Thomas Steyer's Farallon Capital Focused On Risk Arbitrage: 13F Filing ~ market folly

Monday, March 1, 2010

Thomas Steyer's Farallon Capital Focused On Risk Arbitrage: 13F Filing

(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 is Thomas Steyer's hedge fund Farallon Capital. Steyer founded Farallon in 1986 and today it is a multi-billion dollar hedge fund that invests in equities, private investments, debt, and real estate. Typically though, they're focused on risk arbitrage strategies and you'll find a lot of evidence of this in their portfolio below. In terms of other recent activity, we saw that Farallon disclosed their large position in FreightCar America (RAIL) and have been selling shares of Knology (KNOL).

The positions listed below were Farallon's long equity, note, and options holdings as of December 31st, 2009 as filed with the SEC. All holdings are common stock unless otherwise denoted.

Brand New Positions
Sun Microsystems (JAVA) ~ inactive
Affiliated Comp Services (ACS) ~ inactive
Home Depot (HD) ~ inactive
Wells Fargo (WFC)
XTO Energy (XTO)
Dollar General (DG)
Encore Acquisition (EAC)
Sherwin Williams (SHW)
Verisk Analytics (VRSK)
Covidien (COV)
Energy Partners (EPL) ~ this was a result of a debt to equity conversion
Expedia (EXPE) Puts
Delta Airlines (DAL)

Increased Positions
Charles Schwab (SCHW): Increased by 309%
Beacon Roofing (BECN): Increased by 167% ~ we also detailed this increase
Burlington Northern (BNI): Increased by 137% ~ now inactive after the Berkshire Hathaway purchase
Old Dominion (ODFL): Increased by 103%
BMC Software (BMC): Increased by 98%
China Housing & Land (CHLN): Increased by 88%
Crown Castle (CCI): Increased by 75.5%
Monsanto (MON): Increased by 62.5%
SBA Communications (SBAC): Increased by 44.8%
Oracle (ORCL): Increased by 43%
Jones Lang Lasalle (JLL): Increased by 33.5%
Express Scripts (ESRX): Increased by 30.8%

Reduced Positions
Visa (V): Reduced by 53.8%
MSCI (MXB): Reduced by 47%
Hurray Holdings (HRAY): Reduced by 43.5%
GeoEye (GEOY): Reduced by 33.2%
JB Hunt (JBHT): Reduced by 22.4%
Discovery Communications (DISCA): Reduced by 20.4%
Knology (KNOL): Reduced by 14.8% ~ we already knew of these sales

Removed Positions (Sold out completely):
Aetna (AET) Calls
Capitalsource (CSE)
Apollo Group (APOL)
iShares Russell 2000 (IWM) Puts
Focus Media (FMCN)
Mastercard (MA)
America Movil (AMX)
Rockwell Collins (COL)
Eastman Kodak Bonds (PCLN)
Marvel Entertainment (MVL)
Google (GOOG)

Top 15 Holdings by percentage of assets reported on 13F filing

  1. Sun Microsystems (JAVA): 12.97%
  2. Burlington Northern Santa Fe (BNI): 7.63%
  3. Affiliated Comp Services (ACS): 6.99%
  4. Visa (V): 3.88%
  5. Home Depot (HD): 3.69%
  6. Wells Fargo (WFC): 3.59%
  7. XTO Energy (XTO): 3.50%
  8. Oracle (ORCL): 3.41%
  9. Jones Lang Lasalle (JLL): 3.08%
  10. Crown Castle (CCI): 3.06%
  11. Dollar General (DG): 2.85%
  12. Charles Schwab (SCHW): 2.80%
  13. BMC Software (BMC): 2.77%
  14. Monsanto (MON): 2.40%
  15. Yingli Green Energy Bonds: 2.40%

As you can see, a lot of Farallon's holdings were arbitrage related. Their top three holdings are no longer active stocks as they've all completed their merger processes: Sun Micro, Burlington Northern, and Affiliated Comp. A lot of their top holdings were also brand new holdings including Wells Fargo, Home Depot and Dollar General. This is directly in line with what we've seen out of hedge fund land lately. In fact, Wells Fargo was one of the most added stocks by hedge funds in the fourth quarter. Overall, Farallon reduced exposure to services and increased technology exposure.

Steyer's hedge fund firm completely sold out of a number of notable stakes (including Capitalsource which we previously detailed). They also dumped shares of Apollo Group (APOL) which is interesting as we've started to see hedge funds take divergent paths on this name. Some funds like Farallon have sold out, while others like Chase Coleman's Tiger Global have taken large stakes. Another interesting choice Steyer's hedge fund made was to sell completely out of Mastercard (MA) while still holding shares of Visa. Previously, hedgies had owned both of the payment processors. Nowadays it seems many funds are choosing one or the other. Farallon has chosen Visa, but note that they did sell some shares of V as well.

Data used for this article comes from Alphaclone, our source for backtesting strategies and sorting through all the hedge fund portfolio maneuvers with ease. Assets reported on the 13F filing were $2.0 billion this quarter compared to $1.4 billion last quarter. Remember that these filings are not representative of the hedge fund's entire base of AUM.

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, Stephen Mandel's Lone Pine Capital, John Griffin's Blue Ridge Capital, David Tepper's Appaloosa Management, Warren Buffett's portfolio, John Paulson's hedge fund Paulson & Co, Lee Ainslie's Maverick Capital, Dan Loeb's Third Point, Eddie Lampert's RBS Partners, David Ott's Viking Global, and Chris Shumway's hedge fund Shumway Capital Partners, Chase Coleman's Tiger Global, Philip Falcone's Harbinger Capital Partners, and Roberto Mignone's Bridger Management. Check back daily for our new updates.

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