Grey Owl Capital on Investing in a Low-Return Environment: Q1 Letter

Jeff Erber and Grey Owl Capital are out with their Q1 letter to investors and in it they highlight how they're approaching investing in a low-return environment.  They're employing a three-pronged attack as follows:


1. Look for undervalued securities:  They've been "high-grading" their portfolio by buying cheaper, high quality US names.  This is a concept long echoed in commentary from Oaktree's Howard Marks as well as GMO's Jeremy Grantham for the past few years as rates have remained low for a prolonged period.

Here's what individual names Grey Owl's been trading in:

New stakes: Pepsico (PEP), Blackrock (BLK), BMC Software (BMC), and Excelon (EXC)
Added to existing stakes: eBay (EBAY)
Exited: Apollo Residential Mortgage (AMTG) and Western Union (WU)
Trimmed: Apollo Group (APOL), Bridge Point Education (BPI), Market Vectors Gold Miners (GDX), Lexmark (LXK), and Transocean (RIG).


2. Invest in short dated high-yield fixed income:  Given that the Fed has in the past signaled potentially raising rates in 2013, this short-dated approach makes sense.  They've purchased the following bonds (with full write-ups on each stake in the below letter):

MGM Resorts 6.75% 9/2012 - purchased in December 2011
CSC 5.5% 3/2013 - purchased in January
Western Alliance Bancorp 10% 9/2015 - purchased in early April


3. Hold plenty of dry powder anticipating better opportunities: This might look counterintuitive at first glance given that holding cash earns you practically nothing, especially in a low yield environment.  However, consider that many hedge fund managers often hold cash as a hedge and as a utility to deploy when better investment opportunities arise. That's exactly what Grey Owl has done as they've deemed the current set of opportunities less desirable and they think better prices to buy at lie ahead.


Embedded below is Grey Owl Capital Managment's Q1 letter & you can download a .pdf here:




For more investor letters we've posted up Dan Loeb's Third Point Q1 letter as well as Passport Capital's letter.

Uncertainty Provides Opportunity in Transocean & Apollo Group: Grey Owl Capital's Q2 Letter

Grey Owl Capital Management is out with its second quarter letter and the focus of the commentary is devoted to opportunity in the markets. While as a whole they feel markets are overvalued, they highlight that near-term uncertainties have yielded potential opportunities in Transocean (RIG) and Apollo Group (APOL).

Firstly with Transocean (RIG), the thesis largely lies in a long-term play on rising oil demand (and prices). Grey Owl had previously owned shares of RIG but sold them back when oil prices neared sky-high prices of $120 per barrel. Late this February, they re-initiated a small position partially as an inflation hedge. Then, opportunity came-a-knocking: an oil spill emerged in the Gulf of Mexico under BP's watch and Transocean was the owner of the rig. The unfortunate environmental incident caused both stocks to tumble.

Yet from an investing standpoint, many investors are able to look beyond the near-term and focus on the long-term picture. Whitney Tilson's hedge fund T2 Partners has presented the bullish case for BP. Additionally, while not directly related to the oil spill, David Einhorn's Greenlight Capital has bought Ensco (ESV) as a result of the depressed stock prices in the oil drilling sector. And today we're presenting Grey Owl Capital's bullish case for RIG. The main concern for Transocean is the liability associated with the oil spill. Grey Owl quickly points out that it is a standard industry practice for the operator (BP) to indemnify the owner (RIG) from risks associated with blowouts, with the exception of gross negligence. As such, unless Transocean is proven grossly negligent, they are in much better shape than BP from a liability standpoint.

Overall, Grey Owl points to Transocean's huge contract backlog of almost $30 billion (a free cashflow backlog estimated just under $15 billion) as a means to weather this storm. Additionally, they highlight that any concerns over the Gulf of Mexico drilling moratorium should only have a modest impact as 75% of RIG's contract backlog resides in non-Gulf of Mexico waters. Grey Owl feels that this single event will not have a lasting effect on Transocean's business and that at $50 per share, RIG is trading just under 6.5x 2010 consensus EPS estimates. They fully expect the stock to be under pressure in the near term, but they're focused on the long-term and expect the stock to trade back to pre-spill levels in a year's time.

Secondly, Grey Owl outlines an opportunity derived from uncertainty in Apollo Group (APOL). This has been the definition of a battleground stock and Grey Owl have staked their claim. As we've detailed before, Steve Eisman of FrontPoint Partners laid out the short thesis on APOL in a presentation he called 'Subprime Goes to College.' This then caused the President of the Career College Association to pen a response to Eisman's thesis. Grey Owl points out that the for-profit education sector is subject to extreme headline risk. However, the biggest risk is the potential new regulations designed to limited student debt burdens. Grey Owl feels that even if these are implemented, Apollo Group trades around fair value. They write,

"APOL trades at a free cash flow yield of 11% and a P/E of 12.5 on a trailing twelve-month (TTM) earnings. This is for a business that has 28% operating margins, has grown revenue an average of 17% over the last three years with very little marginal capital required, and has zero debt. In this case, the extreme uncertainty around the regulatory changes has caused the market to over-discount."

In fact, APOL has appeared numerous times on valuation screens found in the Value Edge newsletter (15% discount here). So, the stock is obviously cheap. But the question then becomes, is it rightly so? Other investors believe that there will be long-term ramifications in the industry. After all, why else would hedge fund Conatus Capital sell out of APOL and then Andreas Halvorsen's Viking Global sell APOL as well after holding it as one of their larger positions.

We've detailed the progression as many prominent hedge funds took bullish positions in the for-profit education space last year. Yet somewhere along the line, something changed and that 'something' was increased uncertainty. Grey Owl viewed this uncertainty as an opportunity and dove right in. This dichotomy of viewpoint is what makes a market.

Embedded below is Grey Owl Capital Management's second quarter letter:



You can download a .pdf copy here.

One year from now we'll have to look back and see whether or not uncertainty yielded opportunity. We've posted a ton of hedge fund market commentary and recommend also checking out the latest thoughts from Perry Capital, David Gerstenhaber's macro outlook at Argonaut Capital, Corsair Capital's latest investment ideas, as well as David Einhorn's latest Greenlight Capital letter.

Response to Steve Eisman's Short Thesis on For-Profit Education Companies

You'll recall that MarketFolly.com recently provided a summary of the Ira Sohn Investment Conference where numerous prominent hedge fund managers presented their latest ideas. Among those presenting was Steve Eisman of FrontPoint Partners. You might remember him of course as one of the successful subprime traders profiled in Michael Lewis' latest book, The Big Short.

At the conference, Eisman presented a short thesis on for-profit education companies, interestingly titled 'Subprime Goes to College'. You can view the entire presentation through that link, but he essentially laid out a bearish view on the following companies: Apollo Group (APOL), ITT Educational (ESI), Corinthian Colleges (COCO), Education Management (EDMC), as well as the Washington Post (WPO) for its test preparation business. His thesis states that the industry will be hurt by two factors: increased government involvement & regulation, as well as a rise in employment (generating a decrease in enrollment).

Eisman's crusade against for-profit education companies has obviously lit a fire under the collective asses of said companies' executives and representatives of the industry. Courtesy of our buddy StockJockey, we see that Harris Miller, President and CEO of Career College Association has even gone as far to pen a response to Eisman. Unfortunately, Miller's retort falls short (no pun intended) right from the get-go when he immediately casts Eisman as a villainous short-seller not even one paragraph into his remarks. This rudimentary and almost Pavlovian response from various officials and executives has become a bit tired over the years, has it not? 'Oh, he's a short seller, that means he's a bad person and must be stopped at all costs!' Nevermind the fact that Eisman, you know, has some credibility in the arena of short selling. He predicted this little thing called the subprime mortgage mess. Maybe you've heard of it?

In fairness to Miller, the CEO does bring up a solid point that comparing education companies to subprime mortgages is indeed a bit of a stretch. There are some similarities between the two situations (ratings agencies/accreditation boards, etc), but the insinuation that for-profit education is the next subprime is a bit hyperbolic. While there is government involvement in both sectors and student loan default is a legitimate concern, let's be honest: for-profit education is not going to wreak near the amount of havoc the subprime mess has. At the same time, there are obviously problems in the industry as Eisman has detailed.

We've labeled for-profit education stocks as an investment battleground for some time now. Hedge funds have taken sizable positions on both the long and short sides of the trade. However, as the year began, more and more hedgies have shifted to the 'sell' or 'short' side of the seesaw. At last year's Ira Sohn event, Stephen Mandel of Lone Pine Capital gave a bullish presentation on Strayer Education (STRA). Immediately following him, noted short seller Jim Chanos presented a bearish look at the for-profit education industry. Fast forward to more recent times and we saw that Mandel is still bullish on education plays. However, when we looked at Lone Pine's portfolio, we did note that they've scaled back their position some.

We shift next to a look at one of Mandel's progeny, David Stemerman. He previously worked at Lone Pine and then left to launch his own hedge fund, Conatus Capital. Stemerman's fund had been long education stocks but by the fourth quarter of 2009 and first quarter of 2010, they had sold out of these stocks, citing increased uncertainty and increased government scrutiny. Additionally, Andreas Halvorsen's hedge fund Viking Global was a big investor in Apollo Group (APOL) as it had previously been one of their most sizable positions. Yet, recently we saw they sold out of APOL, adding to the hedge fund exodus.

Back on the bullish side of the fence, we did however see Roberto Mignone's hedge fund Bridger Management buy shares of Princeton Review (REVU), a test preparation service. The interesting thing to pay attention to here is the difference between full-on schools and test preparation services. While Eisman mainly targets programs distributing degrees, he was also bearish on Washington Post for their test preparation business.

So while a divergence of opinion is clear, we've also highlighted how some prominent players have wavered in their conviction. The moral of the story here is that hedge fund land is very decisively divided on this topic. This sector should be watched closely as it should be filled with opportunity. While the bulk of that opportunity has historically been found on the long side, it's clear that many have grown skeptical. We've already presented the bearish case for the industry via Eisman's presentation. Embedded below is the response from Harris Miller, President & CEO of Career College Association which obviously presents the positive case for the industry:



You can download a .pdf copy here.

So, the war of words has ensued and this sector will continue to be hotly debated. In the end, it seems that government regulation and intervention will likely play a large part in the final outcome, whatever it may be. You can check out Steve Eisman's original presentation where he laid out his short thesis: Subprime Goes to College. Additionally, head to the summary of the Ira Sohn Investment Conference for the rest of ideas hedge fund managers pitched.

Steve Eisman & FrontPoint Partners Ira Sohn Presentation: Subprime Goes to College

Earlier we aggregated a compilation of notes from the Ira Sohn Investment Conference where some very prominent hedge fund managers detailed investment ideas. One of those managers was Steven Eisman of FrontPoint Partners (Morgan Stanley). You may be familiar with him as he was profiled as one of the successful subprime traders in Michael Lewis' book, The Big Short.

Eisman thinks he has identified the next 'subprime' so to speak and gave a presentation at the Ira Sohn Conference entitled, "Subprime Goes to College." This speech provided a negative thesis on the for-profit education plays. In particular, Eisman is bearish on Apollo Group (APOL), ITT Educational (ESI), Corinthian Colleges (COCO), and Education Management (EDMC). Lastly, he also dislikes Washington Post (WPO) due to their ownership of the Kaplan test preparation business. His general thesis focuses on two factors: Washington clamping down on the industry and a rise in employment (generating a decline in enrollment). He notes that a key to the problem here is the 'rating' these institutions receive from accreditation boards and he likens these boards to the ratings agencies who blessed subprime mortgages.

Embedded below is the Ira Sohn presentation from Steven Eisman & FrontPoint Partners entitled, 'Subprime Goes to College':



You can download a .pdf copy here.

As we've detailed numerous times, the for-profit education space is an investor battleground with a clear divergence of opinion. Stephen Mandel's hedge fund Lone Pine Capital has been bullish on education plays. In fact, at least year's Ira Sohn event, he gave a bullish presentation on Strayer Education (STRA). While he has since scaled back his position some, we saw he still owned it when we detailed Lone Pine's portfolio. We also recently saw Roberto Mignone's hedge fund Bridger Management buy shares of Princeton Review (REVU), another test preparation service.

That said, we've also noted that some of these managers have had a recent change of heart. David Stemerman's hedge fund Conatus Capital had been long and sold out of their education plays. Andreas Halvorsen's Viking Global also exited Apollo Group recently. Additionally, there are also numerous high profile detractors such as Jim Chanos who gave a negative presentation on for-profit education at last year's conference. And now, Eisman has joined the mix with his negative view too. We'll watch with great interest to see how this one plays out. For more great ideas from hedge fund managers, head to our aggregation of notes from the Ira Sohn Investment Conference and be sure to also check out our hedge fund portfolio tracking series.

Ira Sohn Conference Notes: Investment Ideas From Hedge Fund Managers

This year's Ira Sohn Conference was packed with investment presentations from heavy hitting hedge fund managers including Seth Klarman, David Einhorn, Bill Ackman, David Tepper, Larry Robbins and more. Like the Value Investing Congress (in-depth notes from that recent event here), you get a plethora of ideas from top talent. Presentations at Ira Sohn in years past include Greenlight Capital's David Einhorn blasting Lehman Brothers before it failed and Pershing Square's Bill Ackman detailing his bullish stance on shares of General Growth Properties when they were trading below $1 (as they now trade north of $13).

We covered many of last year's Ira Sohn presentations for those interested and the list goes on, but you get the picture. Without further ado, let's dive into some of the investment presentations we've aggregated from various sets of notes that were sent to us, as well as the live-tweeting of NY Times' Michael de la Merced and additional coverage from Barron's Tiernan Ray. We'll post up more in-depth presentations as they become available.


David Tepper of Appaloosa Management: Tepper was nonchalant in the outset of his presentation where he mentioned that his firm had lost $1 billion in AUM over the past month, yet he shrugged his shoulders and joked 'what are ya gonna do?' He then shifted to his current investment ideas such as his bet on AIG 8.175 junior subordinated debt. It trades somewhere around 70 cents on the dollar and he thinks this mispricing is due to a misunderstanding of AIG's capital structure. Additionally, Tepper likes Bank of America (BAC) and thinks it could see $27 in the next year. Sticking with banking, he also likes Spanish giant Banco Santander (STD). Lastly, Tepper also likes commercial mortgage backed securities (CMBS) here. Regarding the economy and a potential turnaround, he is hopeful and thinks we can handle it. His funds are typically invested in 70% debt and 30% equity. Currently, his debt exposure is 50% corporate and 20% asset backed. We recently detailed Appaloosa's portfolio for those interested in the rest of Tepper's investments.


David Einhorn of Greenlight Capital: Einhorn had all kinds of negative things to say about the creditworthiness of the US. His presentation was entitled, "Good News for the Grandchildren" implying that grandchildren won't have to pay off the government's spiraling debt. Einhorn actually thinks that a crisis has unfolded already and our generation will be the ones paying for it. He says it is very necessary to address the situation now rather than spiral into a debt crisis. Einhorn again lambasted the credit ratings agencies and thinks official ratings should be eliminated. He notes that Treasury Secretary Timothy Geithner is 'all-in' because he thinks that the US's credit rating will never be cut. To this though, Einhorn said, "I don't believe a US debt default is inevitable." In his presentation, Einhorn mentioned that he is still short Moody's (MCO) as well as McGraw Hill (MHP), the parent company of ratings agency Standard & Poors. Einhorn originally laid out a short thesis on these names at last year's Ira Sohn Conference in a presentation, The Curse of the Triple-A.

Einhorn then shifted the discussion to real-world costs and inflation. He went on to say that, "if your goal is to never see inflation, you will never see it until it is rampant." Einhorn was critical of the government's zero interest rate policy and warns it can create another bubble. He thinks that higher rates would actually lead to increased lending in the private sector because right now all you're seeing is banks playing the yield curve. Einhorn outlined all the past scenarios where the Federal Reserve didn't see a bubble until it was too late: from Long Term Capital Management to the dot-com bubble to the housing bubble and now to the sovereign debt crisis.

In terms of investment ideas, he likes African Barrick Gold (LON: ABG) traded in London. He thinks this name is cheap and could eventually be added to various indexes as well which would serve as a catalyst for institutional buying. Einhorn ended by saying, "We own some gold and some gold stocks for our investors and for ourselves. We will worry about our grandchildren later." If you'll remember a long while back, we first detailed when Greenlight Capital started storing physical gold. In recent activity, regulatory filings disclosed Einhorn's new position in NCR and we've also detailed Greenlight's portfolio. To learn more about Einhorn and his investment process, we recommend checking out his book, Fooling Some of the People All of the Time.


Bill Ackman of Pershing Square Capital Management: In typical Ackman fashion, he crammed an 80-slide presentation into 15 minutes. He proposed a "Wait to Rate" system to reform the rating agency business where it would be illegal for an agency to issue a rating within sixty days of the security's issuance. And if the agencies mess up, then they should lose their status. Turning to specific investment ideas, Ackman again focused on General Growth Properties (GGP). Some of you will remember that Ackman presented this same idea last year when shares were ridiculously cheap. Last year's premise with this name was an argument that the company's assets were worth more than their liabilities and that this bankruptcy was different than most.

This year, Ackman's GGP thesis continues on in that he sees very little mall construction over the next three to five years, an area GGP already has a dominant position in. He highlights that GGP is being split up into two entities: GGP & GGO. GGP would be the cash-flow generating side of the business and GGO would represent underperforming but valuable assets. Lastly, Ackman quickly remarked that his firm Pershing Square has been buying Citigroup (C) in recent weeks and has assembled a position of 150 million shares, but ran out of time to elaborate on the stake. For more on Ackman's investing style, he is the subject of Christine Richard's new book, Confidence Game: How a Hedge Fund Manager Called Wall Street's Bluff. Additionally, we've previously profiled Pershing Square and detailed Ackman's portfolio.


Seth Klarman of Baupost Group: Klarman continued his stern and gloomy comments from last week. He essentially gave a speech on what he would say if he were called in front of Congress to discuss Wall Street. He likened short sellers to policeman and reiterated the fact that they are not evil. He commented negatively on risk regulators, saying that they will inevitably make mistakes and that they won't be able to head off the next crisis at the pass. He feels the market should work itself out and that there should be no bailouts and that only the strong should survive. Klarman noted that many institutions have been bailed out and that the government's action related to AIG has 'raised moral hazards to new heights.' Klarman also joined in on the berating of the ratings agencies saying something should be done about them. Lastly, Klarman says that anyone in a transaction with a counterparty thinks the other investor is wrong, that's the beauty of a market. Just a few days ago we highlighted Seth Klarman's recommended reading list so definitely check that out. We also posted a summary of Klarman's speech at the CFA conference and have previously detailed Baupost Group's portfolio as well.


Steve Eisman of FrontPoint Financial Services Fund (Morgan Stanley): This name should be familiar to those of you who have read Michael Lewis' The Big Short, as he was one of the investors profiled in the story of the subprime trade. His presentation was entitled, "Subprime Goes to College" and as you can guess, he's negative on for-profit education companies. Those of you who followed the Ira Sohn Conference last year will remember that Jim Chanos gave a similar presentation berating these companies. Eisman sees Washington continuing to clamp down on the industry after these companies hired seemingly every lobbyist out there in previous years. He notes that a key to the problem here is the 'rating' these institutions receive from accreditation boards and he likens these boards to the ratings agencies who blessed subprime mortgages.

Eisman focused specifically on Apollo Group (APOL) and noted that if employment figures started to rise, APOL & others could see EPS declines of 40% annually. His presentation called out numerous other players in the space, including ITT Educational (ESI), Corinthian Colleges (COCO), and Education Management (EDMC). Eisman also painted Washington Post (WPO) in a negative light due to their ownership of the Kaplan test preparation business. That last one is intriguing because we recently saw Roberto Mignone's hedge fund Bridger Management buy shares of Princeton Review (REVU), a fellow test prep service.

The dichotomy of opinion continues as the for-profit education space has been an area ripe for debate. We've seen many prominent hedge fund managers own sizable stakes as Stephen Mandel's Lone Pine Capital has been bullish on education plays. That said, we've also noted that some of these managers have had a recent change of heart. David Stemerman's Conatus Capital had been long and sold out of their education plays. Andreas Halvorsen's Viking Global also exited Apollo Group recently. Additionally, there are also numerous high profile detractors such as Chanos and now Eisman.


Jamie Dinan of York Capital: Dinan's first idea was Coca Cola Enterprises (CCE) as they saw Coca Cola buy their bottling operations in the US earlier this year. He loves CCE's free cash flow. We've actually seen numerous other prominent hedge funds owning CCE shares as well, so they're definitely not alone in this pick. Dinan's second bet is on ING (ING). He values it at 1.2x book resulting in a value of 9.32 euros a share. He also noted that post bankruptcy equities are good places to be. This is a sweet spot for York Capital given their focus and he cited Lyondell (LALLF) as an example as he thinks it's worth $22 (it currently trades around $17). We just yesterday detailed some of York's recent portfolio activity for those interested.


Larry Robbins of Glenview Capital: Robbins highlighted that the market's P/E multiple is 12.3x and as the political presence in Washington grows, the P/E shrinks. He thinks now is a great time for stockpicking and not cash, 10 year treasuries or debt. He says to buy definitive growth and avoid high valuations. In particular, Robbins likes McKesson (MCK), Express Scripts (ESRX), Life Technologies (LIFE) and Fidelity National Information (FIS). Regarding FIS specifically, he agrees with the board's decision to reject Blackstone's bid and is in favor of the leveraged recapitalization plan. Regarding Express Scripts, he sees stable earnings and points out they have cash on hand to buy back stock or make acquisitions. We've pointed out that Andreas Halvorsen's Viking Global is bullish on ESRX as well. On Life Technologies, Robbins highlights organic growth, a defensive business mix, and potential industry consolidation. He also likes McKesson because it has a ton of cash, great free cash flow, and is trading at 11x earnings. For more from Robbins, we've previously outlined his thoughts on the case for global equities in 2010 at a hedge fund panel.


Jon Jacobson of Highfields Capital: Jacobson, formerly of Harvard's endowment and now one of the founders of Highfields, listed Sallie Mae (SLM) as his favorite pick. The main thesis here is that it is moving into a fee-based business with a great management team. He noted that the street has had a hard time valuing shares due to the gross leverage. And while this play is risky, he thinks it's undervalued. In a run-off scenario, Jacobson thinks SLM is worth between $15 and $25. While Sallie Mae is term funded, he argues they are adequately capitalized. He mentioned its legacy "FFELP" business is worth $6-8 a share on its own. SLM trades at 2x earnings and many of their competitors are essentially gone. SLM enjoys economies of scale, the credit quality of their loans is getting much better, and Jacobson also mentioned insider buying. Shares were up in aftermarket trading following his presentation. Shifting to the general commentary, Jacobson also cited his concern for the climate in Washington as he claims there is no leadership and that many US states are the American equivalent of Greece, bankrupt or about to be. Overall, he feels that the government is simply delaying these problems for future generations. We've covered some of Jacobson's previous thoughts at a hedge fund panel where he addressed whether or not there is alpha in asset allocation.


Daniel Arbess of Perella Weinberg Partners/Xerion Capital: Arbess' presentation focused on China. He specifically likes Yum Brands (YUM), as the fast food chain has great exposure to that country. Additionally, he likes Ivanhoe (IVN) in the metallurgical coal space as he's bullish on gold and commodities as well. On gold specifically, he says "I doubt we're at a top" but at the same time he does not like it as a safe haven against inflation. In currency trades, he likes a trade of short the Japanese yen and long the Canadian dollar. Arbess also listed Celanese (CE) as one of his picks. Lastly, he sees more distressed credit opportunities coming up as maturities start to roll in. And like many other presenters, he had an unpleasant view of the current political administration and their actions. Turning lastly to the debt crisis, Arbess thinks there are no quick fixes and the outcome is unpredictable. In the past, we've previously covered some brief portfolio activity out of Perella Weinberg.


Jeremy Grantham of GMO: His favorite picks were commodities and in particular, timber. He highlights this because it's the only asset class that did not lose value in the 1970's or during the Great Depression. His second pick centered on emerging market equities and thirdly, Grantham also favors high quality US stocks. Armed with a chart displaying equity valuation of mega caps since 1955, he points out that mega cap valuation has declined since 1955 and they currently represent great value. Shifting to macro thoughts, he thinks the UK housing bubble has yet to burst and that prices could fall as much as 33% more and also warned of a possible bubble in Australia.


Niall Ferguson: He mentioned that now is not the time to short Treasuries. However, he also cautioned to avoid holding 10 year bonds to maturity. Scarily enough, Ferguson thinks the US will be like Greece by 2013 and that we won't be able to 'print' our way out of this mess.


That wraps up our aggregation of notes from the Ira Sohn Investment Conference. If you enjoyed our coverage, please consider receiving our free hedge fund updates via email or our free updates via RSS reader. Thank you to those that sent us notes and stay tuned as we'll post up in-depth presentations as we receive them.

Chase Coleman's Tiger Global Shows Large Put Positions on Market Indexes: 13F Filing Q1 2010

(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 filings.)

Next up is Chase Coleman's hedge fund Tiger Global. Coleman is considered a 'Tiger Seed' because he previously plied his trade under mentor Julian Robertson at legendary fund Tiger Management. He then became one of the many managers Robertson seeded in an effort to recognize up and coming talent. Coleman is also one of the many managers selected to be in the Tiger Cub portfolio created with Alphaclone where you can piggyback the investment ideas of numerous top hedge fund managers (Market Folly readers can receive a free 30-day trial if interested).

The positions listed below were Tiger Global's long equity, note, and options holdings as of March 31st, 2010 as filed with the SEC. All holdings are common stock unless otherwise denoted:


Brand New Positions
Powershares QQQ Trust (QQQQ) Puts
SPDR S&P 500 (SPY) Puts
Electronic Arts (ERTS)
Electronic Arts (ERTS) Calls
Apollo Group (APOL) Calls
Liberty Global (LBTYA) Calls
Nike (NKE)
Genpact (G)
Kraft (KFT)
Liberty Capital (LCAPA)
American Tower (AMT)
Commscope (CTV)
Live Nation (LYV)
Duoyuan (DGW)
Amazon (AMZN)
Lincare Holdings (LNCR)
Shanda Games (GAME)
Madison Square Garden (MSG) ~ spin-off as a result of their stake in Cablevision
Symetra Financial (SYA)
Berkshire Hathaway (BRK.A)


Increased Positions
Western Union (WU): Increased position size by 577%
Liberty Global (LBTYA): Increased by 204.6%
Hewlett Packard (HPQ): Increased by 200%
Apple (AAPL): Increased by 62.2%
Lockheed Martin (LMT): Increased by 45%
Google (GOOG): Increased by 35%
Apollo Group (APOL): Increased by 30%
Mercadolibre (MELI): Increased by 24.6%
Discovery Communications (DISCK): Increased by 23%


Reduced Positions
Yahoo (YHOO): Reduced position size by 79.8%
E*Trade Financial (ETFC): Reduced by 46.7%
Mastercard (MA): Reduced by 35%
Monsanto (MON): Reduced by 34.6%
Transdigm Group (TDG): Reduced by 34.1%
IAC Interactive (IACI): Reduced by 28%
Cablevision (CVC): Reduced by 25.7%


Positions They Sold Out of Completely
Qualcomm (QCOM)
McDonalds (MCD)
IMS Health (RX)
Teradata (TDC)
Ebix (EBIX)
Discovery (DISCA)
Gushan Environmental (GU)


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

1. Powershares QQQ Trust (QQQQ) Puts: 9.0%

2. Apollo Group (APOL): 8.32%

3. DirecTV (DTV): 7.87%

4. Pepsico (PEP): 5.96%

5. Apollo Group (APOL) Calls: 5.39%

6. Google (GOOG): 4.47%

7. SPDR S&P 500 (SPY) Puts: 4.45%

8. Mercadolibre (MELI): 4.06%

9. Lockheed Martin (LMT): 3.51%

10. Electronic Arts (ERTS) Calls: 3.41%

11. Mastercard (MA): 3.34%

12. Priceline.com (PCLN): 2.93%

13. Apple (AAPL): 2.80%

14. Liberty Global (LBTYA): 2.75%

15. Visa (V): 2.42%

Alright, there's a lot to cover here. The most noteworthy thing to take away from Coleman's portfolio is the fact that in the first quarter he started massive put positions on the Nasdaq-100 (QQQQ) and S&P 500 (SPY). These could merely be hedges, or they could be a directional bet, we don't know. What we do know though, is that these are very sizable positions. These puts are likely already profitable positions for the fund as well (that is, unless for some reasons they purchased the puts at the lows in February, which seems unlikely).

Tiger Global was quite active in options markets in the first quarter as they also started a large new position in Apollo Group calls. This is a complement to their already large position in common stock of the company as well, making it by far one of their biggest company specific bets. Additionally, we point out their large stake in DirecTV (DTV) because in Tiger Global's fourth quarter letter, Coleman indicated that this was one of their highest conviction picks as they believe that DTV will increase leverage to buyback shares and then their cashflow will cover current debt.. Tiger has also built up a sizable long position in Electronic Arts (ERTS) via common shares and calls.

Regarding positions they decreased, Tiger sold nearly 80% of their Yahoo (YHOO) position and almost half of their E*Trade Financial (ETFC) position. While TIger Global added significantly to their Western Union (WU) stake, the position is still not very large in the context of their overall portfolio. Other positions they notably added to in the first quarter include Hewlett Packard and Liberty Global.

Assets reported on the 13F filing were $4.9 billion this quarter. Data from the SEC is aggregated and sorted automatically by Alphaclone, our source for hedge fund tracking, replicating, and performance backtesting (Market Folly readers can receive a special free 30 day trial). Remember that these filings are not representative of the hedge fund's entire base of AUM.

This post is part of our daily hedge fund portfolio tracking series. We've already detailed activity from numerous managers so click the links below to be taken to the respective portfolio updates: Seth Klarman's Baupost Group, Warren Buffett's Berkshire Hathaway, Stephen Mandel's Lone Pine Capital, and Bill Ackman's Pershing Square, David Einhorn's Greenlight Capital, Eddie Lampert's RBS Partners, David Tepper's Appaloosa Management, Mohnish Pabrai's Investment Fund, John Griffin's Blue Ridge Capital, Lee Ainslie's Maverick Capital, Bruce Berkowitz's Fairholme Capital Management, Andreas Halvorsen's Viking Global, Dan Loeb's Third Point, and John Paulson's hedge fund Paulson & Co. Be sure to check back daily for new hedge fund updates.

Chase Coleman's Tiger Global Shows Large DirecTV & Apollo Group Stakes: 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 Chase Coleman's hedge fund Tiger Global. Chase Coleman is a 'Tiger Cub' because he previously plied his trade under mentor Julian Robertson at Tiger Management. Coleman is also considered a 'Tiger Seed' because he is one of the few managers that Robertson actually seeded himself in an effort to recognize talented up and coming managers. Coleman is one of the many managers selected to be in the Tiger Cub Portfolio created with Alphaclone where you can piggyback the investment portfolios of some of the top investors out there.

The positions listed below were Tiger Global'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
DirecTV (DTV)
Apollo Group (APOL) ~ this position was disclosed back in January
Lockheed Martin (LMT)
Liberty Global (LBTYA)
Harbin Electric (HRBN)
Ebix (EBIX)
Hewlett Packard (HPQ)


Increased Positions
IAC Interactive (IACI): Increased by 212%
McDonald's (MCD): Increased by 100%
Qualcomm (QCOM): Increased by 63.5%
Monsanto (MON): Increased by 62%
E*Trade Financial (ETFC): Increased by 52%
Pepsico (PEP): Increased by 43.5%
Apple (AAPL): Increased by 36%
Western Union (WU): Increased by 32%
Yahoo (YHOO): Increased by 15%


Reduced Positions
Teradata (TDC): Reduced by 66.3%
Discovery Communications (DISCA): Reduced by 49%
Gushan Environmental (GU): Reduced by 42.7%
Google (GOOG): Reduced by 39.5%
Priceline.com (PCLN): Reduced by 35%
Lorillard (LO): Reduced by 33.5%
IMS Health (RX): Reduced by 32.8%
Visa (V): Reduced by 27.7%
Longtop Financial (LFT): Reduced by 21.5%
Cablevision (CVC): Reduced by 19.6%
Mastercard (MA): Reduced by 17%


Removed Positions (Sold out completely):
American Tower (AMT)
Electronic Arts (ERTS)
Advisory Board (ABCO)
Airvana (AIRV)


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

1. DirecTV (DTV): 11.14%
   
2. Apollo Group (APOL): 9.28%
   
3. Mastercard (MA): 7.63%
   
4. Pepsico (PEP): 7.19%
   
5. Monsanto (MON): 6.16%
   
6. Google (GOOG): 5.33%
   
7. Mercadolibre (MELI): 5.16%
   
8. Transdigm Group (TDG): 4.43%
   
9. Lorillard (LO): 4.07%
   
10. Qualcomm (QCOM): 3.87%
    
11. Visa (V): 3.81%
    
12. IAC Interactive (IACI): 3.58%
    
13. Priceline.com (PCLN): 3.28%
    
14. Lockheed Martin (LMT): 3.23%
    
15. Yahoo (YHOO): 3.09%
    

Keep in mind many of these portfolio moves we had covered in our previous Tiger portfolio update. Their brand new position in Apollo Group is notable as fellow hedgie Stephen Mandel's Lone Pine Capital is also bullish on education plays. They also started a huge new stake in DirecTV (DTV). Tiger apparently believes that DTV will increase leverage to buyback shares and then their cashflow will cover current debt.

They completely sold out of American Tower which diverges from what we've seen from hedgies as of late. The vast majority of hedge funds we track have been bullish on tower stocks. Tiger Global also sold off some Google shares and this falls directly in line with previous research that showed many hedge funds slowly turning sour on GOOG. Lastly, we saw Tiger dump shares of Electronic Arts and this also fits the meme of hedgies shorting video game makers that are losing out to online games. Tiger also sold shares of Priceline.com, something we saw fellow hedgie Stephen Mandel do when his Lone Pine Capital dumped PCLN 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 just a few clicks. Assets reported on the 13F filing were $3.3 billion this quarter compared to $2.3 billion last quarter, a 40% increase. 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. Check back daily for our new updates.

Lee Ainslie's Maverick Capital Focused On Technology & Health Stocks: 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 Lee Ainslie's hedge fund Maverick Capital. Maverick focuses on intensive fundamental research to identify positions on both the long and short side of the portfolio, but they do not employ pairs trades. Positions typically do not exceed 5-8% of the portfolio as Ainslie's big focus is on risk management. Maverick looks at enterprise value to sustainable free cash flow and their analytical team is segmented by sector.

Ainslie founded Maverick after leaving Julian Robertson's legendary hedge fund Tiger Management. As such, Ainslie's hedge fund is a part of the Tiger Cub Portfolio created with Alphaclone where you can replicate the portfolios of some of the top hedge funds around. Additionally, you can read more about Lee Ainslie in our profile of Maverick Capital.

For Ainslie's recent take on the economy and markets, we highly recommend reading Maverick's recent investor letter as well as our post on Ainslie's appearance at a prominent hedge fund panel. The positions listed below were their 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
Bank of America preferred (BAC-S)
Oracle (ORCL)
Express Scripts (ESRX)
Wells Fargo (WFC)
Commscope (CTV)
Brocade Communication (BRCD)
Autodesk (ADSK)
Mead Johnson (MJN)
Family Dollar Stores (FDO)
Autozone (AZO)
State Street (STT)
Banco Santander (BSBR)
Dish Network (DISH)
Viacom (VIA.B)
Citrix (CTXS)
Target (TGT)
Illumina (ILMN)
Healthnet (HNT)
Carnival (CCL)
Green Mountain
Coffee Roasters (GMCR)
Ericsson (ERIC)
Longtop Financial (LFT)
Dollar General (DG)
American International Group (AIG)

The rest of their brand new positions are less than 0.5% of reported assets each: American Public Education (APEI), Vanceinfo Tech (VIT), Artio Global (ART), Discovery Communication (DISCK), Northwest Banchsares (NWBI), China Nuokang (NKBP), & Anadys Pharma (ANDS)


Increased Positions
Perfect World (PWRD): Increased by 530.6%
Sears Holdings (SHLD): Increased by 320.6%
Expedia (EXPE): Increased by 176.2%
DirecTV (DTV): Increased by 153.6%
Winnebago (WGO): Increased by 123.3%
Fedex (FDX): Increased by 97.8%
Apollo Group (APOL): Increased by 82.4%
Wellpoint (WLP): Increased by 67.6%
Digitalglobe (DGI): Increased by 55.2%
Brinks Home Security (CFL): Increased by 30.9%
Cypress Biosciences (CYPB): Increased by 30.5%
Macys (M): Increased by 26.1%
Pfizer (PFE): Increased by 21.2%
Bluefly (BFLY): Increased by 21.2%


Reduced Positions
Priceline (PCLN): Reduced by 73.6%
Bank of America (BAC): Reduced by 63.7%
America Movil (AMX): Reduced by 63.4%
Infinera (INFN): Reduced by 58.4%
Qualcomm (QCOM): Reduced by 55.9%
Discovery Communications (DISCA): Reduced by 47.6%
Berkshire Hathaway (BRK.A): Reduced by 37%
Home Inns & Hotels (HMIN): Reduced by 35.5%
Covidien (COV): Reduced by 32.4%
Corning (GLW): Reduced by 32.2%
RenaissanceRe (RNR): Reduced by 30%
Equinix (EQIX): Reduced by 29.5%
Itron (ITRI): Reduced by 28.7%
Visa (V): Reduced by 28.5%
Cablevision (CVC): Reduced by 28.1%
Berkshire Hathaway (BRK.B): Reduced by 24.7%
Athenahealth (ATHN): Reduced by 24.6%
Pepsico (PEP): Reduced by 24.5%
Black & Decker (BDK): Reduced by 22%
Amgen (AMGN): Reduced by 20.1%
Lender Processing (LPS): Reduced by 19.8%
XTO Energy (XTO): Reduced by 17.3%


Removed Positions (Sold out completely):
Hewlett Packard (HPQ)
JPMorgan Chase (JPM)
Liberty Media (LSTZA)
First Solar (FSLR)
Staples (SPLS)
Accenture (ACN)
Microsoft (MSFT)
Cummins (CMI)
Gap (GPS)
Williams Sonoma (WSM)
Palm (PALM)
Celgene (CELG)
Strayer Education (STRA)
Google (GOOG)
Whole Foods (WFMI)
King Pharma (KG)
Cognizant Technology (CTSH)
Cemex (CX)
Nii Holdings (NIHD)
Skechers (SKX)
Chicos (CHS)
First Advantage (inactive)
MB Financial (MBFI)


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

1. Apple (AAPL): 3.7%
   
2. Apollo Group (APOL): 3.5%
   
3. Bank of America preferred (BAC-S): 3.0%
   
4. DirecTV (DTV): 2.9%
   
5. Oracle (ORCL): 2.8%
   
6. Macys (M): 2.6%
   
7. Marvell Technology (MRVL): 2.6%
   
8. Corning (GLW): 2.5%
   
9. Gilead Sciences (GILD): 2.3%
   
10. Wellpoint (WLP): 2.1%
    
11. Progressive (PGR): 2.1%
    
12. Express Scripts (ESRX): 2.0%
    
13. CVS Caremark (CVS): 2.0%
    
14. Wells Fargo (WFC): 2.0%
    
15. Pfizer (PFE): 1.9%
    

One thing you'll notice about Lee Ainslie's portfolio is that there are no highly concentrated positions. He is very big on risk management & position sizing and therefore you see a lot of holdings that each represent around the same percentage of their US equity exposure. To see how exactly Ainslie likes to construct his portfolio, head to our profile on Maverick Capital.

Their stakes in Apple and Apollo Group are the only two that are really sizable compared to the rest of the disclosed holdings. And, there's an interesting dynamic between those two positions. In Apple you have one of the most popular stocks amongst hedge funds. In Apollo Group you have some controversy and difference of opinion between hedgies. David Stemerman's Conatus Capital recently dumped their APOL while Chase Coleman's Tiger Global started a new APOL stake. Maverick sides with Tiger Global at the moment.

Lee Ainslie's hedge fund started brand new stakes in Bank of America preferreds, Oracle, Express Scripts & Wells Fargo and brought them all up to top 15 holdings. As you can see they made a lot of portfolio adjustments as they added to various holdings and sold partial positions in others. Of all the hedge funds we've covered thus far, they by far have the most position size changes on a quarter over quarter basis.

Maverick also sold out of a bunch of well-known large cap plays. Their most notable sale was in shares of HPQ because last time around it had been their 2nd largest US equity long position. Ainslie's hedge fund also dumped their 7th largest holding from the last 13F filing in JPMorgan Chase. Their sale of Palm (PALM) continues to mark a wave of pessimism and negativity that we've seen amongst hedge funds. Many funds are even shorting PALM as they seem to be losing ground in the fierce battle known as the smartphone industry. Additionally, we note their sale of their entire First Solar (FSLR) stake.

Assets reported on the 13F filing were $8.98 billion this quarter compared to $8.3 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, and John Paulson's hedge fund Paulson & Co. Check back daily for our new updates.

Chase Coleman's Tiger Global Starts Apollo Group (APOL) Stake, Joins Other Hedgies

In a 13G filed with the SEC, Chase Coleman's hedge fund Tiger Global has disclosed a brand new position in Apollo Group (APOL). The filing was made due to activity on January 15th, 2010 and they now show an 8% ownership stake with 12,402,876 shares. This is a new holding for them as they did not own APOL when we last looked at Tiger's portfolio.

Tiger was one of the many funds mentioned in our recent post about how hedge funds have been bullish on tower stocks. We could definitely say the same about education stocks as many of the 'Tiger Cub' funds are now long APOL and/or Strayer Education (STRA). David Stemerman's Conatus Capital had a large APOL stake when last we looked, and Lee Ainslie's Maverick Capital also owned lots of Apollo Group, amongst many other hedge funds. We'll continue to watch this trend and will see if hedgies were out adding to this play in the fourth quarter of 2009 or not.

Chase Coleman is a 'Tiger Cub' because he previously plied his trade under mentor Julian Robertson at Tiger Management. Coleman is also considered a 'Tiger Seed' because he is one of the few managers that Robertson actually seeded himself in an effort to recognize talented up and coming managers. Coleman's hedge fund is one of the many funds that comprises the Tiger Cub Portfolio created with Alphaclone where you can replicate their positions and enjoy 15.5% annualized returns since 2000.

Those of you wanting to see the specifics of Tiger's specific position can view the extracted screenshot from the SEC filing below:

(click to enlarge)

Taken from Google Finance, Apollo Group is "is a private education provider. The Company offers educational programs and services both online and on-campus at the undergraduate, graduate and doctoral levels through its wholly-owned subsidiaries, The University of Phoenix, Inc. (University of Phoenix), Western International University, Inc. (Western International University), Institute for Professional Development (IPD), The College for Financial Planning Institutes Corporation (CFFP), and Meritus University, Inc. (Meritus)."

David Stemerman's Conatus Capital Added To Tech Holdings, Bought Homebuilders

This is the third quarter 2009 edition of our hedge fund portfolio tracking series. If you're unfamiliar with tracking hedge fund movements or SEC filings, check out our series preface on hedge fund 13F filings.

Next up in our series is David Stemerman's hedge fund Conatus Capital. This is only the fourth time we've covered their portfolio because this is literally only their fourth 13F filing. They are a newer fund, but their manager definitely has experience. Conatus raised $2.3 billion and began trading last year after David Stemerman left Stephen Mandel's Lone Pine Capital to start his own hedge fund.

Conatus is an interesting story to follow because Stemerman's old employer is a prominent 'Tiger Cub' hedge fund. Stephen Mandel was part of the group of Tiger Cubs that left Julian Robertson's successful Tiger Management to start their own hedge funds. Now Mandel has taken on the role of mentor and is seeing former employees going on to start their own funds. Things have come full circle and we're starting to see Tiger GrandCubs. In addition to David Stemerman, Matt Iorio also left Lone Pine to start his own firm, White Elm Capital, who we will track for the first time tomorrow. We find it appropriate to track these two gentlemen because they are well-versed in the successful bottom-up 'Tiger' stockpicking and have contributed to Lone Pine's solid track record over the years. You can check out our previous Conatus portfolio update here. Let's now move onto Conatus' portfolio from the third quarter of 2009.

Keep in mind that the positions listed below were Conatus' long equity, note, and options holdings as of September 30th, 2009 as filed with the SEC. We don't cover every single portfolio maneuver, as we instead focus on all the big moves. All holdings are common stock unless otherwise denoted.


Some New Positions
Brand new positions that they initiated last quarter:
Wells Fargo (WFC)
Weatherford International (WFT)
DR Horton (DHI)
Toll Brothers (TOL)
Monsanto (MON)
Mindray Medical (MR)
Bed Bath & Beyond (BBBY)
Carnival (CCL)
Citrix (CTXS)
Baidu (BIDU)
Freeport McMoran (FCX)
BHP Billiton (BHP)


Some Increased Positions
Positions they already owned but added shares to:
Cisco Systems (CSCO): Increased position by 150.5%
Google (GOOG): Increased by 61.5%
Petrohawk (HK): Increased by 48.4%
SBA Communications (SBAC): Increased by 47.5%
Itau Unibanco (ITUB): Increased by 32.2%
Crown Castle (CCI): Increased by 30.6%
Apollo Group (APOL): Increased by 28.9%
Express Scripts (ESRX): Increased by 17%


Some Reduced Positions
Stakes they sold shares in but still own:
Priceline (PCLN): Reduced position by 42.8%
CTrip (CTRP): Reduced by 37.1%
Teradata (TDC): Reduced by 30.6%
Cognizant Tech (CTSH): Reduced by 25.1%
CH Robinson (CHRW): Reduced by 21.5%
Walter Energy (WLT): Reduced by 20.1%
Amazon (AMZN): Reduced by 14.2%


Removed Positions
Positions they sold out of completely:
Mastercard (MA)
Visa (V)
American Tower (AMT)
Discovery Communications (DISCA)
Southwestern Energy (SWN)


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

1. Apple (AAPL): 5.34%
2. Apollo Group (APOL): 4.98%
3. Range Resources (RRC): 4.84%
4. Medco Health (MHS): 4.41%
5. Cisco Systems (CSCO): 4.33%
6. Express Scripts (ESRX): 4.32%
7. Walter Energy (WLT): 3.7%
8. Google (GOOG): 3.63%
9. Wells Fargo (WFC): 3.63%
10. Weatherford International (WFT): 3.53%
11. JPMorgan Chase (JPM): 3.53%
12. Itau Unibanco (ITUB): 3.27%
13. Cognizant Tech (CTSH): 3.08%
14. DR Horton (DHI): 3.05%
15. Toll Brothers (TOL): 3.04%
    

Overall, Conatus increased their holdings in basic materials and decreased their stakes in services. It was very intriguing to see them sell completely out of the payment processing duo of Mastercard and Visa. It is notable because almost almost all of the other Tiger Cub hedge funds own one or both of these stocks and Conatus' sale means they've taken a different path.

In terms of positions they added to, they were fond of technology as they added heavily to their positions in Google and Cisco Systems. Stemerman's hedge fund also started brand new stakes in the home builders (Toll Brothers & DR Horton) which was worth noting given the tough times these companies have faced with the economy. Much like fellow hedge fund John Griffin's Blue Ridge Capital, Conatus also had Apple (AAPL) as their top long US equity holding. Coming in at their #2 holding was their stake in Apollo Group (APOL), another favorite amongst Tiger Cub hedge funds. Conatus' portfolio overall includes three stocks found on the list of most popular stocks amongst hedge funds.

Assets from the collective holdings reported to the SEC via 13F filing were $1.9 billion this quarter compared to $1.2 billion last quarter. So, like many other hedge funds, their long exposure to US equities increased substantially. Please keep in mind that when we state "percentage of portfolio," we are referring to the percentage of assets reported on the 13F filing. Since these filings only report longs (and not shorts or cash positions), the percentages are skewed. Also, please again note that these positions were as of September 30th so two months have elapsed and they've undoubtedly shifted around their portfolio since then.

This is just one of the 40+ prominent funds that we'll be covering in our Q3 2009 hedge fund portfolio series. We've already covered Seth Klarman's Baupost Group Bill Ackman's Pershing Square, Stephen Mandel's Lone Pine Capital, Dan Loeb's Third Point LLC, David Einhorn's Greenlight Capital, John Paulson's firm Paulson & Co, Lee Ainslie's Maverick Capital, Andreas Halvorsen's Viking Global, Chase Coleman's Tiger Global, Brett Barakett's Tremblant Capital, John Griffin's Blue Ridge Capital, Shumway Capital Partners (Chris Shumway) and Thomas Steyer's Farallon Capital. Check back daily as we'll be covering new hedge fund portfolios.

Hedge Fund Farallon Capital: Portfolio Update (13F Filing)

This is the third quarter 2009 edition of our hedge fund portfolio tracking series. If you're unfamiliar with tracking hedge fund movements or SEC filings, check out our series preface on hedge fund 13F filings.

Next up in our series is Thomas Steyer's hedge fund firm Farallon Capital. Thomas Steyer founded Farallon in 1986 and today it is a multi-billion dollar hedge fund that typically uses risk arbitrage strategies and invests in equities, private investments, debt, and real estate. Previously, he was an analyst for Morgan Stanley in their Mergers & Acquisitions department and also an associate on Goldman Sachs' risk arbitrage desk. Steyer graduated Summa Cum Laude from Yale University and also received his MBA from Stanford's Graduate School of Business. In the past, Farallon was ranked third in Alpha's 2008 hedge fund rankings. In terms of recent portfolio adjustments from Farallon, we saw they were just adding to their Beacon Roofing (BECN) stake. For more recent activity out of Farallon head to our post on their portfolio and internal firm adjustments.

Keep in mind that the positions listed below were Farallon's long equity, note, and options holdings as of September 30th, 2009 as filed with the SEC. We don't cover every single portfolio maneuver, as we instead focus on all the big moves. All holdings are common stock unless otherwise denoted.


Some New Positions
Brand new positions that they initiated last quarter:
Aetna (AET) Calls
Yingli Energy Bond
Focus Media (FMCN)
Jones Lang Lasalle (JLL)
Capitalsource Bonds
Express Scripts (ESRX)
Monsanto (MON)
Crown Castle (CCI)
BMC Software (BMC)
Rockwell Collins (COL)
JB Hunt Transport (JBHT)
Eastman Kodak Bond
SBA Communications (SBAC)
Marvel Entertainment (MVL)
Beacon Roofing (BECN) ~ They've since updated their stake
Charles Schwab (SCHW)
Google (GOOG)
Old Dominion Freight (ODFL)
Linktone (LTON)
Hurray Holding (HRAY)
China Housing & Land Development (CHLN)


Some Increased Positions
Positions they already owned but added shares to:
Visa (V): Increased position by 144.4%
Sirius Satellite Note: Increased by 85.4%
Carrizo Oil & Gas Bond: Increased by 63%
Mastercard (MA): Increased by 42%
Apollo Group (APOL): Increased by 38.1%
MSCI (MXB): Increased by 22.3%


Some Reduced Positions
Stakes they sold shares in but still own:
AmericaMovil (AMX): Reduced position by 54.2%
Priceline (PCLN): Reduced by 52%
Capitalsource (CSE): Reduced by 37.8% ~ we covered these sales as they happened
Kendle International Bond: Reduced by 19.6%


Removed Positions
Positions they sold out of completely:
Lucent Technologies (convertibles)
Financial Select Sector ETF (XLF) Puts
Qualcomm (QCOM)
Moody's (MCO)
Fidelity National Information (FIS)
Metavante Tech (MV)
Arch Capital Group (ACGL)
Amdocs (DOX)
Conway (CNW)
Solutia (SOA)
Sherwin Williams (SHW)
CTC Media (CTCM)
Pinnacle Entertainment (PNK)


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

1. Aetna (AET) Calls: 9.38%
2. Visa (V): 9.24%
3. Capitalsource (CSE): 5.41%
4. MSCI (MXB): 4.37%
5. Apollo Group (APOL): 3.78%
6. Burlington Northern Santa Fe (BNI): 3.62%
7. Discovery Communications (DISCA): 3.49%
8. Yingli Energy Bond: 3.36%
9. iShares Russell 2000 (IWM) Puts: 3.11%
10. Focus Media (FMCN): 3.1%
11. Oracle (ORCL): 2.81%
12. Knology (KNOL): 2.58%
13. Jones Lang Lasalle (JLL): 2.51%
14. Sirius Satellite Note: 2.44%
15. Transdigm (TDG): 2.43%
    

The main talking point in Farallon's quarter over quarter changes was their brand new stake in Aetna (AET) calls. They ratcheted this up to over 9% of their reported 13F assets as the position was worth $139 million at the end of the third quarter. Other brand new positions in their top ten holdings include Yingli Green Energy bonds and shares of Focus Media (FMCN).

While their stake in Visa (V) is not a new position, they did double down and then some. This is easily one of the most popular hedge fund holdings we've seen in the select funds we track. Meaningful positions they no longer own include Lucent Technologies convertibles (previously a 4.8% stake), Qualcomm (QCOM - previously a 3.5% holding), and puts on the financial sector (XLF). They also completely sold out of Moody's (MCO) which is interesting seeing how Warren Buffett has been selling as well. Overall, Steyer's hedge fund firm increased their holdings in the services sector and reduced their holdings in financials and technology.

Assets from the collective holdings reported to the SEC via 13F filing were $1.4 billion this quarter compared to $1 billion last quarter. They were mainly out adding to positions across the portfolio. As a multi-billion dollar hedge fund, Farallon obviously has positions in other markets as well since their long US equities book is only comprised of a little over $1 billion. Please keep in mind that when we state "percentage of portfolio," we are referring to the percentage of assets reported on the 13F filing. Since these filings only report longs (and not shorts or cash positions), the percentages are skewed. Also, please again note that these positions were as of September 30th so two months have elapsed and they've undoubtedly shifted around their portfolio since then.

This is just one of the 40+ prominent funds that we'll be covering in our Q3 2009 hedge fund portfolio series. We've already covered Seth Klarman's Baupost Group Bill Ackman's Pershing Square, Stephen Mandel's Lone Pine Capital, Dan Loeb's Third Point LLC, David Einhorn's Greenlight Capital, John Paulson's firm Paulson & Co, Lee Ainslie's Maverick Capital, Andreas Halvorsen's Viking Global, Chase Coleman's Tiger Global, Brett Barakett's Tremblant Capital, John Griffin's Blue Ridge Capital and Shumway Capital Partners (Chris Shumway). Check back daily as we'll be covering new hedge fund portfolios.

Andreas Halvorsen's Viking Global Portfolio: Express Scripts, Visa, CSX & More

This is the third quarter 2009 edition of our hedge fund portfolio tracking series. If you're unfamiliar with tracking firm movements via SEC filings, check out our series preface on hedge fund 13F filings.

After a brief hiatus we're back with our coverage of Q3 portfolios and today we'll cover Andreas Halvorsen's Viking Global. Halvorsen is a 'Tiger Cub,' or a progeny of legendary investor and hedge fund manager Julian Robertson of Tiger Management. (See the Tiger Cub 'family tree'). Halvorsen has taken what he learned/used at Tiger and added his own spice to the value oriented, yet growth at a reasonable price (G.A.R.P.) tolerable investment style. Viking employs a fundamental strategy, using a bottom-up process to pick stocks.

Halvorsen attended Williams College and received his MBA from Stanford and he has previously worked at Morgan Stanley and Tiger. In Alpha's 2008 hedge fund rankings, Viking was ranked #70 in the world. In terms of updates this year, we had covered Viking's investor letter from the second quarter where they were lagging the markets due to their short positions.

Keep in mind that the positions listed below were Viking's long equity, note, and options holdings as of September 30th, 2009 as filed with the SEC. We don't cover every single portfolio maneuver, as we instead focus on all the big moves. All holdings are common stock unless otherwise denoted.


Some New Positions
Brand new positions that they initiated last quarter in order from largest descending to smallest:
Express Scripts (ESRX)
Cigna (CI)
AON (AOC)
Flowserve (FLS)
AmerisourceBergen (ABC)
Citigroup (C)
Hewlett Packard (HPQ)
PepsiCo (PEP)
Autodesk (ADSK)
Halliburton (HAL)
RenaissanceRe (RNR)
MedcoHealth (MHS)
Rovi Corp (ROVI)
Ingersoll Rand (IR)
CBS (CBS)
Smithfield Foods (SFD)
St Jude Medical (STJ)
Hospitality Prop (HPT)


Some Increased Positions
Positions they already owned but added shares to:
Ralcorp (RAH): Increased position by 7,208%, but overall less than 0.5% of their reported holdings
CSX (CSX): Increased position by 515.7%
Owens and Minor (OMI): Increased by 418%, but overall still under 1% of their long portfolio
Goodrich (GR): Increased by 254%
Apollo Group (APOL): Increased by 141.8%
XTO Energy (XTO): Increased by 119.5%
Franklin Resources (BEN): Increased by 114.2%
Visa (V): Increased by 92.5%
Sherwin Williams (SHW): Increased by 85.6%, but still only a small portion of their portfolio
Virgin Media (VMED): Increased by 56.7%
Davita (DVA): Increased by 49.6%
Tyco (TYC): Increased by 38.1%
CVS Caremark (CVS): Increased by 22.3%
JPMorgan Chase (JPM): Increased by 20.1%


Some Reduced Positions
Some positions they sold shares in but still own:
Qualcomm (QCOM): Reduced by 83.3%
Lender Processing (LPS): Reduced by 76.9%
Priceline (PCLN): Reduced by 66.8%
Walt Disney (DIS): Reduced by 59%
Ace (ACE): Reduced by 58.6%
Terex (TEX): Reduced by 58.3%
Goldman Sachs (GS): Reduced by 48%
Mastercard (MA): Reduced by 44.8%
DirecTV (DTV): Reduced by 38.7%
Bank of America (BAC): Reduced by 45.5%
Google (GOOG): Reduced by 44.6%
Owens Illinois (OI): Reduced by 25.6%
NRG Energy (NRG): Reduced by 21.8%


Removed Positions
Positions they sold out of completely:
Cognizant Technology (CTSH)
Career Education (CECO)
ThermoFisher Scientific (TMO)
Health Management (HMA)
Covidien (COV)
McKesson (MCK)
American Tower (AMT)
Molson Coors (TAP)
Community Health (CYH)
Coca Cola Enterprises (CCE)
Fifth Third Bancorp (FITB)
Colgate Palmolive (CL)
Popular (BPOP)


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

1. Visa (V): 11.1%
2. Invesco (IVZ): 8.2%
3. JPMorgan Chase (JPM): 5.83%
4. Franklin Resources (BEN): 5.08%
5. Express Scripts (ESRX): 4.75%
6. Apollo Group (APOL): 4.01%
7. CSX (CSX): 3.98%
8. Mastercard (MA): 3.54%
9. DirecTV (DTV): 3.33%
10. Goodrich (GR): 2.68%
11. Google (GOOG): 2.55%
12. Bank of America (BAC): 2.42%
13. Cigna (VI): 2.18%
14. Beckman Coulter (BEC): 2.09%
    
15. AON (AOC): 2.07%
    

One of Viking Global's biggest purchases was a brand new stake in Express Scripts (ESRX) which they brought up to their 5th largest holding. What's interesting here is that Viking was adding in size to multiple names as they were undoubtedly helping the market rally fuel higher in the third quarter. Their most bountiful buys were in Visa, Franklin Resources, Apollo Group, CSX, and Goodrich Corporation, names that are all in their top 10 largest holdings. Their large purchase of CSX was of particular interest given that Warren Buffett's Berkshire Hathaway recently purchased all of fellow railroad Burlington Northern (BNI). Not to mention, the railroads (and CSX in particular) have been ripe with hedge funds as major shareholders previously.

Some notable names they sold completely out of in the third quarter include Cognizant Tech (CTSH), Career Education (CECO), and Thermo Fisher Scientific (TMO). They also sold off shares in the following names but they retained a position: They unloaded some Qualcomm which is notable because it was recently listed as one of the top 10 most popular stocks amongst hedge funds. Additionally, we note their Priceline sale because shares have been ramping higher over the past few months so we could assume they are locking in some profits.

Below are some graphical illustrations of the changes made to Viking Global's portfolio courtesy of Drew Robertson at Financial Research Station:

(click to enlarge)

And also:

(click to enlarge)

Overall, they were reducing their technology holdings on a quarter over quarter basis. They boosted their exposure to the services sector and kept financials exposure steady. Assets from the collective holdings reported to the SEC via 13F filing were $7.8 billion this quarter compared to $5.7 billion last quarter, so they put a meaningful amount of capital to work on the long side in US equities. Please keep in mind that when we state "percentage of portfolio," we are referring to the percentage of assets reported on the 13F filing. Since these filings only report longs (and not shorts or cash positions), the percentages are skewed. Also, again please note that these positions are as of September 30th so two months have elapsed since this disclosure and they've undoubtedly shifted around their portfolio since then.

This is just one of the 40+ prominent funds that we'll be covering in our Q3 2009 hedge fund portfolio series. We've already covered Seth Klarman's Baupost Group Bill Ackman's Pershing Square, Stephen Mandel's Lone Pine Capital, Dan Loeb's Third Point LLC, David Einhorn's Greenlight Capital and John Paulson's firm Paulson & Co so check back daily as we'll be posting up a new hedge fund portfolios.