Pershing Square hedge fund manager Bill Ackman highlighted prison operator Corrections Corp. of America (CXW) as one of the best real-estate businesses around during his presentation at the Value Investing Congress in New York on Tuesday.

Ackman noted that Pershing Square has a 9.9% stake in Corrections Corp. Ackman is known as an activist investor but he said on Tuesday that the Corrections stake is passive, because the company's management and directors are already doing a good job.

"The biggest risk for Corrections Corp. is that suddenly lots of people stop committing crimes," Ackman said, noting that the recession may increase crime rates.

The government is a major customer and there's strong demand for prison space and limited supply, Ackman explained. The company's shares closed Tuesday up 5% at $25.67.

"It's also a hedge against your hedge fund business, because as the SEC ramps up...," Ackman said, prompting laughter at the conference in mentioning the Securities and Exchange Commission. "We shouldn't joke about that," he added.

Ackman may have been referring to Galleon Group, which was rocked on Friday when founder Raj Rajaratnam was charged and arrested in what federal prosecutors say is the largest hedge fund insider trading case ever. Rajaratnam, who has been released on bail, said Monday that the charges are "entirely baseless."

Ackman also said Tuesday that he is shorting Realty Income Corp. (O), another real-estate business. That short position, combined with a long position in Corrections Corp., makes a good pairs trade, although Pershing Square didn't structure its positions that way initially, Ackman explained. The company's shares closed down 1.2% to $23.20.

Ackman also said Pershing bought McDonald's Corp. (MCD) shares in recent months. The hedge fund firm had a big stake in the fast-food giant earlier this decade, but sold it. Ackman got back into the shares at $55 each, because he said the company has improved and the number of shares outstanding has declined.

McDonald's is also a good hedge against a falling U.S. dollar and offers some protection against inflation, Ackman added. Its shares closed down 36 cents to $58.92.

Ackman said he isn't a fan of gold, but recommended Berkshire Hathaway (BRKA, BRKB) and Automatic Data Processing Inc. (ADP) as companies that should do well if inflation takes off.

-Greg Morcroft; 415-439-6400; AskNewswires@dowjones.com
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