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 voilà, 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 MarketFolly.com is your go-to source for the full spectrum of hedge fund analysis.

John Griffin's Blue Ridge Capital Discloses MiddleBrook Pharmaceuticals Stake (MBRKQ)

John Griffin's hedge fund Blue Ridge Capital just filed a 13G with the SEC regarding MiddleBrook Pharmaceuticals (MBRKQ). Per portfolio activity on November 22nd, Blue Ridge has disclosed a 8.05% ownership stake in MBRKQ with 6,969,697 shares. You can see commentary and analysis of Blue Ridge's other investments in the just-released issue of our newsletter.

It's difficult to discern whether or not this is a brand new position for Griffin's hedge fund. Securities traded on the pink sheets (like MiddleBrook is) aren't deemed reportable assets on 13F filings. So in their most recent 13F, Blue Ridge doesn't show a position in MBRKQ. However, if an investment firm were to acquire over 5% of a company's shares outstanding, they would have to file the respective 13G/D with the SEC, even if it's traded on the pink sheets (just as Blue Ridge has done). Readers will recall a similar scenario in the past when Bill Ackman's Pershing Square did not disclose their General Growth Properties stake (GGWPQ back then) on their 13F filing, but did disclose it in a 13D.

So, while it's unclear as to when Blue Ridge originally purchased MBRKQ, they have quite a sizable stake now, with recent enough activity to force the disclosure of the position due to crossing the ownership threshold amount.

This transaction is intriguing for a few reasons. First, Blue Ridge files 13G's or 13D's on a much less frequent basis than many other hedge funds we track as they don't seem to take concentrated positions as frequently. Second, MiddleBrook Pharmaceuticals is a micro-cap company ($5 million market cap) and filed for Chapter 11 bankruptcy protection in April of this year. Their restructuring will be something to watch.

Griffin founded Blue Ridge after leaving Julian Robertson's Tiger Management and is known as one of the successful 'Tiger Cubs.' For more from his fund, check out Blue Ridge's recommended reading list.

Per Google Finance, MiddleBrook Pharmaceuticals is "a pharmaceutical company focused on commercializing anti-infective drug products that fulfill unmet medical needs. The Company has developed a delivery technology called PULSYS, which enables the pulsatile delivery, or delivery in rapid bursts, of certain drugs."

Lee Ainslie's Maverick Capital Sells Cardiovascular Systems (CSII) Warrants

Lee Ainslie's hedge fund firm Maverick Capital just filed a Form 4 with the SEC regarding Cardiovascular Systems (CSII). Per the filing, we see that the hedge fund sold CSII warrants on November 30th. They sold warrants expiring in September 2013 with an exercise price of $9.28 that represented 134,790 shares. Additionally, they sold February 2014 warrants representing 519,798 shares and a conversion price of $8.83.

As detailed in their most recent 13F filing, Maverick Capital also owned 1,366,817 CSII common shares as of September 30th. So while it's a little unclear if they still hold these shares, they no longer own warrants. (The rest of Maverick's portfolio is analyzed in our latest issue of Hedge Fund Wisdom).

Maverick has returned 14% annualized since inception in 1995 and we posted up their third quarter letter here. Ainslie currently thinks technology stocks are cheap and Maverick has its highest net long technology exposure ever.

Per Google Finance, Cardiovascular Systems is "a medical device company focused on developing and commercializing minimally invasive treatment solutions for vascular disease. The Company’s primary products, the Diamondback 360 PAD System (Diamondback 360) and the Diamondback Predator 360 PAD System (Predator 360), are catheter-based platforms capable of treating a range of plaque types in leg arteries both above and below the knee and address many of the limitations associated with existing treatment alternatives."

Andreas Halvorsen's Viking Global Reveals Short Position in KBC Groep NV (KBC)

Andreas Halvorsen's hedge fund Viking Global Investors just disclosed a short position in overseas markets. Viking has revealed they are short 0.38% of the shares outstanding in the KBC Groep NV (KBC). This disclosure seems to fall under the new regulatory rules regarding revelations of positions in financials in foreign markets.

Even as the financial crisis has begun to recess from a state of panic, it's interesting to see various hedge funds still pop up with short positions in certain financial companies. Paul Ruddock's hedge fund Lansdowne Partners had been short Aviva (AV) and Crispin Odey's firm Odey Asset Management disclosed a new short position in Provident Financial (PFG).

Now, this is not to say that these hedge funds aren't shorting American-based financials as well. The short selling disclosures in the UK and foreign markets require transparency regarding these stakes while funds are not required to reveal short positions publicly in US-based companies.

Regarding other position activity out of Viking, we highlighted their new position in Guess (GES) back in late August as well.

Per Google Finance, KBC Groep NV is "a Belgium-based company engaged in banking, insurance and wealth management for private banking clients, retail customers and medium-sized enterprises. It has expertise in asset management and the financial markets. The Company’s activity is composed of five divisions: the Belgium, the Central & Eastern Europe and Russia (CEER), the Merchant Banking, the European Private Banking, and the Shared Services & Operations business units."

You can see Viking Global's portfolio here.

What We're Reading ~ 12/3/10

Hedge funds like Apple (AAPL), institutional investors differ [Institutional Investor]

Highbridge co-founder prepares new hedge fund [FINalternatives]

Interview with fund manager Harris Kupperman [DistressedDebtInvesting]

Grand Master Capital spinning out from Clarium [WSJ]

7 websites a trader visits most often [KirkReport]

The boom in hedge fund mergers [Dealbook]

On Bill Ackman and short selling [WashingtonPost]

Criticisms of the above article on Ackman [GeoffGannon]

Interview regarding fund manager selection [FINalternatives]

Hedge fund manager Mark Hart wins big on Euro crisis [TheFirstPost]

Bridger Management's Roberto Mignone invests in science education [WSJ]

Hedge fund mutual funds will change the market [BusinessInsider]

New wave of hedge fund start-ups find life is tough [Reuters]

Intriguing profile of New Jersey Nets owner Mikhail Prokhorov [NYTimes]

Dan Arbess' Xerion Fund Prefers Commodities Over Equities

Daniel Arbess' hedge fund Xerion is out with its latest letter to investors. The fund, a part of Perella Weinberg Partners, has returned 18.68% annualized net since inception in January 2003 and currently manages around $2.3 billion. Maybe the most impressive aspect about Arbess' numbers is the fact that he's done so with a correlation to the S&P 500 of only 0.34%.

The hedge fund "seeks to draw on fundamental valuation skills to identify opportunities that offer the potential for asymmetric returns--downside protection with upside potential." Xerion is named for an alchemy tool whose legend says it can turn base metals into gold. Apparently, it is also supposed to be an elixir of enlightenment. When markets crumbled in 2008, Xerion returned 0.31%, beating out numerous hedge funds that suffered. In 2009, the hedge fund was up 35.33%. Through October in 2010, Xerion is up 7.34% net.

Arbess has been positioned around 61.6% net long with equity strategies around 43.7% net long, credit strategies 35.6% net long and macro strategies -17.7% net. At the end of the month, their top 10 longs comprised 34.8% of equity. Some of the hedge fund's top performers included positions in HRT Participações em Petróleo (HRT), Abitibi (process driven distressed credit), LCORA (credit special situation), Solutia (SOA - thematic Asian growth equity), and Ivanhoe Energy (IVAN - special situation equity).

"Quantitative Easing May be Counter-Productive"

Arbess dedicates a decent portion of his commentary to the Federal Reserve, quantitative easing, and his belief that while QE may spur equity price advances, it will do little to make a real difference in the economy.

He writes, "The unintended consequences of QE are eroding confidence in the Dollar and the entire monetary system. We generally prefer commodities over equities as a medium term play on the 'Fed Put'. Equities may not keep going up if QE doesn't work, but it seems to us that commodity-related investments will have legs whether QE works and economies improve, or QE doesn't work and more Dollars are left chasing the same commodities."

This viewpoint is generally aligned with that of John Burbank's hedge fund Passport Capital as Burbank favors hard assets. However, their shared thinking contrasts with that of David Tepper and Appaloosa Management. Tepper doesn't want to 'fight the Fed' and thinks equities will continue to rally.

"Shake Hands With China"

One of Arbess' ongoing themes has been to own what China's government and consumers desire. He argues that China is transforming itself from the world's factory into the world's consumer. As such, the Xerion fund is investing in hard assets that China and developing nations need to build infrastructure and fuel urban growth. The hedge fund has also been researching cheap producers in southeast Asia and retail distributors that will serve this rising consumer.

HRT Participações em Petróleo (HRT)

Arbess' letter also singles out their investment in newly IPO'd HRT. Xerion made an initial $20 million private investment back in November 2009 at a $360 million capitalization. HRT went public raising $1.5 billion at a pre-money valuation of $1.8 billion. It is a Brazilian exploration and development company formed by Petrobras seismic experts who provided consulting advice to large oil companies.

Of the company Arbess writes, "We think this Company is just getting started, with the IPO implying a reasonable valuation for HRT's known onshore oil assets, but discounting its substantial gas potential in the Amazon and offshore hydrocarbon blocks in Namibia. We like this investment at its current valuation and are looking forward to favorable news as the Company's drilling program ramps up over the next several months."

Xerion Portfolio Exposures

Interestingly enough, Arbess writes that, "Our net long corporate exposures are still weighted nearly 2:1 credit to equity. About three quarters of our equity exposures (and hedges) are leveraged to the global industrialization theme, mostly through what we intend to be asymmetric commodity plays like HRT. About a quarter of our equity exposures are more domestically-focused, playing for either idiosyncratic events or high operating leverage, strong free cash flow or secular strength in a weak economic environment (hotels, transportation, technology, etc.)."

Currently, the fund has 21.4% of assets under management dedicated to special situations equities (mainly hard asset-focused). Arbess makes a footnote that the Xerion fund has been looking at stressed credit situations in the arenas of food service, lodging, and technology. Lastly before everyone asks, unfortunately we can't post a copy of the actual letter due to revealing watermarks.

We'll continue to provide updates on Arbess' hedge fund, but in the mean time you can view a previous Xerion presentation: Investing as the foundation shifts.

Pershing Square Q3 Letter: Ackman Provides Updates on Positions

Bill Ackman's hedge fund Pershing Square's third quarter letter is pretty much an investor's dream. The manager provides commentary and updates on practically all of his positions and is the epitome of transparency. But then again, it's not necessarily that hard when you run such a highly concentrated book like Ackman does. Pershing Square of course is one of the 23 prominent hedge fund portfolios we detail and analyze in the new issue of our Hedge Fund Wisdom publication.

Pershing Square has returned 292.7% net of all fees since inception in 2004. For 2010, their main fund is up 7.6% year-to-date. The only real noticeable change in their portfolio is that they exited Landry's Restaurants, as the company was bought out.

Fortune Brands (FO)

A while back we highlighted Ackman's new position in Fortune Brands (FO). His letter highlights that he thinks their Spirits business is a great consumer niche as it has high barriers to entry, sustainable profit margins, and economic resiliency. What's comical here is that Ackman filed a 13D signifying his activist intent with the investment and even though he hasn't really done much in that regard yet, the stock is already up 40% since he purchased it. It appears though that management will work with Ackman to unlock value.

J.C. Penney (JCP)

The other new position in Pershing Square's portfolio is J.C. Penney (JCP). Ackman likes JCP's cheap valuation, solid assets, and brand name. Their average purchase price was $25.28 and the stock already trades north of $33. The hedge fund manager doesn't necessarily outline his thesis in the letter, though he does point out Vornado Realty Trust's (VNO) involvement in the stock. The publicly traded REIT also acquired a large ownership in JCP shares. In the past, we've highlighted Ackman's potential JCP real estate thesis.

Ackman notes that his firm sold some shares of their Kraft (KFT) and Target (TGT) positions to finance the purchase of their two new positions. The rest of Pershing Square's letter delves into updates regarding their positions in Automatic Data Processing (ADP), General Growth Properties (GGP), Howard Hughes (HHC), Corrections Corp (CXW), and Citigroup (C). This was interesting mainly because it's been a while since we heard from Ackman regarding his Corrections Corp position, a name we originally posted his investment thesis on.

Embedded below is Pershing Square Capital Management's third quarter letter to investors:



You can download a .pdf copy here.

In other recent investment ideas from Ackman, he recently declared he is bullish on housing. And interestingly enough, John Paulson says to buy housing as well.

Harbinger Capital Sells New York Times (NYT) and Sable Mining (SBLM), Buys Crosstex Energy (XTXI)

Phil Falcone's hedge fund Harbinger Capital Partners has executed some sizable transactions recently. Rumors have swirled that the manager was winding down its Special Situations fund but that has been denied. Harbinger recently sold shares in two securities of note: New York Times Co (NYT) and Sable Mining Africa (LON: SBLM).

Regarding his New York Times stake, Falcone last week revealed he sold 7 million NYT shares at around $8.13 each. Harbinger originally acquired shares in 2008 when they were trading around $19 per share, so they've sold at a large loss. According to a 13D filed with the SEC, the filing was reported due to portfolio activity on November 24th.

Previously, Harbinger owned 7.4% of the company. With its latest sales, the hedge fund now owns only 2.6%, retaining 3.7 million NYT shares. This is the second time Harbinger has sold NYT in the past month or so. Not to mention, they sold some shares back in April of this year as well.

Turning next to Harbinger's next sale, the hedge fund has announced that it placed 205,756,827 Sable Mining Africa shares (LON: SBLM) with new and existing shareholders. Due to this transaction, Harbinger no longer owns an interest in SBLM shares. Previously, we highlighted Harbinger's Sable Mining stake here as they owned over 23% of the company. Alas, no more.

So Harbinger has definitely been selling positions off (they also sold some Inmarsat (ISAT) as well), possibly to free up cash for their concentrated bet on a 4G network via their LightSquared project, but that's pure speculation on our part.

Lastly, Falcone's hedge fund firm also recently filed an activist 13D on Crosstex Energy (XTXI). Due to portfolio activity on November 16th, Harbinger has disclosed a 9.6% ownership stake with 4,500,000 shares. This is an increase in their position as they owned 3.8 million shares when they added to their XTXI position in August. Over the past three months, Harbinger has ramped up its position size by 18.2%. Harbinger paid $33,091,533 for the total shares reported.

Per Google Finance, Crosstex Energy is "is engaged, through its subsidiary, Crosstex Energy, L.P. (Partnership), the gathering, transmission, processing and marketing of natural gas and natural gas liquids (NGL). The Partnership operates two segments: Midstream and Treating. Its combined midstream assets consist of over 3,300 miles of natural gas gathering and transmission pipelines, nine natural gas processing plants and three fractionators located in two primary regions: north Texas and Louisiana."

New York Times is "a diversified media company that includes newspapers, Internet businesses, investments in paper mills and other investments."

Stay up to date on the latest hedge fund movements by scrolling through our coverage of SEC filings.

Soros Buys More Exar Corp (EXAR)

Soros Fund Management's Quantum Partners has acquired more shares of Exar Corp (EXAR). In a Form 4 filed with the SEC, Soros has disclosed purchases on November 26th and November 30th of 21,044 EXAR shares at prices ranging from $6.64 to $6.6498 (weighted average). Soros has previously purchased EXAR shares in October and September.

While Soros Fund Management was the firm disclosing the transaction, the footnotes reveal that these securities are held for Quantum Partners (of which Soros is the principal investment manager). After the recent transactions, Soros owns 6,387,710 shares of EXAR. Just yesterday we saw that Soros updated its stake in Verigy (VRGY) as well.

From Google Finance, Exar Corp is "a fabless semiconductor company that designs, sub-contracts manufacturing and sells differentiated silicon, software and subsystem solutions for industrial, telecom, networking and storage applications. The Company’s product portfolio includes power management and interface components, datacom products, storage optimization solutions, network security and applied service processors."