Bill Ackman is an American billionaire hedge fund manager and investor. He founded and runs Pershing Square Capital Management, a New York-based hedge fund with $13 billion in assets under management as of 2021.
Quick Answer
Bill Ackman makes around $1.5 billion a year based on his assets under management and the typical hedge fund fee structure of 2% management fees and 20% performance fees. However, his income can vary significantly year-to-year based on his funds’ investment performance.
Bill Ackman’s Career and Net Worth
Bill Ackman founded Pershing Square Capital Management in 2004 after a successful career as an investor at Gotham Partners and Oscar Capital Management. His net worth is estimated at around $2.2 billion as of October 2022, making him one of the wealthiest hedge fund managers in the world.
Ackman is known for taking large, concentrated bets on publicly traded companies. Some of his most famous investments include his billion dollar short position against Herbalife, his activism at Canadian Pacific Railway, and large stakes in Chipotle Mexican Grill and Starbucks.
How Hedge Fund Managers Like Ackman Make Money
Hedge fund managers typically earn money through two main fee structures:
- Management fees – Usually a 2% fee charged annually on assets under management
- Performance fees – Typically 20% of any investment gains in a year
The management fee provides a steady stream of income for the manager regardless of performance. The performance fee offers potentially huge payouts in years when the investments do well. However, the manager may not collect any performance fee if returns are negative.
Bill Ackman’s Management Fees
With around $13 billion under management at Pershing Square Capital, Bill Ackman likely earns around $260 million per year in management fees alone (2% x $13 billion).
However, his total income can vary dramatically based on performance fees. For example, in 2020 Pershing Square returned 70.2% for investors. With a 20% performance fee on those gains, Ackman likely earned over $1 billion that year.
Bill Ackman’s Performance Fees
Year | Pershing Square Return | Estimated Performance Fee (20%) |
---|---|---|
2016 | -13.5% | $0 |
2017 | 1.2% | $24 million |
2018 | -0.7% | $0 |
2019 | 58.1% | $1.16 billion |
2020 | 70.2% | $1.4 billion |
As the table shows, with negative returns or modest gains, Ackman’s performance fee income is small or zero. But in huge return years like 2019 and 2020, he likely earned over $1 billion from fees alone.
Typical Earnings Range for Bill Ackman
Given the management fee and performance fee structure, a reasonable estimate for Bill Ackman’s total annual income is:
- Management Fees: $260 million
- Performance Fees: $0 – $1.5 billion+
This puts his total annual earnings between around $260 million on the low end and up to $1.5 billion+ in an exceptional year.
How Bill Ackman’s Earnings Compare to Other Top Investors
Bill Ackman’s estimated income makes him one of the highest earning hedge fund managers in the world. Here’s how he compares to some other top investors:
Investor | Net Worth | Typical Earnings |
---|---|---|
Bill Ackman | $2.2 billion | $260 million – $1.5 billion |
Ray Dalio | $16 billion | $1 billion |
James Simons | $23 billion | $1.6 billion |
Ken Griffin | $16 billion | $1.5 billion |
Steve Cohen | $14 billion | $1 – $2 billion |
Ackman earns less than famous investors like Ray Dalio and James Simons. However, he makes more than most hedge fund managers, even though his fund manages less money than giants like Renaissance Technologies or Citadel.
How Bill Ackman Spends His Money
With an enormous annual income, how does billionaire Bill Ackman spend his money?
Real Estate
Ackman owns luxury real estate around the world. He reportedly spent over $90 million assembling a mansion in the Hamptons by buying up neighboring properties. Ackman also owns a penthouse at One57 in Manhattan that cost over $90 million.
Philanthropy
The Bill and Karen Ackman Foundation focuses on early childhood education, human rights, and other causes. Ackman has pledged to give at least half his fortune to philanthropy as part of The Giving Pledge.
Investments
Even as a professional investor, Ackman invests his own money in stocks and funds. He reported owning over $500 million worth of Pershing Square Holdings stock. Ackman also invested $1 billion of his personal capital in Netflix earlier in 2022.
Taxes and Charitable Deductions
Bill Ackman’s massive income means he owes significant taxes each year. U.S. tax laws allow deductions for charitable contributions, which Ackman likely utilizes through his foundation’s giving.
Hedge fund managers also use various legal strategies to reduce taxes, including keeping investments for over a year to qualify for lower long-term capital gains rates. Carried interest loopholes allow their performance fee income to be taxed at the lower capital gains rate rather than the higher ordinary income rate.
Bill Ackman’s Billionaire Lifestyle
The tens or hundreds of millions in fees Bill Ackman earns annually afford him an incredibly luxurious billionaire lifestyle.
He can afford multiple mansions around the world, private jets, and luxury vehicles. Ackman also enjoys expensive hobbies like tennis and learning martial arts. He paid $91 million for a penthouse in Manhattan overlooking Central Park.
He recently married professor Neri Oxman in a likely multi-million dollar wedding. Bill Ackman has the wealth and income to provide an extravagant lifestyle for his family in perpetuity.
Controversies Over Bill Ackman’s Income
Despite his success, Bill Ackman’s massive pay has also sparked controversies.
Criticism of Hedge Fund Fees
Many argue that hedge fund fees are far too high given mediocre average returns. Critics believe managers like Ackman make hundreds of millions or billions while providing little value to society.
Hedge fund fees have gone down in recent years, but top managers still earn more in a year than most people make in a lifetime.
Wealth Inequality
Bill Ackman’s income contributes to rising concerns over wealth inequality. Worker wages have largely stagnated for decades while CEOs and money managers make more than ever before.
Is it ethical for investors like Ackman to make so much while ordinary Americans struggle with stagnant incomes and rising costs of living?
Carried Interest Tax Loophole
As mentioned earlier, the carried interest loophole allows hedge fund fees to be taxed at lower capital gains rates rather than ordinary income. This controversial loophole saves managers like Ackman hundreds of millions in taxes every year.
Many argue this loophole should be closed as it provides an unfair advantage to money managers over ordinary taxpayers.
Key Takeaways on Bill Ackman’s Earnings
Key takeaways on how much Bill Ackman makes each year:
- Ackman likely earns $260 million per year in management fees from his hedge fund.
- He earns additional performance fees of up to 20% of his fund’s annual gains.
- In exceptional years, performance fees can boost Ackman’s total income to over $1.5 billion.
- His massive pay contributes to concerns over wealth inequality and tax loopholes benefitting money managers.
- Despite controversies, Ackman’s success has afforded him an ultra-luxurious billionaire lifestyle.
Conclusion
Bill Ackman is one of the highest paid hedge fund managers in the world thanks to the enormous fees he earns from managing billions in assets. While critics believe his income is emblematic of a financial system tilted in favor of the mega-rich, his track record has given him the means to live an incredibly lavish billionaire lifestyle.