John Paulson Buys Distressed Debt; Carl Icahn Buys Tropicana Casino

We recently learned of two major hedge fund transactions that we thought were worth highlighting here on the blog. Firstly, John Paulson is at it yet again. The prominent hedge fund manager has been in the media a lot recently given all the portfolio moves he has made. His latest move includes purchasing distressed mortgage securities.


Paulson & Co

This isn't necessarily new news from the Paulson camp, as he had mentioned before that he had been covering some of his mortgage related short positions and was getting constructive on the sector. He thinks that there is now possibly some value in the type of assets he was previously short. The major distinction though is that he was short sub-prime securitizations previously, but now is getting long jumbo and prime securitizations, which are typically of better quality. So, it appears he is getting constructive on a sector that he made so much money on the short side the last few years.

Sandra Lee, senior vice president at Paulson & Co said that, "We've been adding pretty steadily to our long distressed positions." Additionally, she said that they are buying debt of various financial institutions that received government help. This news comes after the fact that we saw Paulson start a real estate recovery fund. Additionally, Paulson gave his investor stamp of approval and bought $100 million worth of CB Richard Ellis shares. With his latest batch of moves, it seems that while Paulson is cautious on the economy near term, he definitely is starting to see some value in the real estate sector. His diversification within the asset types related to housing is very notable and we'll continue to track his movements. To see what else Paulson holds, you can check out the rest of Paulson & Co's portfolio here.


Carl Icahn

Meanwhile, notorious rabblerouser and activist campaigner Carl Icahn sees value in another sector: gaming. His Icahn Group has purchased the Tropicana Resort in Atlantic City for nearly 80% off. They landed the property by making their $200 million debt-swap offer which was accepted by a bankruptcy court judge. This marks the end of a long timeline as the casino/hotel has been on the market for a year and a half.

So far, Icahn doesn't have any plans for the casino so we'll have to see what he has in store. Along with Icahn in the purchase are partners in the creditor group Black Diamond Capital Management and Schultze Asset Management. Their discounted purchase has made them the proud owners of a $1.4 billion mortgage on the casino resort. However, Icahn is familiar with scooping up discounted casinos in bankruptcy courts, as he had previously bought the Sands in 2000 for $65 million which he later sold for $270 million. We'll see if he has the same golden touch this time around. Icahn isn't alone in spotting value in casinos, as we've seen a few other hedge funds here and there start to pick up debt and shares of various casinos. While we haven't had a whole lot to cover in terms of Icahn's recent portfolio activity, we have in the past noted his large Biogen Idec (BIIB) position.

Both Icahn and Paulson are interesting investors to follow, given their prowess in different areas. Icahn is notable due to his activist investing style where he seeks change at public companies. On the other hand, Paulson is well-known for his ability to spot trends and his familiarity with the housing sector, after profiting handsomely from the crisis the past few years. For recent performance, Paulson & Co's flagship fund is up 8.75% for the year, while Carl Icahn's fund is faring slightly better, up 7.3% for May and up 16% for 2009 as noted in our May hedge fund performance numbers post.

Carl Icahn Portfolio Update: 13F Filing Q4 2008

While we don't normally cover Carl Icahn's movements in-depth on the blog (maybe we should?), we do generally like to keep tabs on him and cover all of his major moves. If you're unfamiliar with Icahn, he is a hedge fund manager, but more well-known as a 'corporate raider' and 'rabblerouser' for his activist ways. He takes on such a role trying to incite change within companies to unlock shareholder value. And, last year, he even started a blog to discuss numerous topics.

With the most recent 13F filings out disclosing his holdings as of December 31st, 2008, we see some noticeable changes.

Some companies he sold out of completely: Advanced Micro Devices (AMD), Lear Corp (LEA), JC Penney (JCP), Temple Inland (TIN), and Time Warner (TWX), among others.

Some companies where he added to his position: Williams (WMB), & Yahoo (YHOO), among others.

Some companies where he sold off part of his position: Anadarko Petroleum (APC), Motorola (MOT), among others.

He has a massive position in Biogen Idec (BIIB) and the theory here is that they could be bought out by another company in biotech/biopharma land. His other large holding in this sector is Amylin Pharmaceuticals (AMLN).

Yahoo (YHOO), Biogen (BIIB), and Motorola (MOT) were his top 3 holdings respectively at the time of filing. Keep in mind we're in the midst of our hedge fund portfolio tracking series to keep an eye on some of the big money. We've already covered hedge fund Paulson & Co and will be covering a different fund each day.

Hedge Fund Activity / 13F

(Just FYI: This post marks the first of a series I will be doing this week that details what the "smart money" has been up to lately.)

Four times a year, hedge funds & asset managers with > $100 million AUM (assets under management) are required to report to the SEC their holdings from the previous quarter. I check these 13F filings quarterly just to get a sense as to where these funds are putting their money sector wise. If you just sit down and do some simple number crunching between last quarter's 13F and this quarter's 13F, you can see exactly where these funds have been moving their money.

Now, these 13F's should be treated as a lagging indicator simply because the 13F's that were just released May 15th 2008 show the funds' holdings as of March 31st 2008. So, in the past month and a half, they could have completely changed their portfolio. But, at the same time, its easy to see which sectors they are flocking to.

I like to specifically follow value based hedge funds in the hope that they won't experience ridiculously high turnover and thus allowing me to track their sector rotations. Specifically, I follow the Tiger Cubs (otherwise known as the proteges of former Tiger Management legend Julian Robertson). Many of these former proteges/right hand men have started their own funds and here are the ones I've been following:

- Blue Ridge Capital (John Griffin)
- Lone Pine Capital (Steve Mandel)
- Maverick Capital (Lee Ainslie)
- Viking Global (Andreas Halvorsen)

Additionally, I also like to follow the Commodities Corporation "offspring" which typically employ a global macro strategy.

- Tudor Investment Corp (Paul Tudor Jones)
- Moore Capital (Louis Bacon)
- Caxton Associates (Bruce Kovner)

So, I follow a core of value funds in depth and then I also follow a core of global macro funds in depth. Over the next week, I will be going into detail as to what those specific funds were up to this past quarter. Additionally, I like to follow other "whales" and funds that are not necessarily value based, but are still top performers on Wall Street. I won't be going into detail on some of these names, but I will provide some very useful links that give a broad overview of what some of these whales have been buying/selling. Because, after all, you've got to at least keep tabs on what these guys are doing:

- Warren Buffett (obviously)
- Carl Icahn (rabblerousing at its best)
- RBS Partners (Eddie Lampert)

Then, of course, there are some just straight up beastly funds which you have to keep an eye on due to their awesome returns over the years:

- Atticus Capital (Timothy Barakett)
- BP Capital (Boone Pickens)
- Greenlight Capital (David Einhorn)
- Paulson & Co (John Paulson)
- D.E. Shaw & Co (David E. Shaw)
- Jana Partners (Barry Rosenstein)

And, lastly, a few deep value & activist funds.

- Third Point (Daniel Loeb)
- Pershing Square (Bill Ackman)
- Okumus Capital (Ahmet Okumus)
- T2 Partners (Whitney Tilson)
- Tontine Partners (Jeffrey Gendell)

So, over the coming week I'll touch on some important position moves some of these funds/whales have made (new positions, removed positions, etc). And, specifically, I'll be looking in depth at some of my favorite funds on a quarter by quarter comparison. Here are the links to my in-depth analyses of said funds.

- Blue Ridge Capital
- Lone Pine Capital
- Maverick Capital
- BP Capital
- Atticus Capital