Thursday, December 23, 2010

Happy Holidays From Market Folly!

We just wanted to take this opportunity to say thank you to our readers for reading the site and to wish you a relaxing and enjoyable holiday season!

Merry Christmas, Happy Hanukkah, Happy Kwanzaa, Happy Festivus, Happy Holidays (and insert any others we might have left out here)!

Hedge Fund Carlson Capital Exits Portec Rail Products (PRPX)

Last week, we revealed that hedge fund Carlson Capital had filed an activist 13D on shares of Portec Rail Products (PRPX). In it, they disclosed a 5.2% ownership stake in a company that was subject to a tender offer. Due to an amended 13D filed with the SEC after market close yesterday, Carlson has completely exited its position in PRPX. And although we don't know for sure, the likely reason could be below:

According to Reuters, "As of the subsequent offering period's expiration time, approximately 8,662,078 shares had been tendered and not properly withdrawn pursuant to the tender offer, which represented approximately 90.20% of the outstanding shares. L.B. Foster and Foster Thomas Company accepted for payment all shares that were validly tendered and not properly withdrawn, and paid for these shares in accordance with the tender offer's terms. L.B. Foster intends to effect a short form merger of Foster Thomas Company with and into Portec, with Portec being the surviving corporation, as soon as practicable. As a result of the merger, Portec will become a wholly owned subsidiary of L.B. Foster."

If you're slightly confused as to the tender offer timeline and Carlson's involvement, head to our previous post on PRPX. But as of December 21st, the hedge fund no longer owns shares.

Taken from Google Finance, Portec "manufactures, supplies and distributes a range of rail products, including rail joints, rail anchors, rail spikes, railway friction management products and systems, railway wayside data collection and data management systems, and freight car securement systems."

What We're Reading ~ 12/23/10

A head's up interview with David Einhorn [Dealbreaker]

Talking investment strategy for 2011: a roundtable [Bespoke]

Elfenbein's buy list for 2011 [CrossingWallStreet]

Whitney Tilson's short thesis on Netflix (NFLX) [Market Folly]

Netflix CEO Reed Hastings responds to Tilson [SeekingAlpha]

Whitney Tilson responds to Netflix CEO's comments [zerohedge]

Investing fads and themes by year, 1996-2010 [ReformedBroker]

For activist funds, a long-term approach to investing [Dealbook]

RenTec's Medallion fund poised for two of its 'worst' years [Institutional Investor]

Interview with tech-focused hedge fund Thompson Peak Capital [BusinessInsider]

Top 10 hedge fund stories of 2010 [AbsoluteReturn+Alpha]

77% of RIA's are satisfied with their jobs [WSJ]

Discovery Communications market neutral pair trade [AboveAvgOdds]

Ten investment ideas for 2011 [Marketwatch]

Wednesday, December 22, 2010

Howard Marks on Gold

Howard Marks of Oaktree Capital has been on a writing spree as of late. Yesterday we posted Howard Marks' thoughts on the credit cycle. Today, we turn our attention to his memo, 'All That Glitters' which focuses on everyone's favorite precious metal: gold.

Reasons to Own Gold

He starts off his missive by examining the reasons to own gold. He lists the following as pluses: "It serves as a reliable store of value, especially in challenging and uncertain times. It's a hedge against inflation, since its price rises in sympathy with the general level of prices. It exists without the involvement of man-made constructs such as governments. And it's desired and accepted all around the world (and always has been)."

Why You Shouldn't Own Gold

On the contrary, Marks provides equal weight to the other side of the argument. Citing reasons not to own gold, Marks prudently highlights that, "gold is nothing but a shiny metal. Since its real-world applications are limited to jewelry and electronics, very little of its value comes from actual usefulness.

Marks' Take on Gold

While he uses the first half of his letter to cohesively outline the arguments both for and against gold, he uses the latter half to focus on his personal view of the metal. Marks has a problem with the precious metal in that he can't properly value it. He writes, "But there's no analytical way, in my opinion, to value an asset that doesn't produce cash flow ... and especially one that doesn't at least have the prospect of doing so." On this he further opines that, "In fact, that's true of all non-income-producing assets: they're only worth what buyers will pay for them."

He then goes on to summarize his view by writing, "My point here is the one I've held longest on this topic: that gold works as a store of value solely because people agree it will." In the end, he used to be a non-believer in gold but has since come around to some of its merits. He primarily sees its use as "a useful contributor to safety through diversification."

Embedded below is Howard Marks' memo, 'All That Glitters':

You can download a .pdf here.

Toward the end of the letter, Marks focuses on the US dollar's weakness and its potential role in gold's strength. This is the exact premise John Paulson has used. Paulson & Co's gold fund is a bet against the US dollar.

Longtime readers of Market Folly know we have posted copious resources on the topic of gold, including viewpoints from many top hedge fund managers. And as you'll see below, the majority are proponents of the metal:

- David Einhorn stores physical gold

- Passport Capital's John Burbank prefers hard assets

- Dan Loeb buys physical gold

- Gold miners, not gold, are the play

Third Point Trims Position in Nabi Biopharmaceuticals (NABI)

Dan Loeb's hedge fund firm Third Point LLC just filed an amended 13D with the SEC regarding its position in Nabi Biopharmaceuticals (NABI). Due to portfolio activity on December 16th, Loeb has disclosed a 9.4% ownership stake in NABI with 4,000,100 shares. They sold shares on dates ranging from the 13th of December to the 20th and at prices from $5.60 to $5.73.

Back in April we revealed that Third Point was selling NABI shares and this time is no different as they've reduced their position from a previous 10.7% ownership down to the current 9.4%. However, Third Point still retains a sizable stake. For more on this hedge fund's latest activity, we posted up Third Point's most recent investor letter.

A potential thesis associated with this investment was revealed by Seth Hamot of Roark, Rearden, & Hamot Capital. It is a play on curing addiction to smoking and Hamot likes the royalty stream as Nabi partnered with Glaxo Smith Kline (GSK) on this vaccine. You can read his NABI thesis here.

Per Google Finance, Nabi Biopharmaceuticals is "a biopharmaceutical company focused on the development of vaccines addressing unmet medical needs in the areas of nicotine addiction and infectious disease. As of December 31, 2009, the Company’s product in development is Nicotine Conjugate Vaccine (NicVAX), a investigational vaccine for treatment of nicotine addiction and prevention of smoking relapse."

To learn to invest like Loeb, check out his recommended reading list.

Second Curve Capital Buys More Tennessee Commerce Bancorp (TNCC)

Tom Brown's hedge fund firm Second Curve Capital just filed a Form 4 with the SEC on shares of Tennessee Commerce Bancorp (TNCC). Per a transaction on December 17th, advisory clients of Second Curve purchased 10,000 shares of TNCC at a price of $4.10. After this transaction, Second Curve reported beneficially owning 1,242,456 shares of the company. We originally covered it when Second Curve started a new position in TNCC back in August.

Per Google Finance, Tennessee Commerce Bancorp is "a bank holding company formed to own the shares of Tennessee Commerce Bank (the Bank). The Bank conducts business from a single location in the Cool Springs commercial area of Franklin. As of December 31, 2009, the Bank had total assets of $1.4 billion. The Bank offers a range of retail and commercial banking services."

For other recent activity out of this hedge fund, we saw that Tom Brown almost tripled his stake in Banner Corp (BANR).

Tuesday, December 21, 2010

Dan Loeb's Third Point Q3 Letter to Investors

Dan Loeb's hedge fund firm Third Point is finally out with its third quarter letter to investors. The first half of Loeb's letter focuses on Ben Bernanke and the second half focuses on Third Point's portfolio. The latter portion is what we'll highlight below.

Third Point recently received AR Magazine's award for event driven fund of the year. Third Point now manages $3.6 billion and at the end of the third quarter its Offshore Fund was up 19.2% for the year. The fund now has seen 18.2% annualized returns since inception, an obvious reason to track them. Recall that we've provided commentary and analysis of Loeb's investments in our newsletter. And if you desire to be a successful investor like Loeb, head to his recommended reading list.

Anadarko Petroleum (APC)

Turning to Loeb's recent commentary, he touches on his firm's position in Anadarko Petroleum. We originally revealed this position back in August and he purchased debt securities in June and July due to the opportunity presented as a result of the Gulf oil spill.

Of the investment he writes, "Our analysis was correct and in hindsight, investors could have generated similar returns by investing in anything 'Macondo-related (e.g. RIG, BP and Anadarko equities). However, Anadarko bonds offered similar upside to the aforementioned securities but with effectively zero downside in the event that either our thesis on the severity of the spill was incorrect or there was a material decline in oil and.or natural gas prices, and so we delivered excellent risk-adjusted returns."

In his commentary, Loeb mentions that all oil spill related securities have rallied furiously since the event. He doesn't mention whether or not Third Point still owns these securities and almost makes it sound like he has since exited the position (but that's speculation on our part).

NXP Semiconductor (NXPI)

Loeb also reveals a new position in his letter as Third Point participated in NXPI's IPO. He notes that, "the company is in the final stages of completing a substantial operational and capital structure restructuring, which is driving free cash flow, rapid deleveraging and attractive new opportunities like a leadership position (>50% market share) in Near Field Communications, a fast emerging mobile payment technology being adopted by Google Android, Nokia and Blackberry." The most interesting thing here is that despite the rally in shares, Loeb sees "substantial upside" in this stock.

Top Positions

While not specifically listed in the letter below, we have since seen Third Point's November portfolio update where they list the following as their top positions:

- Gold
- Delphi (multiple securities held)
- Potash (POT)
- Chrysler (multiple securities held)
- Lyondell (LYB)

Of note are the fact that Loeb owns physical gold, not the exchange traded fund. Fellow hedge fund manager David Einhorn of Greenlight Capital stores physical gold and John Burbank of Passport Capital also prefers the physical metal.

Embedded below is Third Point's third quarter letter to investors:

You can download a .pdf copy here.

To see what else Dan Loeb has invested in, be sure to check out our Hedge Fund Wisdom newsletter. And to learn to invest like this hedge fund manager, head to Loeb's recommended reading list.

Oaktree Capital's Howard Marks on the Credit Cycle

Howard Marks of Oaktree Capital is out with his latest memo entitled 'Open and Shut.' This refers to the credit cycle, one which Marks believes is the "most volatile of cycles and has the greatest impact." This is particularly interesting since many people don't seem to be focusing on the credit cycle these days. He takes a walk through his past commentary on the subject matter and provides investors with ample words of wisdom.

He then shifts his focus to quantitative easing and the Federal Reserve's actions. Simply put, he feels that such a low-rate environment has caused investors to reach for yield. And in a sense, Marks argues that many assets are overvalued. He writes that, "In 2006-07, the most appreciated assets were real estate, mortgages, and buyout companies. This year they're Treasury securities around the world, gold, commodities, currencies (versus the U.S. dollar) and real estate and stocks in emerging markets."

With many appreciated assets, where should investors put their money then? You'll recall that back in October, Marks advocated high quality large cap stocks. It would be interesting to see if he still feels those assets are 'cheaper' than most other options.

Marks is leery of the return of risk. He points out that it was the time to buy in 2008 when Lehman Brothers had failed and asset sales abounded. Marks goes on to say that, "Today some assets are fairly priced and others are high, but there are no bargains like those of 2008. Capital and nerve can't hold the answers in such an environment. We're no longer in a high-return, low-risk market, especially in light of the inability to know how today's many macro uncertainties will be resolved. Instead of capital and nerve, then, the indispensable elements are now risk, control, selectivity, discernment, discipline and patience."

It's interesting that he notes there are no bargains like 2008. While maybe not yet reaching panic levels like 2008, the Municipal bond market sure has taken a beating lately and it'd be interesting to hear Marks' thoughts on that asset class. Since he did not mention them specifically, we'd assume he doesn't view them as 'on sale' quite yet.

Embedded below is the Q3 letter to investors from Oaktree Capital's Chairman, Howard Marks:

You can download a .pdf copy here.

As always, leave it to Howard Marks to provide us with a bevy of wisdom that will most likely be quoted years from now. For more of his commentary, we looked at his recommendation to buy high quality large-cap stocks. And for other market thoughts from fund managers, scroll through our collection of hedge fund letters.

Bridger Management Boosts Stake In Ironwood Pharmaceuticals (IRWD)

Roberto Mignone's hedge fund Bridger Management just filed a 13G with the SEC regarding shares of Ironwood Pharmaceuticals (IRWD). Due to portfolio activity on December 9th, Bridger has disclosed a 5.1% ownership stake in the company with 2,390,679 shares.

This marks an increase in Mignone's position size to the tune of 483%. Bridger Management previously owned only 410,000 shares at the end of the third quarter. Roberto Mignone worked at Blue Ridge Capital and Tiger Management before founding Bridger and earned both his undergraduate degree and MBA from Harvard. You can scroll through all our previous coverage of Bridger Management here.

Per Google Finance, Ironwood Pharmaceuticals " formerly Microbia, Inc. is an entrepreneurial pharmaceutical company that discovers, develops and focuses to commercialize medicines targeting important therapeutic needs. The Company operates in two segments: human therapeutics and biomanufacturing."

Friday, December 17, 2010

Why Whitney Tilson is Short Netflix (NFLX)

Whitney Tilson has gotten his ass handed to him in his short of Netflix (NFLX). And, he'll be the first to tell you that. However, that hasn't rattled his conviction as he thinks the company is now trading at ridiculous valuations. In support of his argument, he's recently released an in-depth bear case for NFLX entitled, you guessed it: "Why We're Short Netflix."

We've covered T2 Partners' portfolio in-depth before and Netflix is now one of their main short positions. NFLX is the definition of a momentum stock. It has made the longs copious amounts of money and ripped the collective faces off of short sellers. Given the beating Tilson and his hedge fund T2 Partners have taken, why persist? He writes,

"We acknowledge that the company offers a useful, attractively-priced service to customers, is growing like wildfire, is very well managed, and has a strong balance sheet. So why on earth would we be betting against this stock? In short, because we think the valuation is extreme and that the rapid shift of its customers to streaming content (vs. mailing DVDs to customers) isn’t the beginning of an exciting, highly-profitable new world for Netflix, but rather the beginning of the end of its incredible run. In particular, we think margins will be severely compressed and growth will slow over the next year."


Tilson's main short thesis here is valuation. On that subject he argues, "By any measure, Netflix’s valuation is extremely rich. Based on yesterday’s closing price, it trades at 67.4x trailing EPS ($2.65), 63.1x the high end of the company’s EPS guidance for the full year 2010 ($2.83), and 46.7x consensus analysts’ estimates for 2011 ($3.82). It also trades at 4.6x sales. In short, the stock is priced for perfection and any misstep would likely trigger a huge selloff."

Other Reasons for Shorting NFLX

While valuation is often a logical place to start when searching for a short thesis, Tilson also hints at various other reasons to be skeptical of the company. Of these, he points out the company's business model shift, potential new competitors, the sudden resignation of the CFO, and a large potential impact on margins. Regarding the latter, the T2 Partners manager says,

"The biggest impact on margins, we believe, will come from Netflix having to pay increasing amounts for streaming content. Unlike renting DVDs, in which Netflix is protected by the First Sale Doctrine (for now, anyway – see discussion below), the laws around streaming content require that Netflix must have an agreement with the content owner to stream it. This is very bad news for Netflix because content owners are generally very savvy and are seeking to carefully control their content to maximize revenues."

In-Depth Report

Tilson elaborates on his short thesis in the in-depth report embedded below:

You can download a .pdf copy here.

While Tilson has gotten roughed up by this stock, his conviction is unwavering and it is currently T2 Partners' largest bearish bet (via short common stock and owning put options). We'll have to see if he continues to get beat up in this name (and if so, at what point he cries "Uncle") or whether his thesis comes to fruition over time. For more from this hedge fund, we've detailed T2's largest positions as well as their bullish stance on Automatic Data Processing (ADP).

Berkowitz Joins St. Joe (JOE) Board, Einhorn Skeptical of Any Potential Acquisition

There are two enthralling recent developments in the ongoing saga surrounding The St. Joe Company (JOE). As we've detailed before, Bruce Berkowitz's Fairholme fund is long JOE. David Einhorn's hedge fund Greenlight Capital has taken the other side of the trade and is short JOE. Recently, rumors surged that St. Joe could be taken private which caused shares to jump 15% over the past few days. The company refused to comment on such rumors, citing company policy.

Einhorn Skeptical of Potential Takeover

We originally posted Einhorn's short thesis on JOE in which he laid out a bear case where the company could be worth $7-10 per share if it were converted into a rural land company. When Einhorn made his bearish presentation at the Value Investing Congress, his speech caused shares to plummet. Recently, shares have staged a slight comeback due to recent takeover rumors. Einhorn addressed this concern in a recent interview with Bloomberg TV:

"Well, I don’t think taking over St. Joe would make very much sense. The talk yesterday was that Bruce Berkowitz and maybe some private equity guys were going to pay a big premium for the company and so that caused a lot of excitement. What I think is that this is going to be a very hard thing to take private on a reasonable basis because there is no cash flow in the company. The company has negative profits and they have no means of generating ongoing cash to service debt. Which means that there’ s not a lot of bank lending for the sort of undeveloped land that St. Joe has at this stage of the cycle which means that it’s going to be very tough, I think, to finance a leveraged transaction for this company."

The Greenlight Capital fund manager also touched on how this short position is somewhat different than a typical short, saying:

"What’s kind of neat about the St. Joe analysis as a short as opposed to some other things is that there’s no ongoing business. They have this many acres. Ten years ago they had twice as many acres. All they do is sell acres. They take in cash for selling the acres. Most of it goes to the operating expense of the company so there’s not a lot of profits left for shareholders. And so basically, this isn’t an ongoing business, it’s basically a run-down of the assets. And my feeling is that if they continue on their current course, it’s going to take them a few decades, but, by the end of the day, there just won’t be anything left."

It's clear that Einhorn feels a takeover would be hard to secure and he is sticking to his guns with his thesis. After all, he has been short the company in the past as well.

Fairholme Duo Joins JOE Board

On the other side of the spectrum, you have Bruce Berkowitz's Fairholme Capital in the 'long' camp. News came out recently that both he and Charlie Fernandez (also of Fairholme) would join St. Joe's board of directors. Fairholme is JOE's largest shareholder and owns almost 29% of the company. As we've detailed in the past, Berkowitz's ownership stake is effectively capped at that level due to a standstill agreement with the company.

Since Berkowitz can't purchase more shares, it's clear that he's flexing his activist muscle in a different direction by trying to aid JOE's board. He faces a tough battle against Einhorn in an attempt to restore/create shareholder value and fend off short-sellers and pessimists. Of his position in JOE, Berkowitz said in a statement that:

"St. Joe has uniquely valuable assets and some of the most attractive, concentrated and well-managed real estate in the U.S. The value is in its development expertise, communities, infrastructure, entitlements, master plans, timberlands and most importantly the company's long-term vision."

Battle of Fund Managers

This is the definition of a battleground stock as you have two well-respected fund managers taking different sides of the trade. Einhorn won round one by sending shares spiraling with his bearish presentation. Will Berkowitz win round two? With his new seat on the board of the company, he'll aim to take a hands-on approach. It will be interesting to see if the takeover rumors are just that (rumors), or if there's something more substantial to them. One thing's for certain: this saga is just getting started.

Keep in mind that we've analyzed the portfolios of both Greenlight and Fairholme in the latest issue of our newsletter. For more from David Einhorn, we recently posted up his new position as well as his recent television interview. You can also check out all our coverage of Bruce Berkowitz here.

John Thaler's JAT Capital Boosts Green Mountain Coffee Roasters (GMCR) Stake

John Thaler's hedge fund JAT Capital just filed a 13G with the SEC regarding Green Mountain Coffee Roasters (GMCR) due to portfolio activity on December 6th. JAT disclosed a 5% ownership stake in GMCR with 6,602,008 shares. This is an increase of 128% in their position size as they held 2,890,042 shares at the end of the third quarter. Drilling down the specifics of JAT's current position, the hedge fund firm owns 4,102,008 common shares and then their additional 2,500,000 shares are represented by call options.

Green Mountain Coffee Roasters is an interesting stock because it is essentially a 'battleground' of hedge fund opinion. This name has high short interest but at the same time, some notable funds hold long positions. At the end of the third quarter, some of the big holders were JAT Capital, Stephen Mandel's Lone Pine Capital, Patrick McCormack's Tiger Consumer, Brett Barakett's Tremblant Capital and Steven Cohen's SAC Capital.

Prior to founding JAT Capital, John Thaler worked at Shumway Capital Partners where he covered telecom, media and technology and then managed the internal Omni fund. Thaler earned his BA in Economics at the University of Chicago. JAT employs a long/short equity strategy with an emphasis on proprietary fundamental research. In 2008, the fund returned -5.9% compared to an S&P return of -37%. JAT finished 2009 up 23.2% gross. Thaler brings a private equity-like approach to investing due to his days at Spectrum Equity Investors, a private equity firm focused on technology.

Per Google Finance, Green Mountain Coffee Roasters is "engaged in the specialty coffee and coffee maker businesses. The Company operates in two business segments: the Specialty Coffee business unit (SCBU) and the Keurig business unit (Keurig). SCBU sources, produces and sells more than 200 varieties of coffee, cocoa, teas and other beverages in K-Cup portion packs and coffee in more traditional packaging, including whole bean and ground coffee selections in bags and ground coffee in fractional packs, for use both at-home (AH) and away-from-home (AFH)."

Scroll through the latest hedge fund activity here.

What We're Reading ~ 12/17/2010

Our finance-oriented holiday gift guide [MarketFolly]

How to get into value investing as a profession [GannonOnInvesting]

The high yield one-way ride [Econompicdata]

Conversation with David Gaffen of Reuters US Markets [AbnormalReturns]

David Gaffen has a new book out: Never Buy Another Stock Again [Amazon]

Jim Chanos raises money for new hedge fund [FINalternatives]

What's wrong with Research in Motion (RIMM) & Blackberry? [MobileOpportunity]

On communicating ideas [ResearchPuzzle]

A miscellany of deep value [Greenbackd]

The relation between hedge fund size and risk (.pdf) [SpringMountainCapital]

On staying in the game [Information Arbitrage]

Looking at James Maynard Keynes as an investor [CanTurtlesFly?]

The case for US equities [FT Alphaville]

The case against gold [Globe and Mail]

Highland Capital bullish on credit [Dealbook]

Thursday, December 16, 2010

Alcon Agrees Novartis Deal in Consensus Hedge Fund Arbitrage Trade

Alcon (ACL) has reached an agreement to sell the remaining 23% of the company to Swiss drug maker, Novartis (NVS). Novartis is offering 2.8 shares of NVS for each share of ACL, the equivalent of $168 for each ACL share. The deal is supposed to close in the first half of 2011, pending shareholder approval.

While Novartis' offer comes in at $168 per share, ACL is currently trading just above $164. The deal is contingent upon shareholder approval and if you examine the list of shareholders, it's littered with prominent hedge funds. Back in the second quarter issue of our Hedge Fund Wisdom newsletter, we flagged Alcon (ACL) as a 'consensus buy' due to numerous hedge funds starting and accumulating positions in the company. You can check out a full free sample issue here.

Then in our new third quarter issue, we singled out Alcon as a featured hedge fund merger arbitrage play three weeks ago. To understand the hedge fund investment thesis, here's some of our commentary from our newsletter:

"Alcon was purchased by Nestle in 1977. Nestle floated to the public a 25% stake in the company in 2002. In April 2008, Novartis (NVS) purchased from Nestle a 25% stake in Alcon for $143 per share. And in August of 2010, Novartis exercised its call option to acquire Nestle’s remaining stake at a price of $181 per share.

In January 2010, Novartis made an offer of 2.8 shares of Novartis stock for each share of Alcon for the stake owned by the public (which currently values Alcon at $156 per share). Still, Alcon is trading at $163 because the offer has been rebuffed so far and investors are looking for a more equitable offer to the Nestle stake takeout that was done at $181. Arbitrageurs are betting that Novartis will increase the effective exchange ratio, so they buy Alcon and short Novartis in order to hedge out the risk that Novartis shares may go down by the time the deal closes.

Novartis closed its acquisition of NestlĂ©’s stake in 3Q, which increased investors’ confidence that a buyout of the public shares will happen sooner rather than later. In addition, Alcon’s share price is tied to the value implied by the exchange ratio offered by Novartis. So, as Novartis’ shares dropped in late 2Q / early 3Q, so did Alcon shares. At $135, the spread to the Nestle takeout at $181 was seen as too wide and the value of Alcon’s franchise was under-appreciated by the market.

This combination motivated some new funds to add Alcon to their portfolio. Magnetar Capital started a new position in Alcon and made it its top portfolio holding with a 12% weight. Steven Cohen’s SAC Capital maintained Alcon as its #1 position and increased its exposure during the quarter by 20%. John Paulson’s hedge fund Paulson & Co increased its exposure by 30%. Highbridge Capital doubled its position while Jamie Dinan’s York Capital and Thomas Steyer’s Farallon Capital also added shares of ACL. And while some funds are obviously short Novartis as part of the arbitrage pair (though they don’t disclose it), other funds have elected to purchase puts on Novartis to round out the merger-arb trade."

Given the quantity and quality of hedge funds involved in this trade, it will be very interesting to see if they approve the current deal valued at $168 per each ACL share or if they push for the same $181 per share that Novartis paid Nestle. With shares still trading slightly below the deal price, it will be interesting to follow.

The above is the type of research and analysis we cover in our Hedge Fund Wisdom newsletter. Be sure to click here for a free sample issue as we examine the investment theses behind hedge fund trades.

Eton Park Capital Supports Air Products' Latest Bid For Airgas

Eric Mindich's hedge fund firm Eton Park Capital Management recently filed an amended 13D with the SEC regarding their stake in Airgas (ARG). Per the updated disclosure, Eton Park shows ownership of 7.15% of Airgas with 6,014,200 shares. Their position remains unchanged as they held this amount of shares at the end of the third quarter. This has been a longstanding merger arbitrage play in their portfolio.

Today we continue 'merger arbitrage day' on as we examine some of the largest trades hedge funds have put on in recent quarters. Eton Park mainly filed their amended 13D to publicly voice support behind Air Products and Chemicals' (APD) latest offer for Airgas. Here's Eton Park's statement:

"To The Board of Directors of Airgas, Inc.: As you know, funds managed by Eton Park Capital Management own more than 6 million shares, or approximately 7.15% of the outstanding shares, of Airgas, Inc. We write to express our views to the Board of Directors with respect to Air Products and Chemicals, Inc.’s $70 per share offer to acquire Airgas.

Until now, we have refrained from public comment on either Air Products’ efforts to acquire Airgas or on Airgas’ efforts to defend against the bid. We generally do not oppose poison pills or staggered boards and believe that the Airgas board to date has served its shareholders well. Airgas’ defense has forced Air Products to raise its bid several times. But now, circumstances have changed. Air Products has raised its offer to $70 a share and stated that the offer is best and final. In our view, the $70 per share bid is fair, represents an appropriate price for control of Airgas and, accordingly, presents an opportunity and not a threat to Airgas or its shareholders.

We believe the Airgas board should now either allow shareholders to accept Air Products’ revised offer or establish a clearly defined process designed to achieve greater value through an alternative control transaction."

So, given the lengthy nature of this takeover saga, Eton Park feels that Air Products' latest offer is fair and are fully in support of it. It will be intriguing to see if other hedge funds also publicly voice their support of accepting this offer as this has been one of the larger merger arbitrage plays in hedge fund land. If some funds support the latest bid while others oppose it, things could get very dicey.

Shares of ARG are currently trading around $63, about 11% lower than APD's offer of $70 per share. Since this is an arbitrage trade, keep in mind that Eton Park has most likely hedged this play somehow, possibly by shorting APD shares. We'll have to see if Airgas' board agree with Eton Park and accept the latest bid. For other activity out of Eton Park, we also detailed an increase in their Lonrho (LONR) stake.

Per Google Finance, Airgas is "a distributor of industrial, medical and specialty gases (delivered in packaged or cylinder form), and hardgoods, such as welding equipment and supplies. Airgas is also a United States distributor of safety products, producer of nitrous oxide and dry ice, liquid carbon dioxide producer in the Southeast, and a distributor of process chemicals, refrigerants and ammonia products."

Stay tuned for one more merger arbitrage post this morning. In the mean time, check out our other hedge fund tracking here.

Hedge Fund Carlson Capital Goes Activist on Portec Rail Products (PRPX)

Hedge fund Carlson Capital has gone activist on Portec Rail Products (PRPX) via a 13D just filed with the SEC. Carlson has disclosed a 5.2% ownership stake in PRPX with 503,674 shares. This is not a new position for the hedge fund as they previously owned 403,949 shares as of the end of the third quarter. As such, Carlson has recently purchased 99,725 additional shares of Portec Rail Products. In recent months, Carlson has also gone activist on Phoenix Technologies (PTEC) amidst takeover bids as well.

Today is 'merger arbitrage day' on the site and so we're taking a look at three separate arbitrage trades that prominent hedge funds have put on. As detailed in Carlson's 13D filing, here's a timetable of events that have taken place regarding PRPX shares:

- February 16th, 2010: L.B. Foster (FSTR) commenced a tender offer to purchase all PRPX shares at a price of $11.80 per share with the offer expiring on December 15th.

- August 24th, 2010: Sentinel Capital Partners expressed interest in acquiring all of PRPX shares at a price of $11.75.

- December 7th, 2010: Sentinel again expresses interest in acquiring all shares, but this time with an increased offer of $13.00 per share.

- December 15th, 2010: Per a PR release, "The tender offer for all of the outstanding shares of Portec expired at 5:00 p.m., New York City time, on December 15, 2010. As of that time, the depositary for the offer advised that approximately 7.63 million shares, representing approximately 79.46% of Portec's outstanding shares, were validly tendered and not withdrawn in the offer."

And late yesterday afternoon, Carlson Capital filed its 13D on PRPX and acquired the shares "pursuant to investment strategies, including merger arbitrage and event driven strategies, because they believed that Shares reported herein, when purchased, represented an attractive investment opportunity."

Will Carlson Capital's new activist push shake things up? While Portec Rail Products received offers at $11.80 and then $13.00, shares currently trade around $11.90. It remains to be seen as to whether or not Carlson will push for the higher $13 per share offer so we'll watch this one as it develops. In the mean time, you can also check in on Carlson's other activist investments including Hot Topic (HOTT) as well as Phoenix Technologies (PTEC).

Per Google Finance, Portec Rail Products "manufactures, supplies and distributes a range of rail products, including rail joints, rail anchors, rail spikes, railway friction management products and systems, railway wayside data collection and data management systems, and freight car securement systems."

For all our hedge fund activity tracking, scroll through our coverage of SEC filings here. Stay tuned for two more merger arbitrage related posts later this morning.

Wednesday, December 15, 2010

Hedge Funds Active in Aurelian Oil & Gas (AUL): Soros, Toscafund, Blue Ridge Capital

Shares of Aurelian Oil and Gas (LON: AUL) in London have seen some active trading by hedge funds as of late. Aurelian held a placing on November 25th where they issued 146,888,231 additional shares and proceeds from the offering raised €100 million.

On the 6th of December, Soros Fund Management (George Soros' hedge fund) then revealed that they boosted their holdings in the company above the 3% threshold that requires a disclosure. Soros disclosed an ownership stake of 4.36% of shares outstanding and it's unclear if this is a new or previously held stake. Regarding other portfolio activity from this hedge fund, we also detailed Soros' purchase of more Exar Corp (EXAR).

Per a second hedge fund filing in the UK regulatory system, Martin Hughes' Toscafund Asset Management noticeably ramped up its stake in Aurelian. They now hold 11.02% of shares outstanding, having previously owned only 3.25% at the end of September.

And where there are buyers, there are always sellers. John Griffin's hedge fund Blue Ridge Capital has been a seller here. Previously, Blue Ridge held 5.59% of the company but they have since sold below the 3% ownership threshold that requires disclosure. So, it's tough to say if they still hold a stake or completely exited the position. However, it's very clear that they have at the very least trimmed their position in sizable fashion. You can view the rest of Blue Ridge's portfolio in our new newsletter issue.

Per Google Finance, Aurelian Oil and Gas is "an upstream oil and gas exploration and production company focused on Central Europe. It holds a portfolio of licensed blocks in Poland, Slovakia, Romania and Bulgaria and is exploring and appraising the blocks for hydrocarbon deposits."

Be sure to also check out all of our coverage of hedge fund activity in UK markets.

Tuesday, December 14, 2010

Holiday Gift Ideas For Financial Professionals

Each year we like to highlight relevant gift ideas for investors, traders, and professionals in the financial industry. If you or someone you know loves the markets, then here's some great picks that will arrive in time for the holidays:


Hedge Fund Wisdom ~ $199: Give someone (or yourself) a 1-year subscription to's premium newsletter that examines hedge fund portfolios in-depth.

Wall Street Journal ~ 75% Discount: Save a ton on a subscription to Wall Street's prominent news source.

Barron's ~ 60% Off: More savings on another widely-read financial publication (plus 4 weeks free).

Useful Gadgets

Amazon Kindle with Wi-Fi ~ $139: The new Kindle's e-ink technology doesn't strain your eyes like a monitor & is great for reading e-books. Not to mention, you can even read SEC filings on it! Carry this one device around instead of a ton of books. There is also a Wi-Fi & Free 3G version for $189.

13" Apple Macbook Air: The brand new Macbook Air is their thinnest computer yet & is great for when you're traveling. It also comes in an ultra-portable portable 11-inch model.

Apple iPad: Another great device for on-the-go use with tons of great investing & market-related apps.

Toshiba Portege 13-Inch Laptop ~ $799.99: Another portable option for those who like the Windows operating system.

Apple iPod Touch 32 GB ~ $269.99: Smaller, useful media device for music, movies, & wi-fi web browsing.


If you don't like portable e-readers, you can always go the physical book route as well. Some great market reads we highly recommend:

Top Hedge Fund Investors by Cathleen Rittereiser ~ $35.62: A great book detailing stories, strategies, and advice from top managers.

All the Devils Are Here: The Hidden Story of the Financial Crisis by Bethany McLean and Joe Nocera ~ $17.50: A very comprehensive look at the crisis from a different angle; highly recommended.

The Art of Short Selling by Kathryn Staley ~ $43.66: Probably THE book authority on short selling as it has been recommended by Third Point's Dan Loeb as well as hedge fund Blue Ridge Capital.

Confidence Game: How Hedge Fund Manager Bill Ackman Called Wall Street's Bluff by Christine Richard ~ $18.45: The title says it all.

Fooling Some of the People All of the Time by David Einhorn ~ $11.21: A new paperback version of the hedge fund manager's popular book with an epilogue containing new story information and an intro by Joel Greenblatt.

The Greatest Trade Ever by Gregory Zuckerman ~ $17.16: A fantastic book detailing how John Paulson predicted the housing crisis and profited from shorting subprime.

You Can Be a Stock Market Genius by Joel Greenblatt ~ $10.20: Baupost Group's Seth Klarman actively recommends this book as it details catalyst-based investing such as mergers, spin-offs, and risk arbitrage to exploit market inefficiencies.

For more great book ideas, be sure to check out our comprehensive list of books recommended by hedge fund managers.


Wall Street 2: Money Never Sleeps (DVD) ~ $15.99: The next installment of Gordon Gekko set to be released on DVD for the holidays. You can also pick up the Blu-Ray version here.

Wall Street (DVD) ~ $7.49: "Greed ... is good." The original movie that people still quote to this day. It is also available on Blu-Ray.

That wraps up our holiday gift guide for those who love financial markets. Happy Holidays everyone!

Viking Global Reveals Short Position in NYSE Euronext (NYX)

Per the French regulatory system, Andreas Halvorsen's hedge fund Viking Global has disclosed a short position in NYSE Euronext (NYX). This disclosure is pursuant to European regulatory measures from back in 2008 regarding short sales in financial institutions.

According to the disclosure, Viking Global is short 2,795,400 shares of NYSE Euronext, representing 1.07% of capital. This position was reported as being held on December 9th, 2010. We recently detailed Viking Global's portfolio in the new issue of our newsletter.

Given that this disclosure was made in France, we'd assume Viking is short the shares of Euronext traded in Paris. NYSE Euronext is traded on American exchanges under ticker NYX as well (the SEC does not require public disclosure of short sales). Combing through other regulatory systems, we've uncovered that Halvorsen's hedge fund has also been short KBC Groep NV (KBC).

Per Google Finance, NYSE Euronext is "a global operator of financial markets and provider of trading strategies. The Company offers an array of products and services in cash equities, futures, options, swaps, exchange-traded products, bonds, market data and commercial technology solutions."

Check out the rest of Viking Global's activity in our newsletter.

Seth Klarman Trims Breitburn Energy Partners (BBEP) & Alliance One International (AOI) Positions

Seth Klarman's hedge fund firm Baupost Group recently filed two amended 13G's with the SEC. First, due to portfolio activity on November 30th, Baupost has disclosed a 9.35% ownership stake in Breitburn Energy Partners (BBEP) with 4,983,600 shares. This is a decrease in their position to the tune of 30% (Baupost previously owned 7,160,500 shares as of September 30th).

Second, Klarman has also revealed a very slight reduction in his Alliance One International (AOI) position. Per an amended 13G, Baupost now shows a 10.09% ownership stake in AOI with 8,786,700 shares. Back on September 30th, the hedge fund firm owned 8,800,000 shares.

Baupost continues to trim exposure to stocks and you can see the rest of Baupost's equity positions here. Klarman recently announced that he would be returning some capital to investors, citing lack of opportunities. You can view his market concerns in an interview with Klarman.

Per Google Finance, Breitburn Energy Partners is "an independent oil and gas partnership focused on the acquisition, exploitation and development of oil and gas properties in the United States. The Company’s assets consist of producing and non-producing crude oil and natural gas reserves ."

Alliance One International is "engaged in purchasing, processing, storing, and selling leaf tobacco. The Company purchases tobacco in the United States, Africa, Europe, South America and Asia for sale to customers primarily in the United States, Europe and Asia."

To learn how to invest like this great investor, we point you to Seth Klarman's recommended reading list.

Valinor Management Starts Cott Corporation (COT) Stake

David Gallo's hedge fund Valinor Management has disclosed a brand new position in Cott Corporation (COT) via a 13G filed with the SEC. Due to portfolio activity on December 2nd, Valinor has revealed a 5.8% ownership stake in COT with 5,457,532 shares. In their last 13F filing (portfolio disclosed as of September 30th), Valinor did not show a position in COT. As such, they've assembled this brand new stake over the past two and a half months.

Other portfolio activity out of Gallo's hedge fund we detailed includes a past increase in their Gymboree (GYMB) stake. This position turned out well as the company was bought out by Bain Capital.

Before founding Valinor, Gallo worked at Roberto Mignone's Bridger Management and earned his MBA at Harvard Business School. His firm is named after lands inhabited by immortal souls from the books by J.R.R. Tolkien.

Per Google Finance, Cott is "a non-alcoholic beverage company and a retailer brand soft drink provider. In addition to carbonated soft drinks (CSDs), its product includes clear, still and sparkling flavored waters, juice-based products, bottled water, energy-related drinks and ready-to-drink teas."

Stay up to date with the most recent hedge fund filings on our site.

D.E. Shaw Boosts Positions in Global Cash Access (GCA) & LodgeNet Interactive (LNET)

Hedge fund firm D.E. Shaw & Co just filed numerous 13G's with the SEC. First, they've disclosed an increased stake in Global Cash Access (GCA). Due to portfolio activity on December 1st, D.E. Shaw shows a 5% ownership stake in GCA with 3,258,410 shares. This is a 105% increase in their position size since September 30th.

Second, D.E. Shaw also revealed a 5.5% ownership stake in LodgeNet Interactive (LNET) with 1,368,760 shares. This marks a 133% boost in their position size since the end of the third quarter.

In the past, we've also posted up various resources from this multi-faceted firm. Head to D.E. Shaw's insight on leverage to see the over $35 billion asset manager's take.

Per Google Finance, Global Cash Access is "a global provider of cash access and data intelligence services and solutions to the gaming industry. The Company’s services and solutions provide gaming establishment patrons access to cash through a variety of methods, including automated teller machine (ATM) cash withdrawals, credit card cash access transactions, point-of-sale (POS) debit card transactions, check verification and warranty services and money transfers."

LodgeNet Interactive is "a provider of interactive media and connectivity solutions to the hospitality industry in the United States, Canada and Mexico. The Company also provides interactive television solutions in international markets through local or regional licensees."

Be sure to also scroll through our latest SEC filing coverage.

Friday, December 10, 2010

Free Sample: Full Issue Of Our Hedge Fund Wisdom Newsletter

If you haven't had a chance to check out's new quarterly newsletter, here's your chance. We're giving away a full past issue as a sample (75 pages). To receive a free sample issue of Hedge Fund Wisdom, please enter your email address below:

Get a Free Sample Issue!

This is the full version of our inaugural issue. Keep in mind that our newest issue features even more unique content since it is longer (84 pages), covers 3 additional hedge funds (Carl Icahn, Farallon Capital, & Viking Global) and also features a brand new section of "hedge fund quick pitches" that details hedge fund investment theses.

If you wish to subscribe to receive the newest issue, you can do so by clicking here.

What We're Reading ~ 12/10/10

Interview on hedge fund replication [NewRulesInvesting]

Examining Pershing's investment in JC Penney (JCP) [ActivistInvesting]

Further take on JCP from Todd Sullivan [ValuePlays]

StockTwits forges partnership with Yahoo Finance [HowardLindzon]

Don't call Ackman a hedge fund [Dealbook]

Do hedge funds do worse than the market? [CNBC]

High yield expectations for 2011 [DistressedDebtInvesting]

Sebastian Mallaby on SAC Capital [LATimes]

Will Tepper's golden touch work on tech stocks? [Reuters]

Watchlist of ten investment candidates [MarginOfSafety]

A profile of Harbinger's Phil Falcone [NYTimes]

Carlyle Group buys stake in hedge fund manager [FoxBusiness]

Bruce Kovner's Caxton Associates opens Sydney office [FT]

John Paulson's big moment [Dan's Hamptons]

Apple's (AAPL) big mistake [Forbes]

Thursday, December 9, 2010

Latest Thoughts From John Burbank & Passport Capital: 3Q Investor Letter

John Burbank's hedge fund firm Passport Capital provides a glimpse as to their overall portfolio positioning in its third quarter letter. Passport's Global Fund has returned 23.1% annualized since inception in August of 2000. At the end of the third quarter, the fund was up 7.9% year to date and the firm manages over $5 billion. Passport's largest net long exposures were in basic materials and consumer. Overall, they ended the third quarter 95% long, 39% short, leaving them with net exposure of 56%.

Top Holdings

At the end of the third quarter, Passport's top ten equity positions represented 33% of their assets under management (AUM). The top 10 holdings are sorted by percentage of net asset value (NAV):

1. Riversdale Mining (RIV): 10% of NAV
2. Microsoft (MSFT): 4%
3. Exxon Mobil (XOM): 4%
4. Las Vegas Sands (LVS): 3%
5. Financial Technologies (FTECH): 2%
6. Tarpon Investimentos (TRPN3): 2%
7. CF Industries (CF): 2%
8. Wendy's Arby's Group (WEN): 2%
9. Labrador Iron Mines (LIM): 2%
10. Jordan Phosphate Mines (JOPH): 2%

Keep in mind that we've also detailed the rest of Passport's portfolio.

Equity Update: Riversdale Mining (RIV.AU)

Given that Riversdale is Passport's largest holding, it makes sense that they singled out a portion of their letter to provide commentary. On Monday, Riversdale said it was in talks with Rio Tinto (RTP), which is offering AUD $15 per share for the company and RIV shares traded north of AUD $16 on the news (around 15% higher than where it was trading prior to the news). So, Passport has already made some nice money on this play and it will be interesting to follow the developments. Overall though, Burbank definitely advocates hard assets.

Physical Gold

Passport also mentions that 8% of the fund's NAV is in physical gold. The hedge fund firm owns 100,000 ounces of the precious metal stored in Zurich. They highlight various purchases by central banks as a bullish indicator. However, they are also partially concerned by the fact that some gold miners have been de-hedging. As a result, Passport delta hedged their entire gold position. For more hedge fund advocates of gold, head to our in-depth post on John Paulson's gold fund as well as David Einhorn's preference of physical gold.

Added Large-Cap Multinational Stocks

During the third quarter, Burbank's firm also bought high quality large cap companies. This is a prevalent theme we've seen in hedge fund portfolios as of late. Regarding this theme, Burbank writes:

"Recently, we have begun adding certain large-cap, multinational stocks to our portfolio. These are the same stocks that we largely avoided for the last ten years. What has changed? For one, many such companies have dividend yields of greater than 3% and "earnings yields" of 6-9%. Compared to "risk-free" 10-year Treasuries (yielding 2.5% at quarter end), these are quite appealing. While these companies' future earnings and dividends are uncertain, we think they are very likely to rise over time given strong franchises (predictable pricing and market share) and meaningful exposures to faster-growing emerging markets. We have sought out companies we believe are characterized by strong management teams, powerful competitive moats, healthy balance sheets, predictable cash flows, and healthy growth prospects."

Companies that they recently added include Exxon Mobil (XOM) and Microsoft (MSFT). Oaktree Capital's Howard Marks has said to buy high quality large-caps as well. And for a specific look at MSFT, T2 Partners' Whitney Tilson has put together his investment thesis on Microsoft.

Embedded below is Passport Capital's third quarter letter to investors:

You can download a .pdf copy here.

For analysis of Passport's US equity longs, head to the new issue of our Hedge Fund Wisdom newsletter. And for more thoughts directly from Passport's founder, head to his presentation from the Value Investing Congress.

Tuesday, December 7, 2010

David Einhorn Buys Sprint Nextel (S), Discusses His Other Positions: Interview

David Einhorn of $7 billion hedge fund firm Greenlight Capital was a guest host on CNBC's Squawk Box yesterday morning and provided us with updates on his long positions, short positions, macro views, and more. Einhorn has also been out promoting the new paperback version of his book, Fooling Some of the People All of the Time. It includes a foreword by Joel Greenblatt and a new epilogue with final details of the story's completion.

In his interview, Einhorn reveals that Greenlight Capital recently initiated a position in Sprint Nextel (S). The company has had a tumultuous past and he thinks it is poised for a turnaround, citing improved churn, reputation, handset offerings, and customer service. He also makes it a point to highlight Sprint's vast spectrum as he thinks Sprint can gain market share from such a vast network. Other than that though, Einhorn has found slim pickings in the market as he says things have been "pretty slow."

In terms of his other positions, Einhorn brings up his stake in CareFusion (CFN) that he's owned for a while as it spun-off from Cardinal Health (CAH). He sees CFN experiencing margin expansion in the future and as a play on growth in market share in the company's segment of medical devices. We penned an in-depth research report on CareFusion in our new issue of Hedge Fund Wisdom for those interested.

Einhorn has returned north of 21% annualized (net) and still likes his position in Apple (AAPL) but acknowledges that the company is by no means in the early stages of its growth as the stock has done remarkably well for some time. Regarding his stake in Pfizer (PFE), the Greenlight Capital manager is curious to see what direction the new CEO takes the company in but he still likes it as an investment due to its extremely low multiple.

Lastly, he reiterates that gold (physical, not the ETF) is his fund's largest position but still has yet to disclose just how much of the precious metal he owns. Much of what Einhorn revealed on CNBC, he largely already spoke about in his recent interview with Consuelo Mack which we also detailed.

However, the hedge fund manager did provide us with a few new tidbits yesterday. Turning to Greenlight Capital's latest exposure levels, Einhorn notes that he is typically pretty fully invested and doesn't necessarily hold a lot of cash on hand. At the present, he's about 30-35% net long which is just slightly below the long/short equity hedge fund historical averages of 35-40%.

Here's the video of Einhorn's interview and email readers will need to come to the site to view it:

Part 2 of Einhorn's interview follows with his thoughts on macro issues:

Part 3 details the Greenlight Capital manager's ability to spot red flags such as Lehman Brothers in November 2007 which he correctly identified, shorted, and profited from:

That wraps up another rare David Einhorn television interview. For an in-depth look at the rest of Einhorn's US equity longs, head to our newsletter. We've also posted up a plethora of resources related to Greenlight Capital detailed below:

- The short case on St. Joe (JOE)
- Einhorn's thesis on Vodafone (VOD)
- Greenlight's Q3 letter to investors

Pershing Square Gains 15% in November, Skeptics Emerge - A Lesson in Hedge Fund Tracking

Bill Ackman's hedge fund firm Pershing Square Capital Management returned 15% gross and 12.2% net for the month of November and has returned 35.5% gross and 27% net for 2010. Fantastic numbers, no? Given the somewhat outlandish results in one month, it's not necessarily a surprise that skeptics have emerged. It's perfectly acceptable to be skeptical/suspicious/curious given the cloud of secrecy that largely surrounds the hedge fund industry. However, when skeptics don't know how to track a hedge fund properly, their argument immediately loses credibility.

So, what's all the fuss about here? We hesitated even bringing this up for fear of drawing further attention to the article, but we couldn't bear it any longer. Earlier, Dealbreaker reported Pershing's performance numbers. Then, a site called Insider Monkey published an appalling article and the shit hit the fan. After "analyzing" the returns of Pershing Square's investments in November, Insider Monkey concludes that, "either Ackman made another secret investment which returned a gazillion percent or... Dealbreaker was duped."

First and foremost, any reader of Dealbreaker knows that the site posts performance updates directly from top hedge funds from time to time (i.e. printed on the hedge fund's letterhead). So, for Insider Monkey to insinuate that Dealbreaker posted up a 'duped' document is a bit asinine considering Bess Levin's pristine track record of posting authentic material. Bess is probably straight up laughing at Insider Monkey's insinuation. Next: onto the important stuff.

The crux of Insider Monkey's misstep is that they completely failed to assess Ackman's FULL portfolio. This highlights rule number one when tracking hedge funds: never rely solely on the 13F filing. If they had also read Ackman's various 13G's, 13D's and Form 4's filed with the SEC regarding Pershing's position in General Growth Properties (GGP), they would have realized where the bulk of the fund's performance came from and wouldn't have penned that nonsensical article.

A cursory look over the hedge fund's other SEC filings reveals that GGP emerged from bankruptcy on November 9th and obtained $6.8 billion in new equity capital and restructured $15 billion of debt. Pershing Square owned GGP equity and GGP unsecured debt. Additionally (and probably most importantly), Pershing Square purchased 46 million shares of new GGP at $10 per share and warrants as part of the restructuring (with shares now trading around $16).

So voilĂ , there's your answer. Insider Monkey was using a 13F filing that disclosed positions as of September 30th to determine a hedge fund's performance when one of the fund's main holdings saw a major corporate event a month after the 13F was filed, altering their position size. While Insider Monkey makes note of GGP's spin-off of the Howard Hughes Co (HHC), they completely fail to recognize the full extent of Ackman's position in the various securities of the company. Needless to say, Ackman owns much more GGP/HHC than what is reported on the latest 13F filing.

Not to mention, they completely omit the fact that Ackman holds other assets that SEC 13F filings don't require disclosure of. Assets falling into this category that Ackman owns include cash settled total return swaps and stock options, real estate hedges (via short sales and/or other non-disclosed positions), as well as a past position in BP (BP) credit default swaps. Lastly, Ackman could possibly hold various debt positions as well.

On their Seeking Alpha article, commenters have also pointed out Insider Monkey's misstep. What's comical is that after this revelation in the comments, Insider Monkey claims, "it looks like our conclusion is correct," referring to their conclusion that, "Ackman made another secret investment which returned a gazillion percent."

Umm, no
. There was NOTHING secret about this investment (or any other investment that could have contributed to Pershing's performance). Within our article alone, we've already linked to Ackman's updated aggregate economic exposure to GGP, his various stock options plays, as well as updates on all of his portfolio holdings. Again, it just goes back to Insider Monkey's complete lack of attention to detail. Had they simply read the various SEC filings made by Pershing not titled 13F, they would have found their answer as Ackman disclosed the extent of his aggregate economic exposure (and reason for the bulk of his strong performance) long ago.

So, what has Insider Monkey's folly taught us? It reinforced the fact that when tracking hedge funds, you have to take 13F filings with a grain of salt. Additionally, you have to track the full gamut of information (all SEC filings, investor letters, presentations, manager comments etc). This is what Market Folly strives to do on a daily basis. We simply wanted to use this as an opportunity to present a lesson in hedge fund tracking and why it's important to track MUCH more than just a fund's SEC 13F filing.

Based on this, we'll be launching a series of educational articles on the various aspects of hedge fund tracking and how to do it, so stay tuned! In the mean time, scroll through all of our coverage of hedge fund portfolios here and remember that is your go-to source for the full spectrum of hedge fund analysis.