How a Legendary Hedge Fund Manager Recalibrated His Portfolio: Exiting Struggling Assets to Double Down on AI and Infrastructure Winners

The Strategy Shift That Defined 2025

Who is Bill Ackman? For those tracking elite investment strategies, he’s the founder of Pershing Square Capital Management, a fund that manages concentrated bets on companies with significant turnaround potential or market mispricing. His investment philosophy centers on long-term conviction plays—typically holding just a dozen or so core positions. But 2025 forced a reckoning. As market conditions evolved and some thesis deteriorated, the hedge fund made the difficult decision to completely exit two long-held positions that no longer aligned with its outlook, reshaping the fund’s portfolio composition in the process.

The Chipotle Exit: When a Growth Story Loses Momentum

Pershing Square made headlines earlier this quarter by liquidating its remaining position in Chipotle Mexican Grill (NYSE: CMG), marking the end of nearly a decade of investment. The story had seemed perfect on paper: in 2016, following the E. coli outbreak crisis, Ackman’s team identified a turnaround opportunity. Under then-CEO Brian Niccol’s leadership, the company delivered impressive execution, posting an average of 9% in same-store sales growth through 2024—a testament to operational excellence and brand recovery.

However, 2025 painted a different picture. Comparable store sales momentum stalled significantly. Q3 results showed barely positive growth of just 0.3%, with management signaling further contraction of mid-single-digit declines expected in Q4. The margin story deteriorated as well. Rising input costs combined with a weakened pricing power left Chipotle’s operating margins under pressure, declining approximately 800 basis points through the first nine months to settle at 16.9%.

While analyst Anthony Massaro noted the stock trades at roughly 25 times forward earnings—seemingly attractive by historical standards—the fund’s conviction wavered. The trajectory no longer supported the thesis that the company could return to its historical momentum. Rather than wait for a potential recovery that might never materialize, Pershing Square chose to redeploy that capital.

Nike’s Incomplete Turnaround: Why Conviction Broke

Last year, Pershing Square identified another opportunity in Nike (NYSE: NKE). The appointment of veteran executive Elliott Hill presented what looked like the catalyst for meaningful operational improvements. The fund doubled down through an options strategy, selling shares in exchange for deep in-the-money call options—essentially restructuring its exposure while raising cash for other opportunities.

That conviction didn’t last. By this quarter, Pershing Square exited the entire options position, realizing approximately a 30% loss over roughly eighteen months. The deterioration centered on two fundamental concerns that Hill’s turnaround strategy simply couldn’t overcome.

First, the margin recovery that attracted the initial investment thesis faced headwinds from an unexpected source: tariff policy. While management expressed confidence in mitigating most costs through operational efficiency, industry observers noted that absorbing tariff impacts entirely would prove nearly impossible. The athletic apparel sector’s inherent vulnerabilities became more apparent.

Second, competitive intensity in premium athletic wear has intensified. With rivals encroaching on brand territory, Nike’s ability to expand or even maintain its historical premium margins faces structural challenges.

The numbers told the story of a stalled turnaround. Fiscal 2025 revenues contracted 10% year-over-year, while EBIT margins compressed dramatically from 12.7% to 8.2%. Although management projected margin recovery into double-digit territory for fiscal 2026, significant ambiguity remained about the ultimate sustainable margin level. The gap between 10% margins and the historical 13-14% range proved too substantial to bridge with confidence.

Where Capital Is Now Deployed: Concentration Around Two Conviction Plays

With both exits executed and no new positions announced, Pershing Square’s equity portfolio has naturally become more concentrated. The fund’s two largest holdings—Alphabet (NASDAQ: GOOGL/GOOG) and Brookfield (NYSE: BN; TSX: BN)—now comprise approximately 40% of the remaining equity allocation, reflecting the fund’s highest conviction levels heading into 2026.

Alphabet: Dominance Across AI, Search, and Cloud Infrastructure

Alphabet’s position as a top holding remains justified by multiple tailwinds. Recent antitrust case outcomes delivered remedies far less restrictive than anticipated, removing a significant overhang on valuation. Simultaneously, the company demonstrated strong earnings momentum and accelerating adoption of its cloud computing services.

As a premier artificial intelligence provider with both software and hardware capabilities, Alphabet is uniquely positioned. The company’s newly released Gemini 3.0 foundation model has achieved exceptional benchmark performance and is gaining traction through custom AI accelerators. The strategic advantage lies in Alphabet’s ability to integrate these large language models throughout its ecosystem—embedding AI into core search rankings, advertising infrastructure, and YouTube recommendations. This creates a multiplier effect where advances in one area amplify value across all three.

Despite fears that AI chatbots might cannibalize search, Google’s revenue growth has remained resilient. Cloud computing operations demonstrate particularly compelling dynamics, with strong operating leverage evident as the segment scales rapidly. The combination of cloud momentum and AI integration suggests continued outperformance extending well into 2026. Even as the valuation multiple has expanded into the upper 20s on forward earnings, the fundamental growth trajectory supports the position.

Brookfield: Infrastructure Dividend Growth Accelerating

Brookfield represents the other cornerstone conviction play. Multiple catalysts position the company for substantially higher earnings in 2026 and beyond.

The subsidiary Brookfield Asset Management is launching several major fund initiatives next year, anticipated to attract meaningful capital inflows. More significantly, the parent company expects to recognize escalating carried interest—the share of investment profits that accrue to the manager. Management guided for $6 billion in carried interest generation over the subsequent three years, marking dramatic acceleration compared to just $4 billion accumulated across the previous decade. As these new funds mature over the coming years, this income stream should compound substantially.

Management has also projected 25% compound annual growth in distributable earnings throughout the next five-year window. Against this projected earnings expansion, Brookfield’s current valuation of approximately 15 times forward earnings expectations appears decidedly attractive. The combination of capital deployment from new funds, accelerating carried interest, and strong distributable earnings growth creates a compelling setup for 2026 performance.

The Portfolio Thesis Going Forward

By exiting positions that no longer aligned with investment criteria and concentrating capital in Alphabet and Brookfield, Pershing Square has repositioned for what Bill Ackman and his team believe will be the dominant themes of 2026 and beyond: artificial intelligence’s structural transformation of productivity and profitability, coupled with infrastructure’s role as a stable earnings driver in an uncertain economic environment. This concentration strategy reflects maximum conviction in these two names to drive shareholder returns.