Bill Ackman's Pershing Square Dumps McDonald's & EMC: 13F Filing Analysis ~ market folly

Wednesday, February 17, 2010

Bill Ackman's Pershing Square Dumps McDonald's & EMC: 13F Filing Analysis

(This post is part of our series on tracking hedge fund portfolios. If you're unfamiliar with tracking investments they disclose via SEC filings, check out our series preface on hedge fund 13F filings.)

Next up we have Bill Ackman's hedge fund Pershing Square Capital Management. Ackman runs a value and activist fund with a highly concentrated portfolio so they are ideal for tracking purposes. He received his degree from Harvard and his MBA from Harvard Business School. For investment insight from Ackman, check out his recent television appearance and Pershing's investor letter. For more information on the hedge fund, check out our profile of Bill Ackman & Pershing Square.

The positions listed below were their long equity, note, and options holdings as of December 31st, 2009 as filed with the SEC. Note that we are only covering the major portfolio maneuvers. All holdings are common stock unless otherwise denoted.

Brand New Positions
Hyatt (H) *see special note regarding this position below
Landry's Restaurant's (LNY) ~ see our previous coverage of this addition

Increased Positions
Corrections Corp of America (CXW): Increased by 48.7%

Reduced Positions
Automatic Data Processing (ADP): Reduced by 98%
Target (TGT): Reduced by 20%

Removed Positions (Sold out completely):
McDonald's (MCD)

Top Holdings by percentage of assets reported on 13F filing

  1. Target (TGT): 71.17%
  2. Corrections Corp of America (CXW): 19%
  3. Hyatt Hotels (H): 5.84%
  4. Landry's Restaurants (LNY): 2.34%
  5. Borders Group (BGP): 0.89%
  6. Greenlight Capital Re (GLRE): 0.42%
  7. Automatic Data Processing (ADP): 0.35%

Firstly, realize that the above list is not complete. We already saw that in January 2010, Ackman made Kraft (KFT) their largest holding and we detailed Pershing's presentation on KFT. Since the above positions were as of December 31st, their KFT stake doesn't show up. Additionally, as detailed in Ackman's previous investor letter, Pershing has started a Nestle position as well that doesn't show up in the filing.

Pershing Square also shows a new position in Hyatt Hotels (H) as of December 31st, 2009. However, this gets a little tricky as they also filed an amended 13G that shows Pershing owning 0 shares as of January 7th, 2010. So, upon inspection, it appears as if Pershing bought shares of H in the fourth quarter of 2009 and then sold out of the position in the first week of 2010. We're looking into this situation deeper to confirm this was the case, as we could have misinterpreted this.

The biggest story in Pershing's portfolio will be the removal of their McDonald's (MCD) and EMC (EMC) positions, both previously sizable stakes. Additionally, they sold practically all of their ADP as well. They had been buying shares of these companies over the past two quarters but decided to dump them recently. Ackman's hedge funds run highly concentrated portfolios and as such each shift is typically a major one. They also started a new stake in Landry's, and we already covered this addition when it happened.

Additionally, we see that Pershing added to their stake in Corrections Corp of America and we have previously posted Pershing's presentation on CXW. On the other side of the portfolio, we also know that Pershing has been short Realty Income (O) and we posted up their short thesis here.
Keep in mind that Pershing still owns General Growth Properties (GGWPQ) but that stake does not appear on the filing as it's not deemed a reportable security by SEC standards (most likely due to it's OTC trading nature since it has been going through bankruptcy). And, as far as we know, they still own both equity and unsecured debt. Pershing will be happy to see that Simon Property Group recently bid for GGP, but will be unhappy at the offered price, arguing that GGP is worth more than that. We've long detailed Pershing's bullish analysis of the mall REIT operator. In the past we've presented Pershing's original GGP thesis and their recently updated analysis.

Assets from the collective holdings reported to the SEC via 13F filing were $1.4 billion this quarter compared to $3.1 billion last quarter, so a notable decline in assets invested on the long side. Remember that these filings are not representative of the hedge fund's entire base of assets under management. Therefore, the figures above represent the percentage of their reported 13F assets, not their entire portfolio.

We'll be tracking 40+ prominent funds in our fourth quarter 2009 hedge fund portfolio tracking series. We've already covered Seth Klarman's Baupost Group, Mohnish Pabrai's Investment Fund, Carl Icahn's hedge fund Icahn Partners, David Einhorn's Greenlight Capital, and Stephen Mandel's Lone Pine Capital. Check back daily for our new updates.

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