line of sight into delivering $1 billion of EBITDA in the coming years. What makes Hertz very interesting from these levels...

$1 billion. It means $1 billion of annual?

Exactly. $1 billion of annual EBITDA in the coming years. They have a target for 2027 actually. What makes Hertz really interesting from these levels is that it also has a number of upside levers or call options available to the company. So first, the company has been setting up infrastructure to sell more used cars through its own retail channels as well as its partnerships.

The company actually has a partnership with both Amazon as well as Cox, and it's now live with their rent-to-buy program in over 100 cities where you can rent a car, try it out and if you like it, you can buy it. We believe the company can turn this into a meaningful profit center that can lead to structurally lower depreciation costs because obviously, you sell a car to the retail channel at a much higher profit than the wholesale channel. And then it also allows an opportunity for them to sell additional F&I revenues.

Second, we believe Hertz also has the potential of being a significant partner to the various mobility companies that are rolling out autonomous vehicles. Hertz has an expertise in vehicle maintenance, servicing, and it has a very significant scale of -- with its parking facilities that make it an ideal partner to help manage as folks try to roll these out. Both these revenue streams have the potential of being large businesses for Hertz in the future and helping it further leverage its fixed cost base and brand.

On liquidity, the company is also now in a much stronger position. Recall when we invested, some investors were speculating the company may need to declare bankruptcy again, and that is definitively not the case today. It has more than $2.2 billion of total liquidity. We actually helped facilitate a convertible bond issuance earlier this year and actually increased our exposure to the company. And the company also entered into a capped call transaction, which means that the convertible bonds are not dilutive unless the stock essentially triples from current prices.

So with its current liquidity, as I mentioned, of over $2 billion, they have ample liquidity to address their near-term maturities and to help grow their fleet next year, which will again help them lever their fixed cost base. So stepping back, Hertz today is a much more leaner, more efficient company with, frankly, an enviable young fleet that its peers don't have. And on top of the core rental business, the company is also developing multiple new profit streams, as I mentioned, such as the retail used car sales, servicing AVs as well as serving the broader mobility segment.

So we continue to believe that Hertz has asymmetric upside from current prices. But obviously, in light of the fact that it's going through an operational turnaround, we have sized this as a smaller investment than our typical holdings.

Why is the stock so cheap in light of all of the above?

So it's not immune to some of the consumer issues that we're seeing in the broader space. What's also notable is that the government shutdown has obviously had an impact on travel broadly. And so people are traveling a little bit less. Hertz does benefit to an extent as people have been taking out what are called one-way rentals. So instead of flying, you just take a car. But certainly, I think it's probably a net negative if the consumer environment is weaker and then people are traveling as much.

And there's also -- there's been broader concern around RPDs. We think that's a little bit misguided. The way Hertz sort of reports RPDs, it's really burdened by the fact that they have mix towards smaller cars, which certainly have lower prices, but they're EBITDA accretive. And so next year, that should be a tailwind. And candidly, I think these car rental companies are generally misunderstood. There isn't a lot of market cap for long investors to dig into and to get excited. And so both Hertz and Avis have the potential to gather some of these long-only investors as they come out of the turnaround starting next year. And I think Hertz specifically has a very interesting opportunity to grow its EBITDA from basically nothing today to $1 billion in the coming years.

Okay. Good. Thanks, Feroz. We've always received questions in advance of the call. We do our best to answer them during the pendency of the call. Just a couple that we didn't kind of get to. One is since both Howard Hughes and the Pershing Square funds are managed by Pershing Square, how should investors think about investing in Howard Hughes versus Pershing Square's core strategy?

The answer is these are, I would say, different investments with some overlap. Howard Hughes, of course, the core business today is a master planned community business. It's a business we like. It's a business that we expect to generate a lot of cash over the next years and decades, and we think provides a very good base to build our version of a diversified holding company.

With the acquisition of an insurance subsidiary or insurance company that becomes a subsidiary of the company, over time, as that business scales, that will become a more important part of the operation of the company. We intend to manage that insurance company portfolio, the float in U.S. treasuries, the equity and common stocks using the same kind of investment philosophy we have at Pershing Square. So there are clearly some similar elements.

But it's an operating company. It's a C-corp. We intend to take the cash that the business generates over time and to deploy that capital in acquiring -- principally controlling interest in most likely private businesses. So the portfolio will look different. It's not a large cap or mega cap minority stake investment vehicle. It will be an operating company that will buy for the very long-term various businesses.

Today, you're buying Howard Hughes at about a 15% discount to the price we paid for shares and an even bigger discount to kind of the, I would say, the NAV of the real estate portfolio. So that's a nice place to start an investment. But ultimately, the success of Howard Hughes will depend on how we do with our various initiatives there. I like Howard Hughes a lot, excited about what we're going to do there. An entity where you have -- that's a public company, we have access to the capital markets, may create some flexibility over time for us to do some things that we can't do in the Pershing Square funds.

So over time, I would say they will be different entities, but the same investment principles will be applied and shareholder, I would say, orientation will be applied to both. And then I would -- the other thing I would say is that the Pershing Square management team has a very large investment in all of the above. So about approaching 30% of the AUM that we manage today is -- or I guess, 28% or so today is employee capital in the funds. And then on a look-through basis, therefore, the employees own an interest -- a meaningful interest in Howard Hughes. And then on top of that, the Pershing Square management company made a $900 million investment in the company.

So we have, I would say, a very high degree of what you might call skin in the game in both the funds as well as Howard Hughes. I think Howard Hughes itself is at this point, still not well recognized. I think if and when we are successful in beginning to make this business look less like a real estate master planned community and more like a diversified holding company, we expect we deliver results and we expect the market to notice.

With respect to hedging, our approach, as you likely know, is, one, we pay careful attention to what's going on in the world from a macro perspective, from a geopolitical perspective, from a political perspective, all these things can have an impact on markets. And we focus -- our first priority is what are the risks in the system that could cause a massive market decline. And to the extent we identify risks like that as we did pre-financial crisis or pre-COVID crisis or pre-Fed interest rate inflation, I wouldn't quite call it a crisis, but where the Fed was forced to raise rates very aggressively, we were able to hedge those risks because of the sort of surveillance of what's kind of going on in the world.

Today, we really have no hedges in place. We don't try to hedge short-term kind of stock market declines or what some people might think of as a periodic -- the overall multiple, the market is above normal. There are lots of reasons why a market cap weighted index today appropriately should be trading at a higher multiple. If you think back to '09, we didn't warrant businesses, frankly, like NVIDIA, and we didn't have this massive growth driven by a major change in technology.

We are seeing interesting places to put capital. We're doing due diligence. And our approach is to -- as we say, we sort of build a library of businesses that we get to know pretty well. Occasionally, new companies emerge, go public, get spun off. We track as many of them as we can in terms of ones that meet our criteria for business quality, and then every once in a while, they get really cheap. Amazon being kind of a recent example of a company we admired for years. It was always a little too expensive, but a business we want to own. And I think we started buying stock at something like $161 a share, which seem to be a really kind of unique opportunity.

With that, I just want to thank you for joining the call, and we look forward to updating you. I think our next event will be our Annual Meeting that we will stream at some point in January or an Analyst Day. Thanks so much.

Thank you, everyone. This concludes your conference call for today. You may now disconnect, and have a great day.