Fairholme's Berkowitz Starts AIG Position, Talks About Where He's Finding Value ~ market folly

Thursday, March 18, 2010

Fairholme's Berkowitz Starts AIG Position, Talks About Where He's Finding Value

According to Morningstar, recent fund manager of the decade Bruce Berkowitz has initiated a position in American International Group (AIG). Apparently, the Fairholme Fund now has exposure to the following:

- 20% of some tranches of convertible debt
- 13 million shares of AIG common stock
- other AIG bonds

The real kicker here is the common stock. What does he think it is valued at? Many have likened shares of AIG to spins at the roulette tables. We can understand his purchases of debt as he has more layers of protection that way. The equity stake is puzzling, to say the least. Berkowitz thinks that government involvement has 'cleansed' the company and he thinks the firm is positioned to move forward. In terms of other notable investment managers who have purchased AIG recently, we saw that Lee Ainslie's hedge fund Maverick Capital added AIG, albeit as a smaller brand new position in the fourth quarter.

This portfolio maneuver by Berkowitz sticks with his theme of betting on financials & turnarounds. He has a large position in shares of Citigroup (C) and is the largest unsecured creditor in the ongoing General Growth Properties (GGP) situation. In addition to this portfolio theme, we've covered how Berkowitz also likes healthcare plays.

Additionally, Berkowitz recently sat down with Consuelo Mack on Wealthtrack to discuss where he is currently finding value. Embedded below is the video and RSS & Email readers will need to come to the site to view it:

Overall, an intriguing move from the domestic mutual fund manager of the decade. He raised many eyebrows with his large Citigroup purchase. We'd argue that he'll raise even more with his new AIG stake so we'll have to see how it plays out. Berkowitz of course will be presenting at the upcoming Value Investing Congress and you can hear more of his thoughts there.

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