Friday, September 10, 2010

Jeffrey Ubben's Hedge Fund ValueAct Capital Sells Some Gartner (IT)

Jeffrey Ubben's hedge fund firm ValueAct Capital recently filed a Form 4 with the SEC regarding shares of Gartner Inc (IT). According to the filing, ValueAct sold 4,000,000 shares at a price of $28.00 on September 7th, 2010. After the sale, they are left with 16,790,013 remaining shares of the company. ValueAct runs a concentrated portfolio with a focus on intensive due diligence and activism in an effort to create value.

This is the first time we've really covered ValueAct Capital and we'll be doing so from here on out due to reader demand. ValueAct was founded by Jeffrey Ubben in 2000. Prior to that, he was a managing partner at Blum Capital Partners and before that a manager of the Fidelity Value Fund. He received his B.A. from Duke University and his MBA from Kellogg at Northwestern University.

Taken from Google Finance, Gartner is "an information technology (IT) research and advisory company. The Company is a partner to 60,000 clients in 10,000 distinct organizations in over 80 countries. The Company’s principal products and services are delivered through its Research, Consulting and Events segments."

For the latest in hedge fund maneuvers, be sure to scroll through our latest SEC filing coverage.

Hedge Fund T2 Partners: Latest Investor Letter

Whitney Tilson and Glenn Tongue's hedge fund T2 Partners is out with their August letter to investors. In it, we see that they're up 12.3% net for the year compared to the S&P -2.1%. Some of their long positions that have performed well include: Osteotech, Resource America, Liberty Acquisition (warrants), and Wesco. On the short side of the portfolio, they found success in homebuilders, for-profit education plays, Ambac, and Lululemon Athletica (LULU).

Tilson's hedge fund has been positioned conservatively as they see an unfavorable economic outlook. Their letter takes a closer look at their position in Liberty Acquisitions warrants which you can read below. Tilson then confirms that they've added to their bearish bet against InterOil (IOC) after the company reported second quarter earnings. He also goes into detail about his rationale behind this short in the embedded letter below:

You can download a .pdf copy here.

Tilson and Tongue will be presenting their latest investment ideas at the upcoming Value Investing Congress in New York City on October 12th & 13th. Market Folly readers can receive a discount to the event here.

Second Curve Capital Buys More CompuCredit (CCRT)

Thomas Brown's hedge fund Second Curve Capital recently filed an amended 13G with the SEC regarding their position in CompuCredit (CCRT). In it, we see that Second Curve has disclosed a 11.4% stake in the company with 4,093,630 shares. This marks an increase of 10.3% in their position size because back on June 30th they owned 3,710,543 shares.

We also covered some other recent portfolio activity out of Tom Brown's firm when we saw that Second Curve started a position in Tennessee Commerce Bancorp (TNCC). Brown's focus is primarily on financial stocks and he was painfully early on his bullish call on the financials during the recent crisis and it cost him dearly at the time. Before he founded Second Curve he was in charge of the financial services group at Julian Robertson's Tiger Management.

Taken from Google Finance, CompuCredit is "a provider of various credit and related financial services and products to or associated with the financially underserved consumer credit market."

To view the latest buys and sells from top managers, head to our coverage of hedge fund portfolios.

Michael Burry Buys Agricultural Land & Gold

Michael Burry, the hedge fund manager made famous in Michael Lewis' book The Big Short, was recently interviewed by Bloomberg on a myriad of topics. Burry, a value investor by nature, bet against subprime right before its peak. Given his prescient call, many other investors are eager to find out what his next big play is. Well, his next investment seems to be land.

In particular, Burry believes, "that agricultural land, productive agricultural land with water on site, will be very valuable in the future. And I've put a good amount of money into that. So I'm investing in alternative investments as well as stocks." This stance plants him in the same camp as legendary investor Jim Rogers. The former Quantum Fund co-manager has been a vocal bull on agriculture claiming that people should trade in their Lamborghini's for tractors.

Given his past bet against the housing market, it was interesting to hear Burry's thoughts on real estate this time around. He thinks it's an "artificial market" and that Fannie Mae and Freddie Mac are essentially withholding properties from sale and not forcing foreclosures. He feels it would be best if the government exited the mortgage market. On the topic of investing in real estate, he says:

"I think there is some value in real estate. You have to buy it right. It's not in general, that's the problem. I think that there are an awful lot of people out there looking to buy these distressed properties out there and so you need to find special situations. That is how i've invested from the beginning. I'm looking for these special situations, these unique ideas and that's true in real estate too ... In my situation I'd rather go long on housing itself, real estate itself. Depending on how you structure it, in the real market, in the physical market, you can get some pretty good deals and I've done some of that too."

Finally, Burry has also caught the gold bug and likes the precious metal as well. Embedded below are two videos from Burry's interview (email readers will need to come to the site to watch them):

Video 1 on Accountability

Video 2 on Investing

To learn about Burry's fascinating past, check out his story in the book The Big Short. For more on his past wager, head to his primer on credit default swaps & the subprime mortgage short which he penned back in 2006.

What We're Reading ~ 9/10/10

Free sample of our new quarterly newsletter: Hedge Fund Wisdom [MarketFolly]

Steps to become a successful investor [Greg Speicher]

Hilarious review of Wall Street 2: Money Never Sleeps [Dealbreaker]

Taking a look at Todd Sullivan's latest plays [Value Plays]

7 things to do to improve [TheKirkReport]

Hedge fund blindness [Baseline Scenario]

Top 10 buys/sells from their ultimate stock pickers [Morningstar]

An interview with Jae Jun from Old School Value [TheKirkReport]

Profile and analysis of Atwood Oceanics (ATW) [Rational Walk]

Follow the smart money [CNNMoney]

A visual guide to deflation [Big Picture]

See also our best investments during deflation [Market Folly]

Four lessons from Stanley Druckenmiller [Mercenary Trader]

An examination of Activision Blizzard (ATVI) [Motley Fool]

Bond bubble ~ a sterile debate on semantics [Behavioral Investing]

Rumors of the demise of equities = premature [Trader's Narrative]

Renaissance Technologies leads the way in the first half [Institutional Investor]

Video on China's urbanization [McKinsey]

When should investors sell their Apple (AAPL)? [Reuters]

Thursday, September 9, 2010

Bill Ackman's Pershing Square Bought BP (BP) Credit Default Swaps

Bill Ackman's hedge fund Pershing Square Capital Management released their second quarter letter to investors and courtesy of Dealbreaker we're going to take a look at a few of his latest portfolio moves. Pershing's main fund was up 3% for the year net of fees at the end of Q2. Keep in mind that Bill Ackman will be presenting at the upcoming Value Investing Congress next month in New York City as well, and you can receive a discount here before the event sells out to hear his next idea. In the mean time, let's see what he's been up to.

Firstly, Pershing sold completely out of Yum Brands! (YUM) as the stock approached their estimate of intrinsic value. Secondly, they re-added shares of Automatic Data Processing (ADP) as the stock dropped despite reporting strong results. The 'undervalued high quality large cap' theme has been prevalent in many hedge fund portfolios and Pershing is no different as they've acquired shares of Kraft (KFT) in quarters prior (see their Kraft thesis here). Of this theme Ackman writes, "The resulting investor pessimism has caused stocks - even those of large capitalization, dominant, economically resilient business franchises which are the focus of our investment strategy - to trade at substantial discounts to our estimates of business value."

New Investments

The most notable takeaway from Pershing's Q2 letter is their disclosure of two new positions: a position in BP (BP) credit default swaps (CDS) as well as a portion of the securitization of debt on the Peter Cooper Village/Stuyvesant Town. Regarding BP Ackman feels that "the Gulf disaster has (1) likely permanently impaired the ability of BP to operate effectively in the US, (2) the clean-up costs, penalties, and legal liabilities of the spill will continue to impair the company's credit for many years, and (3) there is a substantially greater probability than is reflected in the pricing of the CDS that current liability estimates that have been publicly promulgated materially underestimate the ultimate costs to BP."

In the past, Ackman and fellow hedge fund manager Whitney Tilson of T2 Partners have shared some of the same positions in their portfolios. Not this time. You'll recall that Tilson is long BP and we detailed his in-depth analysis of BP here. It's intriguing to see this dichotomy of opinion between the two managers who are normally in agreement. At first glance it appears that they are on different sides of the trade this time around.

However, if you drill down their respective theses, they aren't necessarily betting against each other. Tilson is betting that the spill cleanup costs are overstated and that BP would be able to stop the leak, sell assets to raise cash, and meet even the worst case scenario estimates of clean up costs. While he is a value investor, this is more of an event-driven play with a shorter timeframe.

Ackman, on the other hand, seems to be wagering against BP's long-term creditworthiness. Some of you may be wondering why Ackman didn't just short the stock and there are two possible reasons for that. Firstly, as just mentioned, he is betting against the creditworthiness of the company rather than the fundamentals of the business itself. Secondly, as detailed in our profile of Pershing Square, Ackman prefers to use credit default swaps for exposure on the short side of the portfolio.

Their latest positions come in addition to Pershing acquiring a recent Citigroup (C) stake and we previously covered why Ackman bought Citigroup as well. Check out Ackman's full commentary in Pershing Square's second quarter letter to investors embedded below:

You can download a .pdf copy here.

To learn more about Bill Ackman, he is the subject of Christine Richard's book, Confidence Game: How a Hedge Fund Manager Called Wall Street's Bluff. For more great hedge fund manager commentary, check out the latest letter from Dan Loeb's Third Point as well.

Hedge Fund Viking Global Starts New Position in Guess (GES)

Andreas Halvorsen's hedge fund Viking Global Investors has filed a 13G with the SEC regarding shares of Guess (GES) due to portfolio activity on August 26th, 2010. They've disclosed a 6.6% ownership stake in the company with 6,169,600 shares. This is a brand new position as it wasn't on their books as of June 30th when we looked at Viking Global's portfolio.

Halvorsen's hedge fund has been re-tooling a lot lately given the departure of Chief Investment Officer David Ott, among other things. The firm is apparently taking more concentrated positions as each portfolio manager essentially owns each other's "best ideas". We've seen evidence of this as Viking added to numerous positions back in June. Before founding Viking, Halvorsen previously worked at Julian Robertson's Tiger Management.

Taken from Google Finance, Guess "designs, markets, distributes and licenses lifestyle collections of contemporary apparel and accessories for men, women and children."

Be sure to check out Halvorsen's latest investment thoughts and market commentary in in Viking's second quarter investor letter.

Steven Cohen's SAC Capital Jumps Aboard Genco Shipping (GNK)

Steven Cohen's hedge fund firm SAC Capital recently filed a 13G with the SEC regarding shares of Genco Shipping (GNK). Per the filing, Cohen's hedge fund has disclosed a 6% ownership stake in the company with 2,124,643 shares due to portfolio activity on August 25th, 2010. This marks a 11,888% increase in their position size because they only owned 17,722 shares back on June 30th. As such, over the past couple of months Cohen's firm has ramped up their stake.

Keep in mind that since SAC is a trading oriented hedge fund, it's harder to read into these sorts of filings as they typically hold positions for a much shorter time period than other funds we track. A perfect example of this is the fact that SAC revealed a position in XenoPort (XNPT) back in late May and by June 30th they had already completely sold out of the position. Tracking hedge funds with longer term timeframes is key and we focus on top hedge fund portfolios in our brand new quarterly newsletter: hedge fund wisdom.

Taken from Google Finance, Genco Shipping is "engaged in transporting iron ore, coal, grain, steel products and other drybulk cargoes along worldwide shipping routes. The Company’s fleet consists of 35 drybulk carriers."

Wednesday, September 8, 2010

Free Sample Issue of Hedge Fund Wisdom: Market Folly's Brand New Quarterly Newsletter

Want to know what top investment managers have been buying and selling? Last week we launched Hedge Fund Wisdom by Market Folly, our brand new quarterly newsletter in collaboration with professional hedge fund analysts/investors.

Our in-depth 75 page issue provides complete portfolio updates on 20 of the most prominent hedge funds along with commentary and analysis of their moves. Additionally, we take you inside the head of a hedge fund manager, examining the investment thesis of 3 stocks hedgies were buying.

Market Folly readers can receive a free sample issue of Hedge Fund Wisdom embedded below:

You can download a .pdf sample copy here.

To celebrate our launch, take advantage of a special introductory offer. You can checkout via PayPal or credit card below (email readers you'll have to come to the site in order to sign-up):

HFW Member - Annual (17% additional savings): $199/year

HFW Member - Quarterly (limited time offer): $60/quarter

To pay by credit card, look for the "No PayPal account? Pay using your credit or debit card" link at the bottom of the PayPal page you will be redirected to.

Tuesday, September 7, 2010

Hedge Fund Valinor Management Buys More Gymboree (GYMB)

David Gallo's hedge fund Valinor Management has updated its position in Gymboree (GYMB). Per a 13G filed with the SEC, Valinor now shows a 5.6% ownership stake in GYMB with 1,529,368 shares. This is due to portfolio activity on August 25th and reflects a 53.5% increase in their position size. Back on June 30th, Gallo's hedge fund owned 996,069 shares of Gymboree. This is the first SEC-disclosed position from Valinor in a few months. Back in May, we saw that they increased their position in Cardtronics (CATM) as well.

Prior to founding Valinor, Gallo worked at Roberto Mignone's Bridger Management. Gallo received an MBA from Harvard Business School. His hedge fund, Valinor, is named after the lands often inhabited by immortal souls in the books authored by J.R.R. Tolkien.

Taken from Google Finance, Gymboree is "a specialty retailer operating stores selling apparel and accessories for children under the Gymboree, Gymboree Outlet, Janie and Jack, and Crazy 8 brands, as well as play programs for children under the Gymboree Play & Music brand."

To see what other hedge funds have been investing in lately, scroll through our latest coverage of SEC filings.

Dan Loeb's Third Point Reduces Equity Exposure in Q2: Investor Letter

Dan Loeb's hedge fund Third Point LLC is out with their second quarter investor letter. In it, we learn that their Offshore Fund was -4.5% for the second quarter but still remains up 10.1% for the year. Why do we follow Third Point, you ask? Well, how about their Offshore Fund's 17.7% annualized return since inception.

Loeb starts his letter with a tirade on the economy, government and other associated topics. He writes, "(This) leads us to conclude that America faces not only a crisis of confidence among consumers unwilling to spend and businesspeople unwilling to invest, but also a crisis of leadership." He then goes on to talk about the impact public policy has on investing. After all, Third Point sold their stakes in US financials back in January due to regulatory uncertainty, among other reasons.

Additionally, Third Point has vacated a position in the healthcare sector, largely due to regulatory risk as well. He writes, "We have also sold other regulated industries and eliminated our position in an HMO that is a statistically cheap stock owned by several hedge funds, but which we saw as being overly exposed to unpredictable government regulation." If you subscribe to our brand new quarterly newsletter, Hedge Fund Wisdom by Market Folly, you would already know that Loeb is referring to Wellpoint (WLP), a name he exited completely in the second quarter.

The most notable change in Third Point's portfolio as of late has been their reduction of gross and net equities exposure. They started trimming exposure in May and continued to do so throughout the rest of the quarter. This is a theme we've covered previously when we looked at Third Point's portfolio. They exited positions lacking a solid catalyst and are avoiding sectors with the potential for US government intervention. In terms of positions they are fond of, Third Point retains high conviction in their post-reorganization equity plays as well as their mortgage exposure. As of late, they've also been adding to their risk arbitrage plays. While they expect growth in the US to remain 'anemic' for the rest of the year, they think M&A volume has the potential to pick-up.

One other interesting takeaway from Loeb's market commentary is the fact that his hedge fund has put on numerous "Asymmetrical trades using derivatives, options and debt securities to hedge against extraordinary global events." This is essentially an insurance policy as they are only dedicating 1% of fund assets per annum to this protection. We highlight this because it is a rampant trend in the hedge fund industry as of late. We first (and most notably) heard about this when we learned that Baupost Group's Seth Klarman purchased out of the money puts on bonds as a hedge against a potential scenario whereby interest rates rise sharply.

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

You can download a .pdf copy here.

For an in-depth look at Third Point's portfolio, head to our inaugural issue of Hedge Fund Wisdom by Market Folly. And to learn to invest like a successful manager, head to Dan Loeb's recommended reading list.

Hedge Fund Lone Pine Boosts VanceInfo Technologies (VIT) Stake

Stephen Mandel's hedge fund Lone Pine Capital has updated its stake in VanceInfo Technologies (VIT). Per a 13G filed with the SEC, Lone Pine has disclosed a 6.6% ownership stake in VIT with 2,616,404 shares. This disclosure was made due to portfolio activity on August 24th and marks a 127% increase in their position size. Back on June 30th, Lone Pine owned only 1,149,089 shares of VIT. You can view the rest of Lone Pine's updated portfolio in our brand new publication, hedge fund wisdom by market folly.

Mandel's position in VanceInfo Technologies sticks with the information technology theme he seems to be playing. Cognizant Technology (CTSH), one of his fund's largest holdings, is also in the IT business. The majority of Lone Pine's VIT position is held in its Lone Dragon Pine fund, an investment vehicle focused primarily on emerging markets. In other recent activity, we've also detailed Lone Pine's new position in Dick's Sporting Goods (DKS) and raised stake in Equinix (EQIX).

Taken from Google Finance, VanceInfo Technologies is "an information technology (IT) service provider and an offshore software development company in China. The Company’s range of IT services includes research and development services, enterprise solutions, application development and maintenance (ADM), testing, as well as globalization and localization. The Company offers its services, through its network of onsite and offsite delivery locations, primarily in China".

For more of the latest moves from Lone Pine Capital, head to our post on their addition to Lincare Holdings (LNCR) as well.

Phil Falcone's Harbinger Capital Reduces Tate & Lyle Position (TATE)

Philip Falcone's hedge fund Harbinger Capital Partners have reduced their UK position in Tate & Lyle (LON: TATE). Per UK regulatory disclosures, Harbinger now own less than 3% of the company's shares outstanding due to portfolio activity on the 27th of August. Falcone's hedge fund actually disclosed two sales with the most recent leaving Harbinger in possession of 14,161,182 shares of TATE. Back in July, we detailed how Harbinger owned 8.95% of Tate & Lyle previously. As such, this is a pretty sizable reduction in position size. This portfolio news comes right after we saw hedge fund Harbinger Capital add to Crosstex Energy (XTXI).

Since their position in Tate & Lyle is below the 3% threshold, the UK regulatory body does not require further disclosure of the position from Harbinger. So, we don't know if they're slowly selling completely out of the name or merely reducing position size. And unfortunately, we won't get any other regulatory updates unless they for some reason raised their stake back above the 3% threshold, which would trigger another filing.

Harbinger's thesis on Tate & Lyle was to supposedly push for a link with Bunge (BG), the US food group which Harbinger also previously owned. Back in 2008, Tate & Lyle's then CEO Iain Ferguson said that Harbinger's investment in the company stemmed from Falcone's habit of focusing on scarce assets that are hard to replicate. In the case of TATE, he was focusing on their US plants, including the first corn wet mill built in twelve years, Fort Dodge. But, given Falcone's vast reduction in his position sizing, it appears that his interest in this name has waned.

Taken from Google Finance, Tate & Lyle is "a manufacturer of renewable food and industrial ingredients. The Company, through its subsidiaries, is engaged in developing, manufacturing and marketing food and industrial ingredients made from renewable resources. The Company operates through four divisions: Food and Industrial Ingredients, Americas; Food and Industrial Ingredients, Europe; Sugars, and Sucralose. Tate & Lyle participates mainly in four markets: food and beverage; industrial ingredients; pharmaceutical and personal care, and animal feed. The Company holds a 16.6% interest in Tapioca Development Corporation."

View our previous coverage of Harbinger's portfolio for more.

Warren Buffett on Holding Cash ~ Quote of the Week

Warren Buffett is one of the best sources for financial market quotations and rightly so. In fact, we've even compiled Buffett's top 25 quotes. For Market Folly's quote of the week, we turn this week to the Oracle of Omaha's stance on holding cash:

"The one thing I will tell you is the worst investment you can have is cash. Everybody is talking about cash being king and all that sort of thing. Cash is going to become worth less over time. But good businesses are going to become worth more over time. And you don’t want to pay too much for them so you have to have some discipline about what you pay. But the thing to do is find a good business and stick with it. We always keep enough cash around so I feel very comfortable and don’t worry about sleeping at night. But it’s not because I like cash as an investment. Cash is a bad investment over time. But you always want to have enough so that nobody else can determine your future essentially."

~ Warren Buffett

To view a complete summary of Buffett's latest investments as well as the portfolios of prominent hedge fund managers, head to our brand new publication: hedge fund wisdom by market folly.