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August 17, 2009 – Comments (15)

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Thursday, July 30, 2009

Hedge Fund News Update

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Seth Klarman (Baupost Group) - The value master himself has recently been "up to no good." And, by that, we simply mean he has been active making investments. Intriguingly enough, Klarman's latest target has been CIT Group (CIT). Before you avid Klarman-ites become appalled and outraged at this move, settle down... this is a pretty good deal for him. (Obviously, right? Why else would he do it?) Klarman's hedge fund Baupost Group was part of the assembly of funds that provided financing for CIT. Baupost joined Centerbridge Partners, Oaktree Capital Management, Pacific Investment Management, and Silver Point Capital, among others. The reason this deal was so enticing to Klarman and others is that the deal was heavily over-collateralized. Supposedly, the loan is backed by $30 billion worth of assets. Additionally, Klarman and the others will be receiving an enticing interest rate of Libor + 10 points with a 3% floor. Later, it was also revealed that this group of lenders also received an upfront 5% fee. So, what's not to love about that deal? CIT was desparate for help, and they got it. We ponder if this is another situation where a prominent investor gives his 'stamp of approval' to a company in return for a great return on capital. While we think this specific situation is more-so due to CIT's dire situation, we're sure they don't mind being associated with Klarman & Baupost. In other recent Baupost news, we saw that they sold completely out of their Omnova (OMN) position. You can check out the rest of Baupost's portfolio here.


Pav Sethi (Gladius Investment Group) - Pav formerly worked as the head of volatility arbitrage at Citadel Investment Group and will be starting his own firm Gladius. With Pav also goes Rajesh Kedia and Bertrand Divet as Citadel loses a few more team members. They will be focused on what they excelled in at Citadel: volatility.

Paul Tudor Jones (Tudor Investment Corp) - Back in 1987 a documentary was filmed on Paul Tudor Jones and his hedge fund entitled 'Trader: The Documentary.' This film has become scarce and almost a form of trader contraband as Jones reportedly bought almost all available copies in the 1990's since he didn't want the flick floating around anymore. But, as with all great information, this video wanted to be set free. As such, the film was recently leaked onto the web and we posted it up yesterday. So, if you missed it, you can watch and/or download the video here.

5:15 Capital - In our last hedge fund update we mentioned the formation of a new hedge fund by some Brevan Howard alums. Named after a song from 'The Who', 5:15 has recently gotten an injection of $50 million from Man Group, one of the largest hedge fund managers on the globe. As part of the setup, Man Group will take a portion of 5:15's revenue. The Man Group sees 5:15 stepping into a nice niche in terms of hedge fund strategies, as the crisis has left the field relatively empty in their type of arbitrage.

Warren Buffett (Berkshire Hathaway) - We aren't limiting our hedge fund updates to just hedge funds, as we're now also covering gurus and market strategists. Obviously, Buffett falls into this category. Buffett recently filed a 13D on Moody's (MCO) that disclosed he had sold 7,986,300 shares of the company ranging in prices from $26.59-$28.73. Despite the sales, Buffett still owns well over 40 million shares of the company. But, this filing is interesting to note because Buffett had previously championed the ratings agencies in public as solid investments. Has he had a change of heart? We'll continue to monitor the filings to see if he sells even more. Our immediate reaction was to wonder if he had been chatting with fellow value player David Einhorn of hedge fund Greenlight Capital. Einhorn recently presented the case for shorting Moody's at the Ira Sohn investment conference. It's always interesting to see a difference of opinion among smart minds, so that's why Buffett's selling becomes all the more curious. For further interesting reading, you can view Berkshire Hathaway's Annual Report here and investment ideas from hedge fund managers at the Ira Sohn conference here.

John Burbank (Passport Capital) - We just covered Passport's recent investor letter and saw some interesting developments in their portfolio. Most notably, we found out that they had been playing with interest rate bets including a curve steepener. Additionally, they have started to bet on the Japanese Yield Spread via 5-year CMS caps (calls), anticipating a rise in 10-year rates. Passport also likes Healthcare stocks as they are at the highest allocation in the fund's history. To read about the latest from Passport Capital, check out their latest investor letter update.

Jim Rogers (ex-Quantum Fund) - The market guru himself has been out and about in the media talking about his usual theses and positions. So, we don't really have a whole lot of new information to report in this regard. We just want to point out that (yet again) Rogers is very bullish on commodities.

Fortress Investment Group - The massive $27 billion hedge fund Fortress Investment Group is on the prowl for potential investments. However, they're not looking for market investments in the typical sense. Instead, they're looking to acquire other hedge funds and financial firms. Daniel Mudd, Fortress' new CEO, has said they will try to acquire money managers, banks, insurers, hedge funds, and the like. The industry in general has definitely seen a contraction as the weak fall by the wayside during the crisis. Since there have been many opportunities in the markets throughout the course of the crisis, it will be interesting to see if Fortress finds any 'deals' in the hedge fund landscape.

Andreas Halvorsen (Viking Global) - A few days ago we also covered Viking Global's latest investor letter. In the letter, we found out that they had lagged the market in the 2nd quarter of 2009 due to their short positions. More interestingly though, was the fact that they added a ton of new positions over the past quarter, 68 in all. They warned that all the new additions were not a bet on rising markets, but rather a result of their fundamental, bottom-up analysis. Their top 10 long positions as of the end of June were Invesco, Mastercard, Visa, Unilever, DirecTV, Google, JPMorgan Chase, Walt Disney, Bank of America, and Qualcomm. To find out what Viking Global has been up to, check out their portfolio update.

The Fine Violins Fund - No, we are not joking. Florian Leonhard is trying to raise capital for a Fine Violins Fund. Leonhard is a well-known violin restorer from London and has so far raised 16 million euros for the fund. He hopes to raise 60 million euros in total and seeks to invest in pre-19th century violins, primarily from Italy. Leonhard is targeting a portfolio of 50 violins and he will loan the violins out at no charge to musicians. In the past, we've touched on other obscure investment funds, such as a fund that invests in wine, a few funds that are investing in lawsuits, and another fund that invests in guitars. The musical instrument theme seems to be picking up steam and we'll have to see if a Trombone fund pops up next. Let us know if there are any other interesting funds out there that we might be missing out on. These types of funds are the definition of the term 'alternative asset class'.


Read more: http://www.marketfolly.com/2009/07/hedge-fund-news-update.html#ixzz0OTsGVRHh

 

David Rosenberg (Gluskin Sheff & Associates) - In our last article on Rosenberg, we noted his fondness for corporate bonds and his thoughts that the stock market in general already had a bunch of good news priced in. Rosenberg has been re-iterating his call on corporate bonds, this time saying that "they are still pricing in a very bad economic and financial market scenario. Moreover, the yield spread is still wider than at any point during the 2001 or 1990 recessions of the 1998 LTCM/Russian debt default freeze-up. In fact, history suggests that the corporate default rate would have to rise well above 7% for corporate bonds to deliver negative returns with yields as high as they are at around 7.25%." Additionally, in media appearances over the past month or so, we wanted to point out that Rosenberg indeed sees inflation as a threat. However, he says that threat is many years away. He also thinks we easily go through past unemployment levels of 10.8% and that from March to May, the stock market has essentially seen a 40% 'dead cat bounce'.

Hugh Hendry (Eclectica Fund) - Hugh is focused on the deflation versus inflation debate lately and he notes that he has never seen such a 'crowded trade' with people so confident that inflation is in our future. He favors bonds over equities and he thinks that deflation is the bigger risk here. Hugh says that, "It's almost as if we have this flood, but people are buying fire insurance." He is actually in favor of government bonds and notes that this is due to his contrarian nature. He is not too focused on the equity markets currently but says he will 'prod them' around August or September to see what is really going on there. We've covered Hugh's thoughts on the blog in the past and you can view his past investor letter here.

Michael Steinhardt (WisdomTree Investments, ex-Steinhardt Partners) - Hedge fund legend Michael Steinhardt sat down and talked with Bloomberg back in early June. While this is obviously not as recent as some of the other developments we've pointed out, we are highlighting it due to the excellent content in the interview. He talks about returns in equity markets going forward, the current stock market, the role of hedge funds, and what people should be investing in these days. We highly recommend watching the interview and you can view the video embedded below. (RSS & Email readers will need to come to the blog to view the video). In the past, we've also covered Michael Steinhardt's view on treasuries, as he says they are foolish.

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15 Comments – Post Your Own

#1) On August 17, 2009 at 6:28 PM, portefeuille (99.60) wrote:

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Monday, August 17, 2009

Pershing Square: New Positions In McDonalds (MCD) & Automatic Data Processing (ADP) ~ 13F Filing


This is the second quarter 2009 edition of our ongoing hedge fund portfolio tracking series. Before reading this update, make sure you check out our series preface on hedge fund 13F filings.

The first hedge fund in our 2nd quarter 13F series is Bill Ackman's Pershing Square Capital Management. Bill is a well known value and activist player who founded Pershing after his previous firm Gotham Partners broke up. Most recently, he has been well known for his foray into shares of Target (TGT) in an attempt to unlock value and spur change at the company. While he is committed to the company long-term, he just recently trimmed his Target position (as per an amended 13D filing with the SEC). We follow Ackman & Pershing because they run a highly concentrated portfolio that is ideal for portfolio tracking purposes. For more information, check out our in-depth profile on Ackman and Pershing Square.

In our first quarter 2009 update regarding Pershing Square, we noted in their 13F filing that they had amassed a large position in EMC (EMC). Let's see what they were up to this time around. The following were their long equity, note, and options holdings as of June 30th, 2009 as filed with the SEC. We have not detailed the changes to every single position in this update, but we have covered all the major moves. All holdings are common stock unless otherwise denoted.


Some New Positions (Brand new positions that they initiated in the last quarter):
Automatic Data Processing (ADP)
McDonalds (MCD)


Some Increased Positions (positions they already owned but added shares to)
EMC (EMC): Increased position by by 0.1%


Some Reduced Positions
Target (TGT): On this position, the 13F has different data, but we are ignoring that because Pershing recently filed an amended 13D which updates their TGT stake as of a much more recent date. In the filing, we see that they have reduced their overall exposure from 7.8% ownership in the company to 4.4% ownership. You can read about the specifics of the transactions in our post on Target.


Removed Positions (Positions they sold out of completely)
Alexanders (ALX)
Apartment Investment & Management (AIV)
Visa (V)
Wendys Arbys (WEN)
Yum Brands (YUM)


Flat Positions (Positions with no change since the last filing)
Greenlight Capital Re (GLRE)
Borders Group (BGP): Average price of their position is $6.98 per share (as detailed in Pershing's investor letter)


Entire Portfolio (by % of portfolio)

Target (TGT): 43.28% of portfolio - calculated only using their common shares position (to help reflect the fact that they've sold out of a lot of their options positions just recently).

EMC (EMC): 33.89% of portfolio

Automatic Data Processing (ADP): 11.34% of portfolio

McDonald's (MCD): 6.08% of portfolio

Borders Group (BGP): 1.72% of portfolio

Greenlight Capital Re (GLRE): 0.19% of portfolio

Okay, so before everyone freaks out: Ackman did not sell General Growth Properties (GGWPQ). It is simply not listed because the SEC has deemed GGWPQ to no longer be a reportable security (thanks KP for the link) for 13F filings. We would guess that this is possibly due to the fact that they are no longer listed on the exchange (GGWPQ is traded in OTC markets now). The main thing to take away from this though is the fact that we will still see Ackman's moves in GGWPQ through Form 4 filings since he is now on the board of directors. So, all of you GGWPQ bandwagoneers can still sleep at night. Ackman touched on his position in General Growth in one of his recent investor letters. Additionally, you can view Pershing Square's GGWPQ presentation from the Ira Sohn investment conference (where numerous hedge fund managers presented investment ideas).

The other major moves in Ackman's portfolio can be summarized as such: He added McDonald's and Automatic Data Processing as brand new positions. At the same time, he sold completely out of a number of positions, including: Alexanders, Apartment Investment & Management, Visa, Wendys Arby's, and Yum Brands (many of which he had just picked up a few quarters ago). It looks as if Ackman is making a straight swap in fast food land, favoring McDonald's over his previous holdings. That really sums it up, as Pershing runs a pretty concentrated portfolio. For more on them, make sure to check out our profile on Ackman and Pershing Square.

Assets from the collective holdings reported to the SEC via 13F filing were $2.2 billion this quarter compared to $1.9 billion last quarter, so a slight tick up. This is just one of the 40+ prominent funds that we'll be covering in our Q2 2009 hedge fund portfolio series. Check back each day as we cover prominent hedge funds.
Read more: http://www.marketfolly.com/#ixzz0OTuOkPFq

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So I guess both Ackman's Pershing Square and I had a large part of our portfolio in shares of EMC. You can safely assume that Pershing Square was holding more shares than I though, hehe ...

I am still holding mine.

 

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#2) On August 17, 2009 at 6:30 PM, portefeuille (99.60) wrote:

And my position is unhedged. Actually it is the opposite of hedged. I am also holding EMC calls ...

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#3) On August 17, 2009 at 6:37 PM, portefeuille (99.60) wrote:

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#7) On February 24, 2009 at 1:51 PM, portefeuille (99.98) wrote: EMC - 10.78 - outperform

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#47) On March 04, 2009 at 12:31 AM, portefeuille (99.98) wrote: BGP - 0.55 - outperform

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#531) On June 16, 2009 at 12:57 PM, portefeuille (99.98) wrote: GGWPQ.PK - 2.30 - outperform

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(from here)

EMC is currently at ca. $14.78, BGP at ca. $3.33 and GGWPQ at ca. $2.80.

My EMC "pitch" is here.

 

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#4) On August 17, 2009 at 6:51 PM, portefeuille (99.60) wrote:

The all-time low for BGP is $0.34, the intra-day low on December 24, 2008 (merry christmas!). It dropped to its 2009 low of $0.39 on March 6, 2009, so 2 days after my "outperform call". I guess it is usually a good thing not to panic, hehe ...

 

 

 



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#5) On August 17, 2009 at 7:58 PM, dragonLZ (99.42) wrote:

Porte, do you think BGP is still a good buy (at $3.33)? 

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#6) On August 17, 2009 at 8:46 PM, portefeuille (99.60) wrote:

no, not really.

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#475) On April 25, 2009 at 1:20 AM, portefeuille (99.98) wrote: BGP - end outperform - 2.23 - no new rating

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#7) On August 17, 2009 at 8:56 PM, portefeuille (99.60) wrote:

The Tudor movie mentioned above is really highly entertaining.

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Paul Tudor Jones drinks Budweiser and trades Deutsche Marks in the early morning Hong Kong time.

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#8) On August 17, 2009 at 9:12 PM, portefeuille (99.60) wrote:

update of the chart I posted in comment #48 here.

 

 

 



enlarge

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#9) On August 17, 2009 at 9:52 PM, portefeuille (99.60) wrote:

High-frequency trading from Marketplace on Vimeo.

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#10) On August 18, 2009 at 12:07 AM, portefeuille (99.60) wrote:

HEDGE FUND INDUSTRY ASSETS SURGE AS PERFORMANCE LEADS INDUSTRY RECOVERY (pdf)

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#11) On August 18, 2009 at 12:32 AM, portefeuille (99.60) wrote:

************************************************************************************

a guide to my blog posts can be found in the comment section to this post

(should be or should be close to the last comment)                                                                

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#12) On August 18, 2009 at 12:44 AM, portefeuille (99.60) wrote:

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#13) On August 18, 2009 at 12:51 AM, portefeuille (99.60) wrote:

That is Dan Loeb of Third Point in the video by the way. Still jumping between way too little and way too much portefeuille commentary in a rather erratic way I guess. But then again if you have made it here I guess you don't really care. Thank you readers!

Dan Loeb Video: Hedge Fund Manager Of Third Point LLC

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#14) On August 18, 2009 at 1:21 AM, portefeuille (99.60) wrote:

the interesting part of the video starts at around 14:30.

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#15) On December 26, 2011 at 6:46 AM, portefeuille (99.60) wrote:

Trader - Paul Tudor Jones - video

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