Ruane Cunniff Goldfarb: Sequoia Fund Annual Letter 2012

Catching up on a few more notable 2012 annual letters, we turn next to the Sequoia Fund run by Ruane Cunniff & Goldfarb.  An investment of $10,000 at inception in 1970 has grown to over $2.89 million as of the end of 2012.  They returned 15.68% in 2012.


Key Takeaways

- They currently don't see many compelling investment opportunities.  Began 2012 with 21% cash position, ended the year with 16%

- "In the fourth quarter of 2012, we were modest net sellers of equities for the first time since 2008, in response to specific situations at several of our portfolio holdings."  They exited Target (TGT) and Becton Dickinson (BDX).

- "Valuations for stocks are heavily influenced by interest rates, and particularly by the risk-free rate of return on 10-year and 30-year United States Treasury bonds. Relative to the current return on Treasury Bonds, stocks continue to be quite attractive.However, the current risk-free rate of return is not a product of market forces.  Rather, it is an instrument of Federal Reserve policy."


Top Holdings At 2012 Year-End

1. Valeant Pharmaceuticals (VRX): 11.6% of assets
2. Berkshire Hathaway (BRK.A): 10.9%
3. TJX (TJX): 7.5%
4. Fastenal (FAST): 5.6%
5. Mohawk Industries (MHK): 4.0%
6. Idexx Laboratories (IDXX): 3.2%
7. Advance Auto Parts (AAP): 3.1%
8. Precision Castparts (PCP): 3.1%
9. Rolls-Royce (LON:RR): 3.0%


Embedded below is Ruane Cunniff's annual letter from the Sequoia Fund where they go into detail about some of their positions and overall market views:




For more on this fund, late last year we posted up why Ruane Cunniff likes Valeant Pharmaceuticals.

Shumway Capital Returns Capital to Investors, Will Manage Internal Assets

Chris Shumway's hedge fund Shumway Capital Partners sent out a letter to investors today notifying them that the fund will be returning capital to outside investors. The firm will live on, instead only managing internal capital. Shumway, who has seen 17% annual returns, is one of the widely regarded Tiger Cub hedge funds started by former members of Julian Robertson's Tiger Management.

Late last year, Chris Shumway announced that he would be stepping down from his Chief Investment Officer role. This initiated a wave of redemptions as investors in the funds became wary. Shumway writes,

"In a sense, these changes created more risk for many of you who committed to stay invested in SCP and makes short term results of the fund a primary issue for us all. As a result, it has become more difficult for us to focus on long term investing as we have for the last nine years, which I believe has been a main driver of our success."

It's obvious from the above that Shumway is not fond of Wall Street's and an investor's focus on short-term performance. We'd venture to guess that Shumway also somewhat tired of the 'corporate' nature of running a large investment firm. Catering to each investor's concerns meant less and less of his time was dedicated to investing.

Shumway isn't alone in his desire to focus on investing for the long-term. Fellow Tiger Cub manager Roberto Mignone of Bridger Management closed to new investors, effectively capping assets under management so that he could focus on investing rather than having to worry about running a large organization.

It will be interesting to see who stays behind at Shumway to manage internal capital and who leaves to start their own funds. There are already a few notable Shumway alums managing their own funds including John Thaler's JAT Capital, Anu Murgai's Suranya Capital Partners, and Matthew Crakes' Greenhart Capital. The reason we mention these established and potentially future Shum-alum funds is that some former SCP investors could potentially allocate capital there.

Shumway will return outside capital by the end of the first quarter, which undoubtedly means they'll be selling partial positions. Here are Shumway's top 10 holdings as of September 30th, 2010. We'll get an updated look at their holdings here in a few weeks, so keep in mind the below is quite dated:

1. Apple (AAPL)
2. Citigroup (C)
3. Priceline.com (PCLN)
4. Pfizer (PFE)
5. Las Vegas Sands (LVS)
6. Baidu (BIDU)
7. SPRD Gold Trust (GLD)
8. Target (TGT)
9. Air Products & Chemicals (APD)
10. BP (BP)

A screenshot of Chris Shumway's letter is posted below via ZeroHedge:

(click to enlarge)

It will be interesting to see what happens to Shumway's portfolio once outside capital has been returned and the fund is only managing internal capital.

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.

Bill Ackman's Pershing Square Sells Automatic Data Processing (ADP): Q1 2010 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 filings.)

Next up is Bill Ackman's hedge fund Pershing Square Capital Management. Ackman runs a value and activist fund with a highly concentrated portfolio so it is ideal for tracking purposes. He received his undergraduate degree from Harvard and his MBA from Harvard Business School. As we recently reviewed, Ackman and the saga surrounding his short position in MBIA (MBI) is the subject of Christine Richard's new book, Confidence Game: How a Hedge Fund Manager Called Wall Street's Bluff. It's definitely worth a read if you want to learn more about Ackman, the short selling process, and perseverance in general. Additionally, for more background on Bill Ackman's hedge fund, we've previously detailed a profile of Pershing Square.

The positions listed below were Pershing'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
Kraft Foods (KFT)


Increased Positions
Yum Brands (YUM): Increased position by 10%


Reduced Positions
Target (TGT): Reduced position by 0.51%


Positions With No Change
General Growth Properties (GGP)
Corrections Corp of America (CXW)
Landry's Restaurants (LNY)
Borders Group (BGP)
Greenlight Capital Re (GLRE)


Positions They Sold Out of Completely
Hyatt Hotels (H)
Automatic Data Processing (ADP)


Pershing's Entire Long US Equities Portfolio (by percentage of assets reported on 13F filing)

1. Target (TGT): 32.79%
   
2. Kraft Foods (KFT): 29.89%
   
3. Yum Brands (YUM): 17.56%
   
4. General Growth Properties (GGP): 11.62%
   
5. Corrections Corp of America (CXW): 6.55%
   
6. Landry's Restaurants (LNY): 0.84%
   
7. Borders Group (BGP): 0.55%
   
8. Greenlight Capital Re (GLRE): 0.20%
   

Given Ackman's concentrated portfolio, there's not a lot to cover in terms of portfolio adjustment. However, we want to first immediately address misinformation that is floating around in mainstream news land regarding Pershing Square's portfolio. Firstly, we'll start with the fact that CNBC yesterday wrongly reported that Pershing added 23.9 million shares of General Growth Properties (GGP). Other news outlets have mistakenly followed suit. This is merely the exact same position that Pershing has held all along. As we've detailed countless times, General Growth Properties traded on the pink sheets for a period of time under the ticker GGWPQ. When this occurred, these shares became a security that was not deemed reportable by the SEC. As such, Pershing Square still owned it but was not required to disclose it.

Fast forward to the present as the new 13F filings come out and you see that General Growth Properties is listed on Pershing's disclosure. This is merely because shares now trade on the NYSE under ticker GGP, a security that *is* deemed reportable by the SEC. So, people not familiar with tracking 13F's or those who blindly follow sorted data will be viewing what *looks* like a new position in GGP, but in reality, isn't.

Ackman was on television a few weeks back talking about how he thinks GGP could double over the next few years "if done correctly." One thing this disclosure does provide us is knowledge of Pershing Square's total equity ownership in GGP of just over 23.9 million shares. Since there was essentially a 'dark period' when no one knew how much equity they owned due to the disclosure issue we touched on above, we now get clarification. To get an idea as to Ackman's total position, we've in the past detailed Pershing's economic exposure to GGP as they own other securities as well.

Secondly, back in January when we covered Pershing's fourth quarter portfolio, we made special note that they had sold out of Hyatt Hotels as per a 13G filing and it is obviously just now reflected in their latest update. They only owned shares briefly as they purchased them sometime in the fourth quarter of 2009 and then sold them in the first week of January 2010.

Thirdly, regarding their stake in Yum Brands (YUM), we just wanted to highlight that they did not disclose this position until April 2010 when in reality they owned it as of December 31st, 2009. In their original 13F for the fourth quarter 2009, Pershing did not disclose their YUM position. But via an amended 13F in April, they all of a sudden disclosed the position. So now via the first quarter 2010 13F filing we see that they have since added to the position to the tune of 10%. Whew, got all that?

In terms of other recent portfolio activity not covered via 13F filing, we saw that Pershing sold its Sears Canada stake to Sears Holdings for around $560 million. Lastly, in the past we've covered a ton of Pershing's investment presentations regarding their positions and have posted links below for those of you wanting to learn about their specific investment thesis for each name:

- Pershing's presentation on Kraft (KFT)
- Pershing's Corrections Corp of America (CXW) presentation
- Pershing's updated General Growth Properties thesis & we also detailed their original GGP presentation from when they first established the position

Assets reported on Ackman's 13F filing were $3.3 billion this quarter. Data from the SEC is aggregated and sorted automatically by Alphaclone, our source that seamlessly sorts through all the hedge fund portfolio maneuvers and backtests the performance (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, and Stephen Mandel's Lone Pine Capital. Be sure to check back daily for new hedge fund updates.

Bill Ackman Thinks General Growth Properties Can Double Over the Next Several Years "If Done Correctly"

Pershing Square Capital Management founder and hedge fund manager Bill Ackman recently appeared on CNBC in an extended segment. In his interview, he talked about the Goldman Sachs fraud case, the benefits of short selling, and most notably, some of his investments. They segment also noted that Bill Ackman is the subject of Christine Richard's new book, Confidence Game: How a Hedge Fund Manager Called Wall Street's Bluff. The book focuses on Ackman's campaign against bond insurer MBIA (MBI) and we will be reading & reviewing the book here shortly.

We're going to do things a bit backwards here and start with Ackman's closing thoughts from the interview because they deal with his investments. Pershing Square's founder updates us on his stakes in General Growth Properties (GGP) and Target (TGT). Readers will know that we've previously disclosed Pershing's economic exposure to GGP as they bet on the emerging-from-bankruptcy REIT player. Ackman notes that Pershing invested $50-60 million GGP equity when shares were seemingly on life support and that investment is now worth over $1 billion and was the "best investment (he's) ever made." He also hopes for the mall operator to emerge from bankruptcy, "hopefully come September or sooner." Lastly, Ackman thinks shares of GGP could double over the next several years if everything is "done correctly." Here's the video:

Regarding his Target position, Ackman notes that Pershing still owns over $1 billion of stock and it is one of their largest investments. Email readers please note that you'll need to come to the site in order to watch all these videos. Here's the video where Ackman discusses his investments:




In the next video, Ackman turns to financial reform and he is in favor of regulatory implementations. Here's his thoughts:




Turning to the last video interview, we get some commentary from Christine Richard, the author of the new book on Ackman, Confidence Game. Additionally, Ackman discusses the Goldman Sachs case:



Overall, an intriguing set of talking points as Ackman was a guest at CNBC for an extended period of time. While some readers will crave more investment specific conversation, he still chatted about relevant and important topics. While his General Growth Properties investment is the best he's ever made, he was also correct and successful in his past wager against MBIA. You can read about how his hedge fund manager mind works in the new book Confidence Game. We'll be reading it and reviewing it shortly.

For more of our coverage on hedge fund Pershing Square, we see that they recently sold their Sears Canada stake, and we detailed their newly disclosed Yum Brands position (YUM). Lastly, to learn more about Ackman and his hedge fund, head to our past profile of Pershing Square.

Bill Ackman's Pershing Square Dumps McDonald's & EMC: 13F Filing Analysis

(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 we have Bill Ackman's hedge fund Pershing Square Capital Management. Ackman runs a value and activist fund with a highly concentrated portfolio so they are ideal for tracking purposes. He received his degree from Harvard and his MBA from Harvard Business School. For investment insight from Ackman, check out his recent television appearance and Pershing's investor letter. For more information on the hedge fund, check out our profile of Bill Ackman & Pershing Square.

The positions listed below were their long equity, note, and options holdings as of December 31st, 2009 as filed with the SEC. Note that we are only covering the major portfolio maneuvers. All holdings are common stock unless otherwise denoted.


Brand New Positions
Hyatt (H) *see special note regarding this position below
Landry's Restaurant's (LNY) ~ see our previous coverage of this addition


Increased Positions
Corrections Corp of America (CXW): Increased by 48.7%


Reduced Positions
Automatic Data Processing (ADP): Reduced by 98%
Target (TGT): Reduced by 20%


Removed Positions (Sold out completely):
EMC (EMC)
McDonald's (MCD)


Top Holdings by percentage of assets reported on 13F filing

1. Target (TGT): 71.17%
2. Corrections Corp of America (CXW): 19%
3. Hyatt Hotels (H): 5.84%
4. Landry's Restaurants (LNY): 2.34%
5. Borders Group (BGP): 0.89%
6. Greenlight Capital Re (GLRE): 0.42%
7. Automatic Data Processing (ADP): 0.35%
   

Firstly, realize that the above list is not complete. We already saw that in January 2010, Ackman made Kraft (KFT) their largest holding and we detailed Pershing's presentation on KFT. Since the above positions were as of December 31st, their KFT stake doesn't show up. Additionally, as detailed in Ackman's previous investor letter, Pershing has started a Nestle position as well that doesn't show up in the filing.

Pershing Square also shows a new position in Hyatt Hotels (H) as of December 31st, 2009. However, this gets a little tricky as they also filed an amended 13G that shows Pershing owning 0 shares as of January 7th, 2010. So, upon inspection, it appears as if Pershing bought shares of H in the fourth quarter of 2009 and then sold out of the position in the first week of 2010. We're looking into this situation deeper to confirm this was the case, as we could have misinterpreted this.

The biggest story in Pershing's portfolio will be the removal of their McDonald's (MCD) and EMC (EMC) positions, both previously sizable stakes. Additionally, they sold practically all of their ADP as well. They had been buying shares of these companies over the past two quarters but decided to dump them recently. Ackman's hedge funds run highly concentrated portfolios and as such each shift is typically a major one. They also started a new stake in Landry's, and we already covered this addition when it happened.

Additionally, we see that Pershing added to their stake in Corrections Corp of America and we have previously posted Pershing's presentation on CXW. On the other side of the portfolio, we also know that Pershing has been short Realty Income (O) and we posted up their short thesis here.

Keep in mind that Pershing still owns General Growth Properties (GGWPQ) but that stake does not appear on the filing as it's not deemed a reportable security by SEC standards (most likely due to it's OTC trading nature since it has been going through bankruptcy). And, as far as we know, they still own both equity and unsecured debt. Pershing will be happy to see that Simon Property Group recently bid for GGP, but will be unhappy at the offered price, arguing that GGP is worth more than that. We've long detailed Pershing's bullish analysis of the mall REIT operator. In the past we've presented Pershing's original GGP thesis and their recently updated analysis.

Assets from the collective holdings reported to the SEC via 13F filing were $1.4 billion this quarter compared to $3.1 billion last quarter, so a notable decline in assets invested on the long side. Remember that these filings are not representative of the hedge fund's entire base of assets under management. Therefore, the figures above represent the percentage of their reported 13F assets, not their entire portfolio.

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, and Stephen Mandel's Lone Pine Capital. Check back daily for our new updates.

Bill Ackman & Pershing Square Enter Nestle (Investor Letter)

If you haven't seen it already, here's the latest investor letter out of Bill Ackman's hedge fund Pershing Square Capital Management courtesy of Dealbook. In it, we learn that Pershing has started a new position in Nestle as they previously did not own it. They think the company will boost margins going forward and has possible catalysts ahead. This all comes in addition to Pershing's recent entrance into Landry's Restaurants (LNY). (For the rest of Pershing's positions, we covered their portfolio earlier as well).

Arguably, the most important part of Ackman's investor letter is the section on General Growth Properties. Since it is no longer a reportable security for SEC filing purposes, it did not appear on Pershing Square's 13F filing. However, they still own unsecured debt and are also one of the largest equity holders in the name. Ackman overall provides very positive commentary and his position on the board of GGWPQ means he has been very much in the loop regarding all the bankruptcy emergence activity.

Ackman writes, "Once GGP has extended the substantial majority of its secured debts, the company will be well positioned to emerge from bankruptcy as an independent company. Alternatively, it might be sold to a strategic buyer or a private equity firm, or a U.S., foreign or other investment consortium, if a sale would achieve a higher value for GGP stakeholders. Despite this dynamic, we believe the stock trades at a substantially lower valuation than Simon Property Group because many market participants and other analysts have incorrectly assumed that GGP's unsecured creditors will meaningfully dilute shareholders' ability to achieve a substantial recovery ... We expect that GGP will be the second or third largest REIT by market cap once it emerges from bankruptcy and will therefore be a must-own company for all of the various REIT funds and index portfolios."

Pershing was up 12% for the third quarter of 2009 and is now up 24% as of the end of September. Embedded below is the entire investor letter from Bill Ackman's hedge fund firm Pershing Square Capital Management. Email readers you have to come to the blog to view the document:




As always, a nice in-depth look at the latest portfolio developments from Ackman's hedge fund and close followers of the General Growth Properties situation will be glad to see their positive comments on the ongoing situation. While Ackman is very upbeat overall, he does mention that there are still risks involved (obviously).

One last thing caught our eye in their investor letter and it pertains to their exposure levels. We found it worth pointing out that Pershing Square listed their long exposure at 93% and short exposure at 9%. While they typically have high net long exposure, we still found it interesting that they did not include credit default swaps (CDS) in their short exposure figures. As we've mentioned in our profile on Ackman & Pershing, they typically like to put on their short positions via CDS and their omission of CDS from their exposure levels throws us for a bit of a loop. In the letter, Ackman cites improving credit markets as a reason for CDS being less attractive and that they've seen a "substantial reduction in (their) CDS notional exposure." However, he also makes special note that this is not a macro bet and this is just how things have played out currently.

For more on Ackman's hedge fund Pershing Square, you can read up on how they've boosted their stake in McDonald's (MCD), you can check out their presentation on Corrections Corp of America (CXW), as well as their case for a short of Realty Income (O).

Bill Ackman's Pershing Square Boosts McDonald's Stake (MCD)

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.

Yesterday we kicked off our coverage with the most requested hedge fund by readers: Seth Klarman's Baupost Group. Today, we're continuing our coverage with another highly requested fund: Bill Ackman's Pershing Square Capital Management. Ackman is a well known value oriented and activist hedge fund manager who often takes large stakes in companies. For a more in-depth look at Bill Ackman, head to our profile of Pershing Square here.

Ackman's fund is good to track via SEC filings because he runs a very concentrated equities portfolio and typically holds the names for a longer timeframe. This way, the timelag associated with SEC filings is not detrimental to our coverage. Not to mention, Ackman typically takes larger stakes in companies which often require 13G or 13D forms to be filed so we are always on top of his portfolio maneuvers. And, our coverage of his portfolio via his latest 13F highlights just why it is prudent to monitor all SEC filings by any given manager.

Keep in mind that the positions listed below were their 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):
Corrections Corp of America (CXW) - See Ackman's presentation on this play


Some Increased Positions (Positions they already owned but added shares to)
McDonald's (MCD): Increased by 243.6%
Target (TGT): Increased by 4.6%


Flat Positions (No change since Q2)
Greenlight Capital Re (GLRE)
EMC (EMC)
Borders (BGP)


Some Reduced Positions (Some positions they sold shares in)
Automatic Data Processing (ADP): Reduced by 15.7%


Removed Positions (Positions they sold out of completely)
n/a


Pershing's Entire Portfolio (by percentage of assets reported on 13F filing)

1. Target (TGT): 38.80%
2. EMC (EMC): 31.95%
3. McDonalds (MCD): 15.04%
4. Automatic Data Processing (ADP): 7.68%
5. Corrections Corp of America (CXW): 5.32%
6. Borders Group (BGP): 1.05%
7. Greenlight Capital Re (GLRE): 0.15%
   

As we mentioned earlier, Pershing Square runs a very concentrated portfolio. Target makes up the bulk of their holdings but keep in mind that much of that is due to their Pershing Square IV hedge fund that holds Target as its only position. The only new addition to Pershing Square's portfolio is that of Corrections Corp of America (CXW). We had already detailed his thesis behind this investment from his presentation at the Value Investing Congress. The other notable change to their portfolio was the boost in their MCD position and Ackman detailed some of his thoughts on this investment in his Q2 investor letter.

While SEC filings do not require funds to disclose short positions, we do know that one of Ackman's shorts is real estate play Realty Income (O). Previously, we posted up Pershing's presentation on O which laid out why he thinks it will have to cut its dividend, sending its retail investor base fleeing.

The fact that we know one of Ackman's shorts in addition to almost all of his longs has made readers wonder why investors are willing to pay management and performance fees for his hedge fund when the majority of his positions are readily disclosed. The counterpoint to that question would be the fact that you don't know *all* of his shorts, nor can you put on his positions that are institutional in nature. Typical investors usually don't have access to credit default swaps (CDS), a tool Ackman likes to use for putting on his short plays. And, in addition to his equity plays, Ackman also has various positions in the debt markets (General Growth Properties being a prime example). So, while you can create a semi-Pershing portfolio simply through their equity plays, you can't entirely replicate their portfolio solely through SEC filings.

Those of you avidly tracking the General Growth Properties (GGWPQ) situation will note that it is not present in this 13F filing. This is *not* because he has sold out. Pershing still holds GGWPQ debt and equity. It is simply not listed because the SEC has deemed GGWPQ to no longer be a reportable security for 13F filings. This is most likely due to the fact that they are no longer listed on the exchange (GGWPQ is traded in OTC markets). The main thing to take away from this is the fact that we will still see Ackman's moves in GGWPQ through Form 4 filings since he is now on the board of directors. For more info on their position, Ackman's Q2 investor letter briefly touches on GGWPQ here.

Post-13F, Pershing Square has also recently revealed a position in Landry's Restaurants (LNY) but due to the complex nature of that situation we will be penning a separate post on the details shortly.

Assets from the collective holdings reported to the SEC via 13F filing were $3.1 billion this quarter compared to $2.26 billion last quarter, a notable increase in assets invested in long 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. Realistically, the position percentages are more watered down in their actual hedge fund portfolio since their actual AUM is a figure much larger than what is reported on a 13F.

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 so check back daily as we'll be posting up a new hedge fund each day.

Bill Ackman's Pershing Square Letter to Investors (Re: Target)

The full text of Bill Ackman's letter to investors in his Pershing Square IV fund, which invests solely in Target (TGT).

"
February 8, 2009

Dear Pershing Square IV Investor:

A few further thoughts and an update on PSIV:

In my effort to get last week’s letter out promptly, I neglected to apologize. I am deeply disappointed by PSIV’s dreadful performance and I apologize profusely for the fund’s results to date. Over the last few days, we have spoken to both investors who wish to redeem and others who intend to contribute additional capital. We expect to be able to redeem any and all investors who choose to exit in March, in full and in cash. We will provide more details on the timing of distributions shortly.

I have spent the last few days thinking about what we can do beyond strong progress on Target and PSIV to somehow compensate you for PSIV losses to date. Approximately 90% of the investors in PSIV are also investors in the main Pershing Square funds. Substantially all of the overlapping investors have a larger investment in the main Pershing Square funds than in PSIV.

For those PSIV investors who are investors in the main Pershing Square funds, we will raise the high water mark, thereby waiving future incentive fees on your main Pershing Square fund capital account(s) and any additions to your capital account(s) until such time as you have recouped your PSIV losses.

By way of example, if you invested $10 million in PSIV and have lost $9 million of your capital, your high water mark on your main Pershing Square fund capital account(s) will go up by $9 million and you will not pay any incentive fees until you have recouped your entire $9 million PSIV loss. This commitment applies even in the event you remain an investor in PSIV and your PSIV investment increases in value. If you remain an investor in PSIV and your capital account declines further in value, you will receive an additional credit toward your high water mark in the main Pershing Square funds.

For the 10% of the investors that are not investors in the main Pershing Square funds, we offer you the following: We will raise the high water mark on any future investment you make in any Pershing Square fund or co-investment vehicle we subsequently offer so you will not pay any incentive fees until you have recouped your PSIV losses.

Our willingness to offer those investors not currently in the main Pershing Square funds a fee waiver is, of course, of little value if they make no future Pershing Square investment. To their credit, some of these investors, who are for the most part other hedge funds (that comprised approximately $1.3 billion of the original $2 billion of fund capital), have told me that they previously hedged a substantial portion, or in some cases 100% or more, of their exposure to Target through PSIV. Hopefully, this has helped to mitigate their PSIV losses in the event we are never able to recompense them.

Bottom line, PSIV has been one of the greatest disappointments of my career to date. That said, we continue to believe that we will ultimately be successful in our investment in Target. I am likely now the largest individual investor in Target through my interests in the various Pershing Square funds including my personal commitment of an additional $25 million of capital to PSIV. I and the rest of the Pershing Square team will work hard to achieve a successful outcome for all of us. On the pages which follow, we have attempted to answer investors’ most commonly asked questions. Please call me if you have any additional questions.

Sincerely,
William A. Ackman"

And, here's the .pdf version for those that want it.