Trian Partners Sells Danone & State Street, Trims Family Dollar & Ingersoll Rand Stakes: Q2 Letter

Nelson Peltz's investment firm Trian Partners recently released its second quarter letter.  In it, they detail that they sold out of their investment in Danone (DANOY) as well as State Street (STT).  Additionally, the firm mentions that it has recently trimmed its positions in Ingersoll Rand (IR) and Family Dollar (FDO).


New Mystery Investment

Peltz has built a new mystery position which he did not reveal in the letter.  He said that some of the above stakes were sold in order to partially fund their new mystery purchase.

Here's all they had to say about this new position:  It's "a company comprised of world class businesses where we see a path to superior value creation."

Andrew Ross Sorkin said that sources are pointing to Peltz acquiring a stake in DuPont (DD) back at the Delivering Alpha Conference last month, but Peltz didn't really confirm it when asked about it.

At any rate, here's their long portfolio composition by sector: 30% consumer staples, 28.1% consumer discretionary, 17.6% industrials, 13.9% financials, 10.4% basic materials, 0% other.


Other Highlights

Their Q2 letter also touches on their investments in PepsiCo (PEP) and Mondelez (MDLZ) and basically re-hash everything they laid out in their white paper on the companies which we highlighted recently.  Peltz also talked about his PEP & MDLZ stakes at the Delivering Alpha Conference too.

According to the letter, Trian also retains its positions in Lazard (LAZ), Legg Mason (LM), and Wendy's (WEN).  Their thesis on Legg Mason remains unchanged: "Better fund flows, strong free cash flow, and improving margins should allow the shares to be valued closer to peer averages."

In the second quarter, Trian's total firm assets hit an all-time peak of approximately $6.3 billion.  Net exposure finished the month at 100% net long (136.4% long and -36.4% short).

Nelson Peltz's Trian Fund: Latest Portfolio Activity

Nelson Peltz's Trian Fund Management recently filed an amended 13D with the SEC regarding shares of Tiffany & Co (TIF). Due to portfolio activity on January 20th, 2011, Trian has disclosed a 4.95% ownership stake in TIF with 6,260,809 shares.

Tiffany & Co (TIF)

This is a decrease in their position as they reported their recent sales in a Form 4 with the SEC. Peltz's firm sold TIF shares on January 18th, 19th, and 20th at weighted average prices ranging from $57.9484 to $59.2843, with the bulk of their sale coming at the latter price. In all, Peltz recently sold 600,000 shares of Tiffany & Co.

Trian originally filed its activist 13D on Tiffany back in February 2007. Their latest amended 13D contains standard boilerplate stating that they intend to continually review their investment.

Peltz's Background

Peltz is a well-known activist investor and takeover titan. Additionally, he is the former owner of Snapple and graces the Forbes' billionaire list. Interestingly enough, Peltz never received his college degree. He attended the Wharton School at the University of Pennsylvania, but left to work in his family's business of selling food.

He attributes one of his most valuable lessons to his father, who simply said, "get sales up and keep expenses down." He has obviously incorporated this advice into his everyday work with turning around companies. In potential targets, Peltz likes companies to have the following attributes: a good franchise, low leverage, and strong free cash flow. Peltz runs Trian with his business partner, Peter May, who has been with him since the Snapple days.

Wendy's Arby's Group (WEN)

Peltz's Trian also owns a sizable position in Wendy's Arby's Group (WEN) and the fast food company has just announced that it is putting the Arby's sandwich chain up for sale. Arby's originally merged with Wendy's back in 2008. Trian owns over 24% of the company.

In other portfolio holdings, Trian owns sizable chunks of Legg Mason (LM), H.J. Heinz (HNZ), Family Dollar (FDO), and State Street (STT). Given Peltz's background, it should come as no surprise that he mainly focuses on the food industry.

Head to our hedge fund portfolio tracking to see what stocks managers have been active in lately.

Per Google Finance, Tiffany & Co is "a holding company and conducts all business through its subsidiary companies. The Company’s principal subsidiary, Tiffany and Company, is a jeweler and specialty retailer whose principal merchandise offering is fine jewelry. The Company also sells timepieces, sterling silverware, china, crystal, stationery, fragrances and accessories."

Per Yahoo Finance, Wendy's Arby's "through its subsidiaries, operates as the owner and franchisor of the Wendy's and Arby's restaurant systems."

Todd Combs of Castle Point Capital Joins Berkshire Hathaway as Investment Manager

Warren Buffett just announced that Todd Combs of hedge fund Castle Point Capital will be joining Berkshire Hathaway (BRK.A) as an investment manager at the end of the year. Buffett and Charlie Munger have been tracking Combs for three years and Combs has been running his hedge fund for the past five years.

We'd hypothesize that in the intermediate term, Combs has been brought on as a replacement for Lou Simpson since Combs is said to take control of part of Berkshire's investment portfolio. Simpson, who manages the investments for Berkshire's subsidiary, GEICO, is set to retire at the end of 2010 (the same time when Combs is set to start). On the notion that Combs could manage all of Berkshire's investments, Buffett said, "He’s got the best chance of being the successor, but if we find the right guy or gal, we’d take that person, too."

In the past, many have questioned Berkshire Hathaway's succession plans and this year there has been much talk of Li Lu joining as an investment manager. However, Buffett has just revealed that Lu will be staying with his own fund. Buffett also emphasized that Berkshire's succession will include one person handling the CEO role, and then multiple individuals could still act as investment managers in a multi-pronged approach.

Why Todd Combs?

This is the question many people are asking as he doesn't seem to be particularly well-known. Here are some potential reasons for the hire:

First, his focus on financials. Given the recent financial crisis, Combs' familiarity with these companies and niche focus on the sector gives him an advantage. In an increasingly complex financial world (derivatives, etc), Combs' expertise will come in handy considering Berkshire owns very large stakes in financials including: Wells Fargo (WFC), American Express (AXP), US Bancorp (USB), Moody's (MCO), and M&T Bank (MTB).

Second, his risk management skills. Buffett apparently described Combs' performance during the crisis as, "pretty good." According to Bloomberg, Castle Point returned +6.2% in 2009, -5.7% in 2008, +19% in 2007, and +13.6% in 2006. In Berkshire's 2007 shareholder letter, Buffett discussed the topic of hiring investment managers. In it, he said that this person needs to be, "genetically programmed to recognize and avoid risk, including those never before encountered." Given this stringent requirement, it's obvious that Buffett and company feel Combs possesses a risk management skill-set that is beyond satisfactory. (And speaking of risk, Buffett recently talked about his worst trade).

Third, his personality blends with Berkshire's culture. According to the New York Times, Buffett said that, "He’s always been enamored with Berkshire. I know he’ll be good, but he’s the right type of guy. We don’t want someone who’s trying to figure out if they can make $100 million with us, or $200 million with the next guy." And, this ties somewhat into the next reason.

Fourth, his age. Given the fact that Berkshire's leading men Warren Buffett, Charlie Munger, and Lou Simpson are getting older, Berkshire wants to bring in younger talent that can add longevity to the company. At the young age of 39, Combs can slide into Berkshire's organization and stay there for many decades, just as Buffett has. And, based on his personality, it appears that Combs is in it for the long haul. Combs received his degree in finance and multinational business operations from Florida State University. He has experience working for Florida's comptroller as well as Progressive Insurance.

Castle Point Capital's Portfolio

Given Berkshire's stamp of approval, it's only appropriate to look under the hood at Todd Combs' hedge fund to see what he's invested in. The following were Castle Point's long equity holdings as of June 30th, 2010 according to their most recent 13F filing with the SEC. The new disclosures reflecting their Q3 portfolio will be released in the middle of November.

Keep in mind that you can see what Berkshire Hathaway and prominent hedge funds are investing in via our newsletter, Hedge Fund Wisdom. But for the time being, here's Castle Point's $279 million in reported assets:

New Positions
CIT Group (CIT)
Broadridge Financial (BR)
Leucadia (LUK)
Hartford Financial (HIG)
PNC Financial (PNC)
Wells Fargo (WFC)
Chatham Lodging (CLDT)

Increased Positions
Blackrock (BLK): Increased by 78.5%
Aercap (AER): Increased by 78%
Mastercard (MA): Increased by 70%
State Street (STT): Increased by 60%
Genworth Financial (GNW): Increased by 53%
Charles Schwab (SCHW): Increased by 43%
Annaly Capital (NLY): Increased by 43%
Western Union (WU): Increased by 36%
US Bancorp (USB): Increased by 27.5%
Chubb (CB): Increased by 27.5%

Reduced Positions
JPMorgan Chase (JPM): Reduced by 39%
MB Financial (MBFI): Reduced by 21.5%
Goldman Sachs (GS): Reduced by 18.4%

Sold Out of Completely
Assurant (AIZ)
Signature Bank (SBNY)
Reinsurance Group America (RGA)
TD Ameritrade (AMTD)
First Citizens Bancshares (FCNCA)
Two Harbors Investment (TWO)

Top 25 Positions

1. US Bancorp (USB): 8.2% of reported assets
2. Mastercard (MA): 7.3%
3. State Street (STT): 6.8%
4. Western Union (WU): 6.5%
5. CME Group (CME): 5.1%
6. Renaissance Re (RNR): 5.1%
7. Pennymac Mortgage (PMAC): 4.6%
8. Chubb (CB): 4.6%
9. Starwood Property Trust (STWD): 4.5%
10. Annaly Capital Management (NLY): 4.4%
11. CIT Group (CIT): 4.3%
12. Progressive (PGR): 4.1%
13. JPMorgan Chase (JPM): 4.0%
14. Goldman Sachs (GS): 3.8%
15. Charles Schwab (SCHW): 3.6%
16. Broadridge Financial (BR): 3.5%
17. Aercap Holdings (AER): 3.4%
18. MB Financial (MBFI): 3.4%
19. Genworth Financial (GNW): 2.9%
20. United America Indemnity: 1.9%
21. Blackrock (BLK): 1.8%
22. Leucadia National (LUK): 1.8%
23. Hartford Financial (HIG): 1.6%
24. PNC Financial (PNC): 0.8%
25. First Financial (FFBC): 0.8%

As you can see, Castle Point's portfolio is very financial-laden. And, they share the same large position in US Bancorp (USB) as Berkshire Hathaway. We'd also point out Combs' preference for payment processors & money transfer services such as Mastercard (MA) and Western Union (WU). These types of companies have been long favored by hedge funds we track. The last takeaway here is that he runs a somewhat concentrated portfolio as well.

So, at least one of Berkshire's future investment managers seems to be in place. Li Lu appears to be out of the running. The question that remains is, will there be more managers added? Only time will tell. You can view Buffett's past comments on succession plans here as well as a video that examines potential Berkshire successors here.

For more on Berkshire's new hire, Carol Loomis at Fortune penned an article here.