$2.1 billion acquisition of an insurance company, Ackman replicates "Berkshire Hathaway"

Activist investor Bill Ackman is trying to create a "new version of Berkshire Hathaway."

On Thursday, billionaire Bill Ackman announced that his company Howard Hughes will acquire the insurance company Vantage Risk for $2.1 billion. Ackman stated in a press release:

Acquiring Vantage is a milestone event for Howard Hughes's transformation into a diversified holding company.

According to the agreement, Howard Hughes will complete the acquisition through cash and up to $1 billion in equity investment from Ackman's hedge fund Pershing Square. Pershing Square is the largest shareholder of Howard Hughes, which has been dormant in the public market for a decade.

This deal marks a key step for Ackman in emulating Warren Buffett's investment model. Berkshire Hathaway is one of the pioneers in utilizing insurance float, which refers to the premiums collected that are used to pay claims and invest, as a low-cost source of capital for a diversified investment portfolio.

The acquisition also places Ackman in an increasingly crowded field. In recent years, other activist investors and private equity groups have flocked to the insurance sector, leveraging cheap insurance capital to fund public acquisitions and private loans.

Competition for Insurance Capital Heats Up

The strategy of using cheap insurance capital to fund investments is becoming increasingly popular.

Since 2020, private equity giants Apollo Global and KKR have fully acquired life insurance affiliates, using premium income from retirement products to fund hundreds of billions of dollars in investments.

Activist investor Daniel Loeb also overcame some shareholder opposition earlier this year to successfully push for the transformation of his London-listed company into a reinsurance business.

Cayman Islands-based Malibu Life Reinsurance will focus on capturing market share in the U.S. fixed annuity market, providing guaranteed income for retirees.

In contrast, Vantage is a property and casualty insurance company that focuses on underwriting in areas such as litigation, political violence, and cyber risks.

This difference in business models means that the path chosen by Ackman differs from that of private equity giants like Apollo and KKR, but similarly aims to secure stable insurance float as a source of investment capital.

Howard Hughes has been publicly listed for a decade but has long underperformed. Ackman plans to transform it from a single real estate company into a vast business empire similar to Berkshire Hathaway by acquiring controlling interests in operating companies