John Paulson Starting Real Estate Recovery Fund

Fresh off of our unofficial 'John Paulson' day on the blog yesterday, we're back again to highlight that Paulson will be going forwards with his Real Estate Recovery fund that will be aimed on investing in distressed assets. Just yesterday we examined Paulson's equity holdings, and now it looks like he's getting ready to make a splash in other asset classes. The fund will manage a few hundred million in its initial capacity (though no cap has been set) and will be managed by Mike Barr. Mike was previously at Lehman Brothers where he has experience in real estate and private equity. Paulson's initial goal is to run the fund for 7 years, investing in both residential and commercial properties. This news comes fresh off the new mortgage-market proposal by Paulson's colleague and ex-portfolio manager, Paolo Pellegrini. The two of them undoubtedly have compelling ideas on how to solve the crisis.

This fund isn't really new news, as we had heard of his proposal a while ago. However, we're finally getting concrete details and the 'green light' that it is ready to go. With his front-row seat to the mortgage and housing crisis, Paulson's timing call might prove to be very prudent. He has played the market perfectly thus far and has already gotten constructive on the sector by buying up the types of assets he was previously shorting (mortgage backed securities). Now, however, he is taking his constructiveness to a new level: by buying outright real estate. Obviously, he has a longer-term time frame in mind and will take his time sorting and sifting through the right deals. But, the fact that he is getting constructive in this arena cannot be ignored.

At the same time, it is also interesting to note his large purchase of gold which we just detailed. The hedge fund firm has said it is merely a hedge for them, as they have a share class denominated in gold. However, his large stakes in both gold and numerous gold miners is intriguing. Paulson may be getting constructive in the real estate arena, but he must still be overall cautious on the economy, the US dollar, or something of the sort. After all, why buy so much gold and so many miners? Either way, it's always interesting to note his major moves and this new fund certainly is classified as such.

Paulson's hedge fund has generated massive returns over the past two years, as he bet against financials and all things subprime. One of his funds was even up 589%. Check out his recent portfolio movements.

Bloomberg Terminal: Command Shortcuts / Cheat Sheet

For those of you who have access to Bloomberg terminals or are trying to learn the ropes, we thought it would be good to post up this resource, courtesy of the Columbia Investment Management Association (CIMA) of the Columbia Business School.

They've gone through and put together a quick .pdf of some key shortcuts and keystrokes to use in a Bloomberg Terminal. This is definitely a great resource for people trying to learn the system or for people who get stuck and can't remember how to access something. Post this cheat sheet up right next to the terminal and you're good to go. (RSS & Email readers will need to come to the blog to view the .pdf).


Bloomberg Cheat Sheet -

Paulson & Co (John Paulson) Buys Tons of Gold: 13F Filing 1st Quarter 2009

(click to enlarge)

Since today is pretty much 'John Paulson day' here at Market Folly, we thought it was appropriate to begin with this interesting (yet already outdated) graphic of Paulson's overall winnings. Obviously, he's been quite successful. This post is a part of our 1st Quarter 2009 edition of our ongoing hedge fund portfolio tracking series. Before reading this update, make sure you check out the Hedge Fund 13F filings series preface.

The second hedge fund in our series is Paulson & Co ran by John Paulson. His hedge fund has generated massive returns over the past two years, as he bet against financials and all things subprime. One of his funds was even up 589%. And, in the first part of 2009, he had also profited by shorting UK banks. Although Paulson is obviously one of the main brains behind the operation, there are also many talented individuals there. Unfortunately for Paulson, one of his co-portfolio managers has left to start his own fund, and we'll be keeping an eye on that. At the end of 2008, Paulson's Advantage Plus fund ended the year +37.58%, as detailed in our year end 2008 hedge fund performance post. For more information on how Paulson performed in 2008, be sure to check out their year end letter & report.

Paulson began shorting collateralized debt obligations and buying credit default swaps back in 2005 as he had conviction in his bet. His Credit Opportunities fund launched in 2006 with $150 million aimed to short subprime mortgage backed securities. This fund enjoyed immediate success, causing him to launch the Credit Opportunities II fund. At the end of 2007, the Opportunities fund was up 590% and his Opportunities II fund was up 353%. Such sterling performance led Paulson's hedge funds to be the #1 and #4 funds as ranked in Barron's hedge fund rankings (top 100). Paulson's funds earned this distinction due to their solid 3 year annualized performance metrics. Additionally, Paulson sits at #3 on Alpha's hedge fund rankings list for 2009, which is compiled based on assets under management (aum).

Obviously, such great performance has led to many other accolades for Paulson on a personal level. Recently, Paulson graced Forbes' billionaire list, but that one is almost a no-brainer. More notably, he was among the top 25 highest paid hedge fund managers of 2008. In terms of recent portfolio performance, Paulson's Advantage Plus Fund returned 4.8% through April as noted in our round up of hedge fund performance numbers.

The following were their long equity, note, and options holdings as of March 31st, 2009 as filed with the SEC. We have not detailed the changes to every single position in this update, but we have covered all the major moves. All holdings are common stock unless otherwise denoted.


Some New Positions (Brand new positions that they initiated in the last quarter):
SPDR Gold Trust (GLD)
Gold Fields (GFI)
Gold Miners ETF (GDX)
Anglogold Ashanti (AU)
Capital One Financial (COF)
JPMorgan Chase (JPM)
Petro-Canada (PCZ)
Schering Plough (SGP)
Wyeth (WYE)


Some Increased Positions (A few positions they already owned but added shares to)
St Jude Medical (STJ): Increased by 134%
Peoples United Financial (PBCT): Increased by 12%
Kinross Gold (KGC): Increased by 8%


Some Reduced Positions (Some positions they sold some shares of - note not all sales listed)
Rohm & Haas (ROH): Reduced by 11.5%


Removed Positions (Positions they sold out of completely)
BCE (BCE)
Genentech (DNA)
Istar Financial (SFI)
Merrill Lynch (MER)
NRG Energy (NRG)
National Citty (NCC - inactive, acquired by PNC)
Northern Trust (NTRS)
Teva Pharma (TEVA)
Time Warner Cable (TWX)
Tronox (TRXAQ)
UST (UST)
ProShares Ultrashort Financial (SKF)
Wachovia (WB)
Wells Fargo (WFC)


Top 15 Holdings (by % of portfolio)

1. SPDR Gold Trust (GLD): 30.37% of portfolio
2. Wyeth (WYE): 13.96% of portfolio
3. Rohm & Haas (ROH): 13.44% of portfolio
4. Boston Scientific (BSX): 8.4% of portfolio
5. Gold Miners ETF (GDX): 6.81% of portfolio
6. Kinross Gold (KGC): 5.87% of portfolio
7. Philip Morris International (PM): 3.42% of portfolio
8. Petro-Canada (PCZ): 2.96% of portfolio
9. Schering Plough (SGP): 2.26% of portfolio
10. Mirant (MIR): 2.22% of portfolio
11. Gold Fields (GFI): 2.21% of portfolio
12. JPMorgan Chase (JPM): 1.65% of portfolio
13. Anglogold Ashanti (AU): 1.15% of portfolio
14. St Jude Medical (STJ): 0.91% of portfolio
15. Embarq (EQ): 0.81% of portfolio

The first major move that everyone will be talking about is Paulson's big entrance into gold. His position in the Gold Trust (GLD) is brand new and is brought up to a whopping 30% of his portfolio. Now, there are indeed a few caveats with this move: Paulson & Co have said themselves that they have done so as a hedge, as they now own well over 8% of this exchange traded fund (ETF). Their hedge funds have a share class that is denominated in gold (instead of in US dollars or Euros). Still though, that's quite a large hedge to have. Not to mention, Paulson also has a copious amount of gold miners now littered throughout his equity portfolio. Previously, we had posted up when he started his large stake in Anglogold Ashanti. Now though, he has boosted his stake in Kinross Gold (KGC) and he has also started new positions in Gold Fields (GFI) and the Gold Miner ETF (GDX). Gold is clearly the name of the game for Paulson at present. And, such a massive position in gold and gold miners has to be for more than merely a hedge.

One other thing to consider with Paulson's portfolio is that these holdings listed above are only his long equity holdings. The main reason why we bring this up is because the holdings above represent only a piece of his overall portfolio pie. Many of the positions above are merger arbitrage and event driven positions. While his gold stakes may be a large part of the assets disclosed in this filing, they are not quite as big when you compare them to his total assets under management. So, keep that in mind.

As many are already aware, Paulson bet against subprime and made a ton of money. As such, a lot of his holdings are in other markets. And, since the SEC only requires funds to disclose their equity, options, and note/bond positions, there is much of Paulson's portfolio left unseen. Besides any omitted positions in mortgage backed securities or other markets, we also do not get to see Paulson's shorts. The only short positions we can ever see in these filings (as per SEC regulations) are via positions in put options. And, Paulson does not have any such positions.

Another major move Paulson made last quarter was to buy a new stake in Wyeth (WYE). They brought their new WYE position all the way up to their #2 holding, which will turn a few heads. Aside from those major moves, Paulson also still retains the rest of his merger arbitrage style positions in Boston Scientific and Rohm & Haas, which we've covered previously. Additionally, Paulson still holds a position in Mirant (MIR), whom he filed a 13G on back in January.

We also noticed that Paulson essentially swapped out of Merrill Lynch, Northern Trust, Wells Fargo, and Wachovia in favor of Capital One and JP Morgan Chase. While this move is intriguing, it is fairly insignificant (at least at this time). All his financial positions are relatively tiny to his overall portfolio, with JPMorgan being the largest at only 1.65% of their portfolio, which is not saying much. We'll have to monitor this development going forward to see if Paulson is getting constructive here, or mainly using these as proxies for something else in the shorter-term.

Assets from the collective holdings reported to the SEC via 13F filing increased from $6 billion last quarter up to $9.36 billion this quarter. Overall, Paulson is a great fund to keep an eye on simply because they nailed the crisis and have a solid track record. However, much of his portfolio is not present in these 13F filings, so take everything with a grain of salt. If you want to keep an eye on someone else who had worked with Paulson in betting against subprime, then check out our recent piece on Kyle Bass of Hayman Capital, where we divulge his latest prediction.

This is just one of the 40+ prominent funds that we'll be covering in our hedge fund Q1 2009 portfolio series. Check back each day as we cover new fund portfolios, as we've already covered Andreas Halvorsen's Viking Global.

Paolo Pellegrini Proposes Mortgage Solution

Over on Dealbook, there is a fascinating piece up by Paolo Pellegrini. "Who's that?" And, "why should I care?" you ask. Well, Pellegrini was previously a co-portfolio manager at John Paulson's hedge fund Paulson & Co. Pellegrini has since started his own fund, PSQR Management. Needless to say, he is very familiar with the housing and mortgage crisis, as he has been playing it from the investment side with precision. We thought that today would be the perfect day to post up Pellegrini's thoughts, as we've just covered Paulson & Co in our quarterly hedge fund portfolio tracking series.

Pelligrini proposes a market solution complete with bidding and aid from government financing, wherein homeowners and institutions alike can benefit. He writes,

"With more than a fifth of United States homes worth less than their mortgages, restructuring residential debt is the most important step to restore our country to prosperity and economic growth ... The government can assist struggling homeowners, remove bad loans from bank balance sheets and free up credit while utilizing a transparent, competitive process to minimize the taxpayer subside required."

His proposal is lucid and almost a no-brainer. However, such a simple system would ultimately require some complexities in its infancy. While the government searches for solutions, many close to the heart of the matter are voicing their opinion. Hopefully the government is listening. After all, if they should be listening to anyone regarding this matter, it's Pellegrini and Paulson. Those two have played the market pretty much perfectly thus far. And, suggesting an alternative mortgage solution in market form plays directly into their fortes.

Make sure you check out his entire proposal over at Dealbook.

Andreas Halvorsen's Viking Global 13F Filing: First Quarter 2009

This is the 1st Quarter 2009 edition of our ongoing hedge fund portfolio tracking series. Before reading this update, make sure you check out the Hedge Fund 13F filings series preface.

We'll start our Q1 '09 coverage with Viking Global. Andreas Halvorsen is one of the many 'Tiger Cub' fund managers we cover here on the blog. 'Tiger Cubs' are the progeny of legendary investor and hedge fund manager Julian Robertson of Tiger Management. Many of the critical members of Tiger started their own funds, and Halvorsen is no different. 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. In terms of recent performance, They were +0.99% for March, and +9.27% year to date as of that time. We covered Viking and other hedge funds in our March performance update.

Halvorsen attended Williams College and received his MBA from Stanford, while his work history includes stays at Morgan Stanley and Tiger. In Alpha's 2008 hedge fund rankings, Viking was ranked #70 in the world. You can view Viking's most 2008 year end investor letter if you want to look through the eyes of Halvorsen and company.

The following were their long equity, note, and options holdings as of March 31st, 2009 as filed with the SEC. We have not detailed the changes to every single position in this update, but we have covered all the major moves. All holdings are common stock unless otherwise denoted.


Some New Positions (Brand new positions that they initiated in the last quarter):
ACE (ACE)
Alliance Data Systems (ADS)
Career Education (CECO)
Charles River Labs (CRL)
Cognizant (CTSH)
CVS Caremark (CVS)
Danaher (DHR)
Google (GOOG)
Lender Processing Services (LPS)
Oracle (ORCL)
Suntrust Banks (STI)
Teleflex (TFX)
Travelers Companies (UHS)
Thermo Fisher Scientific (TMO)
Thoratec (THOR)
Universal Health Services (UHS)
Visa (V)
Walmart (WMT)


Some Increased Positions (A few positions they already owned but added shares to)
Mastercard (MA): Increased by 176%
JPMorgan Chase: Increased by 72%
Invesco (IVZ): Increased by 23%
Qualcomm (QCOM): Increased by 12%


Some Reduced Positions (Some positions they sold some shares of - note not all sales listed)
DaVita (DVA): Reduced by 46%
First Horizon National (FHN): Reduced by 45%
Illumina (ILMN): Reduced by 37.5%
Aon (AOC): Reduced by 34%
Apollo Group (APOL): Reduced by 32%
McKesson (MCK): Reduced by 27%


Removed Positions (Positions they sold out of completely)
Alcon (ACL)
Bank of America (BAC)
Axis Capital (AXS)
BCE (BCE)
ITT Educational (ESI)
Kroger (KR)
ModusLink (MLNK)
Renaissance Holdings (RNR)
St Jude Medical (STJ)
Sherwin Williams (SHW)
Verisign (VRSN)
Vulcan Materials (VMC)


Top 15 Holdings (by % of portfolio)

1. Apollo Group (APOL): 12.67% of portfolio
2. Mastercard (MA): 12.51% of portfolio
3. Invesco (IVZ): 8.88% of portfolio
4. Qualcomm (QCOM): 7.11% of portfolio
5. Google (GOOG): 5.83% of portfolio
6. Visa (V): 5.8% of portfolio
7. Priceline (PCLN): 5.33% of portfolio
8. JPMorganChase (JPM): 4.12% of portfolio
9. NRG Energy (NRG): 3.4% of portfolio
10. Cognizant (CTSH): 3.24% of portfolio
11. Career Education (CECO): 3.13% of portfolio
12. MSCI (MXB): 3% of portfolio
13. DaVita (DVA): 2.7% of portfolio
14. Macrovision (MVSN): 1.96% of portfolio
15. Charles River Labs (CRL): 1.87% of portfolio

From Q3 to Q4 of 2008, Viking had some substantial turnover in their portfolio. And, the most recent quarter is no different. In the first quarter of 2009, they sold completely out of 12 names and then started new positions in 18 other names. Last time around, we focused on Viking's decision to sell out of Visa and instead buy Mastercard. Well, this time around, they bought both. Viking re-bought their Visa position and brought it all the way up to their 6th largest holding. Additionally, they boosted their current Mastercard position by an additional 176%. They clearly have conviction in this payment-processing duopoly. (And, so do many other hedge funds for that matter).

Viking also started a new position in Google (GOOG) and brought it up to their fifth largest holding. That about covers all the major moves in the portfolio (besides the names they sold out of completely). Viking's top position remains Apollo Group (APOL). However, they did sell a substantial part of their position from quarter to quarter.

Assets from the collective holdings reported to the SEC via 13F filing were $3.5 billion last quarter and were $3.57 billion this quarter. This is just one of the 40+ prominent funds that we'll be covering in our hedge fund Q1 2009 portfolio series. Check back each day as we cover new fund portfolios, or get our updates for free via email or for free via RSS Reader.

Barron's Hedge Fund Rankings 2009: Top 100 List

Barron's is out with their annual hedge fund 100 list and we wanted to post up all the media relating to it. They mention that hedge fund assets plummeted from $1.9 trillion to $1.4 trillion throughout the course of 2008. That is a staggering number, but it definitely highlights the real problems the industry had during the year. While redemptions were fierce over the last year, reports are out saying that nearly 80% of redemption activity was high net worth and retail investors, rather than institutions. This will definitely be interesting as it could affect the health of the industry moving forwards. If institutions suddenly drop their allocations to hedge funds, then there will be big ramifications across the industry.

While many funds faltered, there have been a few all-stars over the past three years and Barron's highlights them on their list. Firstly, here's the hedge fund 100 list in it's entirety (RSS & Email readers may need to come to the blog to view the slidedeck). Or, you can download the .pdf here.

Publish at Scribd or explore others: Finance Business & Law hedge fund 100

There is also a supplemental video below where the author/compiler of the list Jack Willoughby discusses the rankings and the hedge fund industry in its current state:




Barron's breaks down their top 100 hedge fund list by 3 year annualized returns. They rank by individual investment partnerships, so a couple of firms actually have multiple hedge funds on the list (like Paulson & Co, Galleon Group, etc). Barron's list does have a few criteria though, as they require a minimum AUM of $300 million and have excluded funds that invest in a single "sector, country, or region."

Overall though, the list is definitely a "who's who" of the hedge fund elite. John Paulson's Paulson & Co occupies the #1 and #4 slots, with a 62.67% and 46.81% 3 year annualized returns respectively. Of other hedge funds we cover on the blog, Shumway Capital has a fund listed at #11. Fellow Tiger Cub Paul Touradji has one of his funds in the #16 spot.

Some higher frequency trading firms are also high up on the list, including D.E. Shaw's Oculus fund at #21 and SAC Capital's International fund at #17. Noticeably absent from the list though, is Jim Simons' Renaissance Technologies. This is hard to believe, seeing how their prestigious and secretive Medallion fund returned 80% in 2008 and has one of the most pristine track records in all of hedgie-land. Maybe Barron's was tracking Rentec's sub-par performing funds like RIEF, which would explain their absence from the list. Medallion's exclusion, however, makes zero sense.

We've also noted that some funds who focus on macro trends are also ranked pretty highly. Passport Capital (John Burbank) is #24, Sprott Asset Management graces the list at #49, and George Soros' hedge fund is #46. In terms of true global macro firms, Moore Capital Management has a fund listed at #33. Keep in mind that we're just about to start our hedge fund portfolio tracking series, first quarter 2009 edition. We'll be updating the positions and portfolios of many of the funds ranked in the Top 100 to see what they've been up to, so make sure to check back daily.

Barron's isn't the only hedge fund ranking list out there, as Alpha had previously released their 2009 hedge fund rankings. The difference between the two lists is that Barron's is using a 3 year annualized return figure to gauge performance and rank accordingly. Alpha, on the other hand, simply aggregates assets under management (AUM) and then ranks from top to bottom. Obviously, many will argue that Barron's has the better gauge since they are using performance based metrics, and we'd tend to agree. The problem, though, is that they only use a 3 year annualized return. We'd prefer to use a 5 year or even 10 year period. That gets a little bit more complex and complicated as you would have some out-performing funds who only have shorter track records due to their inception dates. Overall though, Barron's and Alpha both present interesting lists.

Don't forget that you can get Barron's for 40% off right now and you can also view their top 100 article in its entirety.

Hedge Fund Portfolio Tracking Q1 2009: 13F Filings

Yep, it's thaaaaaaat time again. Buckle up for a whirlwind of first quarter 2009 hedge fund portfolios. This post is the preface to the series we will be doing in the coming weeks that details what many prominent hedge funds have been up to in the prior quarter.

Four times a year (once each quarter), hedge funds & asset managers with greater than $100 million AUM (assets under management) are required to report to the SEC their long holdings from the previous quarter. These filings do not show the funds' short positions and require them to disclose their long holdings in equity markets. Additionally, they are required to file various puts or calls purchased in the options market as well as notes & bonds. These filings do not cover commodities, currencies, or other markets. So, we just wanted to clarify that for people new to 13f filings. We check these 13F filings quarterly just to get a sense as to where these funds are putting their money. If you just sit down and do some simple number crunching between this quarter's 13F and the one prior, you can see exactly where these funds have been moving their money. And, if you create a cloned portfolio based on these top hedge fund holdings, you can see 17% annualized returns like our custom Market Folly portfolio created with Alphaclone.

Please note that these 13F's should be treated as a lagging indicator simply because the 13F's that are being released currently (May 15th-20th 2009) show the funds' portfolio holdings as of March 31st, 2009. 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 and what their concentrated positions are.

We like to specifically follow equity focused hedge funds as they are the easiest to track. We focus on value based (or growth-at-a-reasonable-price) hedge funds in the hope that they won't experience ridiculously high turnover and thus allow us to somewhat track their movements as they build up concentrated positions. Specifically, we follow the 'Tiger Cubs' (otherwise known as the proteges of former hedge fund Tiger Management legend Julian Robertson). Many of these former proteges/right-hand men have started their own funds and here are the ones we've been following. (Note that all the links below are to the respective holdings from Q4 2008 & will be replaced with the Q1 '09 links as we go along).

- Blue Ridge Capital (John Griffin) - Q1 updated
- Lone Pine Capital (Stephen Mandel) - Q1 updated
- Maverick Capital (Lee Ainslie) - Q1 updated
- Viking Global (Andreas Halvorsen) - Q1 updated
- Tiger Global (Chase Coleman)
- Touradji Capital (Paul Touradji)
- Shumway Capital Partners (Chris Shumway)

Additionally, we also like to follow the Commodities Corporation "offspring" which have gone off to start their own funds and typically employ a global macro strategy.

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

Additionally, we like to follow other "whales" well known for their investing prowess. These include:

- Warren Buffett
- Carl Icahn
- George Soros (Soros Fund Management LLC)

Next, there is an assortment of funds that employ various strategies ranging from activist to global macro and often run concentrated portfolios. We track these funds due to their solid returns over the years, as well as the spotlight that has been cast on a few of them in this turbulent market.

- Atticus Capital (Timothy Barakett) - Q1 updated
- Tremblant Capital (Bret Barakett)
- Clarium Capital (Peter Thiel)
- Pequot Capital Management (Art Samberg)
- Harbinger Capital (Philip Falcone)
- BP Capital (Boone Pickens)
- Paulson & Co (John Paulson) - Q1 updated
- Jana Partners (Barry Rosenstein)
- Eton Park Capital (Eric Mindich) - Q1 updated
- Farallon Capital Management (Thomas Steyer)
- Galleon Group (Raj Rajaratnam)
- Citadel (Ken Griffin)

A few deep value & activist funds:

- Third Point (Daniel Loeb)
- Pershing Square (Bill Ackman)
- Greenlight Capital (David Einhorn) - Q1 updated
- Baupost Group (Seth Klarman) - Q1 updated
- Tontine Associates (Jeffrey Gendell)

For our readers, we also track some quant and highly active trading funds. We do not track these firms to gain insight for portfolio investing ideas. Instead, it's merely for fun because for whatever reason, people like to see what they are doing. It's basically useless to track them due to their quant or high frequency trading nature and none of us could really tell you the rhyme or reason behind any one of their positions.

- SAC Capital (Stevie Cohen)
- D.E. Shaw (David Shaw)
- Renaissance Technologies (Jim Simons)

We also track a few spin-off and newer funds on the scene that are run by managers with storied pasts:

- Conatus Capital (David Stemerman, ex-Lone Pine)
- James Pallotta's Raptor Capital Management (ex-Tudor)
- Alyeska Investment Group (Anand Parekh, ex-Citadel)

And, a few other funds we're beginning to track due to high demand from our readers. We receive a lot of suggestions and take the ones we see recurring the most and add them:

- Passport Capital (John Burbank)
- Sprott Asset Management (Eric Sprott)
- Balyasny Asset Management (Dmitry Balyasny)
- Hilltop Park Fund (Stanley Shopkorn, ex-Moore)

Over the coming weeks we'll touch on some of the important position moves these funds and whales have made (new positions, removed positions, etc). That list of funds brings our coverage to 40+ prominent hedge funds. If you would like to see a specific hedge fund covered here on MarketFolly.com, post up a comment in the comments section below. We're always looking to add more funds that readers would like to see, so please drop in your suggestions. Each quarter we'll add a few more funds that the overwhelming majority of readers want to see.

Last, but not least, we're always looking for people to help us cover these hedge funds, as it gets to be a bit tedious (this is a one-man show here). If you're interested in helping out posting up 13F information, please get in contact with us at the top of the site. The hedge fund tracking series 1st quarter 2009 edition starts today, so spread the word and check back daily.

Technical Analysis & Trading Ideas: Weekly Watchlist Video

Here's a video with some good technical analysis and pricing patterns in the current market from the Option Addict. If you're looking for some trading ideas, this is a great resource. Here's his weekly watchlist for 5/18/09:



The video was having problems playing earlier, so if it does not work, try watching it here.
(Email readers will have to come to the blog to view the video).

Blue Ridge Capital's Recommended Economics Reading List

Time for the third installment in our series of 4 articles revealing Blue Ridge Capital's recommended reading list. Previously, we've revealed Blue Ridge's recommended Analytical Reading List, as well as their Historical/Biographical List. This week, we'll turn to their recommended Economics books.

Long-time blog readers will know that we track Blue Ridge because they are the pure definition of a Tiger Cub. Founder John Griffin was Julian Robertson's right-hand man while at Tiger Management and was one of the first to strike out on his own.



Economics

Capitalism and Freedom by Milton Friedman: A must-read by one of the most well-known economists out there.

The Lexus and the Olive Tree by Thomas Friedman: A book that deals with understanding globalization and argues that globalization (the Lexus) is "the central organizing principal of the post-cold war world."

Economics in One Lesson by Henry Hazlitt: With an introduction by Steve Forbes, this book is a great primer on economic thinking.

Eat the Rich by PJ O'Rourke: A tour of two years worth of economic practice, focusing on good capitalism and bad capitalism, among other things.


Other

How To Win Friends and Influence People by Dale Carnegie: The "grandfather of all people-skills books." It details fundamental techniques and principles for dealing and interacting with people.

Atlas Shrugged by Ayn Rand: Not only recommended by Blue Ridge, but by many other hedge fund managers out there, this book deals with philosophy of objectivism.

The Tao Jones Averages by Bennett Goodspeed: Touches on the mindset required to succeed as an investor.

The Tao of Pooh by Benjamin Hoff: Despite the somewhat silly title, this book examines what a Western Taoist is.

The Te of Piglet by Benjamin Hoff: Similar to the above, this book examines the Taoist embodiment of Te, or virtue.

Nonzero: The Logic of Human Destiny by Robert Wright: Address the convtroversial question of 'purpose in evolution.'


That completes their Economics and 'Other' recommendations from hedge fund Blue Ridge Capital.  Check out the rest of their recommendations in the categories below:

- Blue Ridge's Recommended Analytical Reading

- Blue Ridge's Recommended Historical/Biographical Reading

- Blue Ridge's favorite behavioral finance books



Background on Blue Ridge:

Griffin is a Tiger Cub, and as mentioned above, he was Julian Robertson's right hand man. So, needless to say, he knows his stuff. Blue Ridge seeks absolute returns by investing in companies who dominate their industries and shorting the companies who have fundamental problems.

Both Griffin at Blue Ridge and Lee Ainslie over at Maverick Capital like to effectively hedge with a solid balance of both long and short positions (like a true hedge fund... not like some of the crazy funds these days that aren't truly hedged). Griffin attended the University of Virginia for undergrad and received his MBA from Stanford.

Hayman Capital's Kyle Bass Predicts Sovereign Defaults

Hedge fund Hayman Advisors has a morbid outlook on the economy. Kyle Bass, the manager of Hayman, is betting on a massive wave of state bankruptcies and restructurings, particularly in Europe. At first glance this may seem far-fetched. But, you have to consider Bass and Hayman's track record thus far. Their fund was up 340% since inception according to their investor letter in March of this year. They were also up 6% in 2008, a year that saw the S&P drop by massive double figures. Bass collected nearly half a billion dollars from his bets against subprime. Much like John Paulson of hedge fund Paulson & Co, Bass also predicted the crisis. His next prediction is even more extreme.

Bass has gone as far to say that he thinks there will be massive sovereign defaults. We initially cited his dreary outlook in our piece, 'Ranting, Raving, & Contrarian Signals' back on March 8th, 2009. And, we did so because such extreme pessimism is usually a sign of short-term tops or bottoms. And, right on cue, the market is up over 30% since we highlighted that short-term contrarian signal. Contrarianism aside, Bass does command respect. After all, he profited handsomely by predicting the crisis and the collapse of subprime. While such extreme pessimism may be a catalyst for a short-term rally, we should be quite concerned if Bass' next set of predictions come true, as they would undoubtedly affect the long-term.

Bass has specifically turned his focus to Europe, where he sees a large cloud of denial and leverage. While he sees problems throughout the world, he claims that Europe is in the eye of the storm. A quick example of this is the fact that American banks have written down around 50% of their losses. European banks, on the other hand, have only written down around 17%. Bass says that,

"The crux of the problem is not sub-prime, or Alt-A mortgage loans, or this or that bank. Governments around the world allowed their banking systems to grow unchecked, in some cases growing into an untenable liability for the host country ... We have spent a good part of six months combing through the world's sovereign balance sheets to understand how much leverage we are dealing with. The results are shocking ... There could be a cluster of defaults over the next three years, possibly sooner."

Bass' hedge fund thinks that the hazard of default stems from a combination of both out-of-control public debt and liabilities from specific banks (like Fortis, RBS, etc) that now prominently appear on sovereign balance sheets. He seems to flirt dangerously with the phrase, 'economic depression.' He is also careful to point out that he is not Dr. Doom. He has simply studied the housing market and sovereign balance sheets to the point where he is telling it like he sees it.

Countries have largely fought off the crisis by printing money and rolling over their debt. And, here in the United States, quantitative easing has already begun. As Ambrose Evans-Pritchard points out in his Telegraph piece, "spasms of default" occur every few generations according to research by former IMF chief economist Ken Rogoff. Such data highlights that in both the 1830's and the 1930's, half of the world was essentially torpedoed. Are we in for another generational fragmentation? Kyle Bass is clearly not ruling out that possibility.

Background on Kyle Bass & Hayman Advisors: Kyle attended Texas Christian University (TCU) in Fort Worth, TX and now plies his trade at his Dallas based Hayman Advisors. He launched his hedge fund in 2006 with $33 million in initial capital. In August of 2006, he began shorting around $4 billion of subprime securities through various derivatives. Then, he eventually turned over $100 million into over $700 million based on his prediction of the crisis. He previously has worked at Bear Stearns' event-driven and special situations unit as has also headed an office of Legg Mason. His first major prediction (and victory) focused on over-leverage. We'll have to see if his second leverage-based prediction plays out.

If you haven't quite had your daily dose of pessimism yet, then check out Hayman's March letter. It will probably fill you right up.

Satellite Closes Hedge Funds

The painful year of 2008 was too much for Satellite Asset Management as they are set to shut down their flagship Credit Opportunities Fund which was down around 35% during the mayhem of 2008. They will also be closing their Overseas Fund and their Satellite Fund II. Their poor performance triggered a series of investor withdrawal requests and they were forced to suspend redemptions. Apparently they could not stop the hemorrhaging, as redemption requests simply overwhelmed them. Chalk up another victory for Ms. Market, as we add another name to the hedge fund graveyard of 2008.

The interesting thing to note here is that the fund was run by three veterans of Soros Fund Management. This is an example of another fund that was spun-off/started after managers left a big global macro style hedge fund. Just yesterday, we covered how Dwight Anderson blew up his Ospraie fund after leaving Tudor Investment Corp. However, Anderson is right back to the same tricks as he has started two new hedge funds. We'll have to see if the trio of ex-Soros managers will garner new capital to start yet another fund after already failing once. Satellite was run by Mark Sonnino, Lief Rosenblatt, and Gabe Nechamkin and they managed $7 billion around its peak and over $2 billion more recently.

What We're Reading 5/15/09

Top 25 Warren Buffett Quotes [Bankling]

Trouble in Quant-land again [Wall Street Journal]

Hedge funds cutting fees for investors [FT]

What if hedge funds had billboards [HedgeFundBlogMan]

The Credit Card Squeeze [New York Times] - Everyone is using a variation of that title these days.

Dwight Anderson To Open 2 New Ospraie Hedge Funds

If at first you don't succeed, try, try again. This cliché is the root of folly on Wall Street and in the hedge fund industry in general. Perfect example: The Ospraie Fund's Dwight Anderson is set to start two new hedge funds in July. Okay, new hedge funds, what's the big deal? Well, the problem here is that Dwight Anderson lost 39% in his Ospraie Fund in 2008 and had to liquidate the fund. At its peak, Ospraie managed $3.8 billion in commodities. But if at first you don't succeed, try, try again. And, that's exactly what Anderson is set to do.

Anderson will open two new hedge funds in July of 2009, the first of which will focus on stocks of commodity and basic materials companies (The Ospraie Equity Fund). He will also open a fund focused on commodities and derivatives (The Ospraie Commodity Fund). Anderson said that he is starting these funds because he sees significant opportunities in this market, as significant as he has ever seen in his 15 years of investing. These funds will have reduced fees where investors will pay half as much as the typical hedge fund. His new funds will charge a 1% management fee and a 10% performance fee.

His Ospraie fund is named after the osprey, a marine bird of prey. Ironically enough, his fund was the one being preyed upon in 2008. The volatile year of 2008 goes to show that anyone, regardless of their background can be humbled by Ms. Market. Anderson had previously worked at Julian Robertson's Tiger Management. While we never covered Anderson on the blog, we did cover numerous other successful Tiger Cub hedge fund managers. Anderson then went to work for global macro giant Paul Tudor Jones' Tudor Investment Corp. Contrary to Anderson, Tudor has made it through this crisis largely unscathed. Scoreboard: Master 1, Apprentice 0.

Anderson started Ospraie while at Tudor and then eventually spun it off where he saw 15% annual gains from 2000 until 2007. But, even after working and learning from some of the best in the game, Anderson still got hit... hard. Interestingly enough, we see that another fund has recently spun out of Tudor Investment Corp: James Pallotta's Raptor Capital. We just started covering Raptor in our hedge fund tracking series and only time will tell if they can avoid the fate suffered by Ospraie's prior Tudor spin-off. In an unrelated note: what's up with all the funds coming out of Tudor being named after animals of prey? We found that interesting, as everyone wants to be 'the hunter.' It's just highly ironic when you become the one being hunted.

To conclude, we rejoin our market fairytale. In typical Wall Street fashion, Anderson closed his old fund and brought two new funds to the surface. When will this pitiful cycle end? It amazes us that managers are continually given money after blowing up. But, that's Wall Street and that's the hedge fund industry; folly at its best. If at first you don't succeed, try, try again. Sigh.

Mutual Funds Using Hedge Fund Strategies

Typically, most vanilla mutual funds don't short stocks. They are usually long-only funds aimed at matching or beating certain benchmarks. But, over the past few years, we've seen an evolution in the arena of money management and actively managed portfolios. Case in point: We've just learned that $14 billion Turner Investment Partners is launching the Turner Spectrum Fund which aims to earn similar returns as hedge funds by employing those strategies. The fund will have two share classes: an Institutional class charging a 1.95% fee (minimum investment of $100,000) and a Retail class which will charge a 2.2% fee with a $2500 minimum. However, unlike hedge funds, these mutual funds will not charge a performance fee. (Hedge funds typically charge a flat management fee of around 2% and then a performance based fee of 20% of all profits).

Essentially, Turner is relying on their managers to create six other long-short equity strategies including: market-neutral, a financial sector, a healthcare sector, and other sector strategies. It will be interesting to monitor their progress and their performance. They've launched these funds as a way to capitalize on those investors hesitant to invest in hedge funds themselves given how the Bernie Madoff saga has scarred the industry. Keep in mind that this is not a new development on the scene. Instead, they are merely taking the ball and running with it.

Both Legg Mason and AQR Capital have mutual funds using similar hedge fund-like strategies. Also, there are many individual mutual fund managers that are shorting stocks in their mutual fund portfolios. One of the most well-known would have to be Ken Heebner, of CGM Funds. Heebner runs a very active book, turning over the portfolio numerous time within each year. And, his use of shorting definitely draws him closer to a long/short equity hedge fund strategy. He correctly shorted Washington Mutual among others in the turmoil of 2008. However, his small short portfolio was not enough to stave off massive losses in his longs. After having a rampantly successful year in 2007, Heebner came crashing down in 2008. His CGMFX mutual fund was down over 48%. Even though he was using hedge fund-like strategies, he could not avoid losses either. Interestingly enough, we've also noted that Heebner himself will be starting a hedge fund, Wayfarer Capital.

Another example of possible flaws in these hedge fund vehicles came to light when we highlighted QAI, a hedge fund strategy exchange traded fund (etf). We had numerous criticisms of that vehicle and questioned it's ability to truly replicate hedge fund performance. Instead of operating like an individual hedge fund, it seems to be more like a hedge fund of funds that combines various strategies into one collective portfolio. We'll have to check out the fine details of the Turner Spectrum Fund as well.

As a whole, the rough market of 2008 has definitely highlighted the benefits of being truly hedged to downside risk. As such, there's definitely demand from investors for vehicles that can protect them from losses and generate returns in any market. But, the aforementioned mutual funds and ETFs aren't necessarily "hedged vehicles," but rather vehicles seeking hedge fund returns. And, in 2008, hedge funds as a whole didn't perform that well, as they too suffered losses. Well, that is, except for a select few (as we highlighted in our 2008 full year hedge fund performance numbers).

Another major problem here is that they won't be able to truly replicate hedge fund strategies to their fullest extent. And, they aren't really even trying to replicate the strategies as much as they are trying to replicate just the returns. This is mainly due to the limitations and restrictions of the only vehicles they can really provide to investors: mutual funds and exchange traded funds. Sure, they are shorting like a hedge fund would. But, are they using options, bonds, notes and other means to take advantage of unique situations? Are they trading currencies or commodities? Are they turning activist on management teams to institute change? Are they running quantitative algorithms with proven performance? Surely they cannot be that precise. And, they won't be. Their goal of 'earning returns like hedge funds' is so broad and vague that it's pretty much open for interpretation. In the end, it doesn't seem like it matters how they get to the end result. As long as they 'generate returns like hedge funds,' they'll deem the vehicle a success.

While these hedge fund replication vehicles mean well, they are far from perfect. They may prove us wrong and come directly in line with hedge fund benchmarks and performance metrics. But, only time will tell and that's why we intend to monitor them. As is often the case with Wall Street, investments can be marketed differently than what they truly are. And, right now, it seems like the phrase 'hedge fund-like returns' is all the rage. Obviously a distinction will have to be made between the terminology of 'using hedge fund strategies' versus 'aiming for hedge fund returns.' The catchphrase of 'using hedge fund strategies' would more likely attempt to replicate their actual portfolios. 'Aiming for hedge fund returns,' on the other hand, is vague and implies that they will invest however they please, as long as they match the numbers they are attempting to duplicate. In the end, these vehicles are not nor will they ever be truly like hedge funds. But, given the bad year hedge funds had and the overall crazy environment, maybe that's not such a bad thing.

Jeremy Grantham's First Quarter 2009 Letter

Below you'll find some absolutely required reading. Jeremy Grantham of GMO has published his thoughts for the first quarter of 2009. In the past, we've also posted up Grantham's March thoughts if you're interested. RSS & Email readers need to come to the blog to view the slide-deck.

Publish at Scribd or explore others: Finance Business & Law jeremy grantham gmo

Blue Ridge Capital's Recommended Reading List: Historical & Biographical Edition

This is the second post in our series of four articles divulging recommended reading from John Griffin's hedge fund Blue Ridge Capital.  Last week, we looked at Blue Ridge's recommended Analytical Reading List, which was full of many great books. This week, we'll turn to their Historical & Biographical list.



Biographical/Historical

The Money Masters ( as well as The New Money Masters) both by John Train: Covers experts on various schools of investing thought: growth, value, emerging markets, turnarounds, top-down, bottom-up, and more.

No Bull by Michael Steinhardt: Autobiography by one of the first true hedge fund managers out there. His firm survived the collapse of the 1960's.

Soros on Soros: Staying Ahead of the Curve by George Soros: An interview with Soros (an entire book's worth) regarding his investment philosophies and more.

Wall Street: A History by Charles Giesst

Where Are the Customers' Yachts? by Fred Schwed: Humorous and entertaining book about the hypocrisy and folly of Wall Street (sounds like our kind of book!)

The New Market Wizards & Interviews With Top Traders both by Jack Schwager (and staples on our reading list): Inside look at some of the best traders in the game, including many fund managers who we cover on the blog

Reminiscences of a Stock Operator by Edwin Lefevre (also on our previous lists): Takes you inside the mind of a trading and provides tons of trading wisdom and insight.

Classic II: Another Investor's Anthology by Ellis & Vertin:

The Great Game by John S. Gordon: History of how New York became the world's "preeminent financial power."


Famous First Bubbles by Peter Garber: Explanations of the three most famous bubbles in history: Dutch Tulips, Mississippi Buble, and the South Sea Bubble.

Chainsaw: The Notorious Career of Al Dunlap by John Byrne: Documentation of the rise and fall of a man known for downsizing corporations for short-term shareholder gain.


The Essays of Warren Buffett by the Oracle himself: Lessons from Warren Buffett over the years.


Go-Go Years: Drama and Crashing Finale of Wall Street's Bullish 60s by John Brooks: A look at the rise of growth stocks in the 1960's that led to the ultimate fall in the 1970's.


Baruch: My Own Story by Bernard Baruch



There you have it, Blue Ridge's recommended historical and biographical works. Be sure to also check out the hedge fund's favorite picks in the following categories below:

- Blue Ridge Capital's recommended Analytical Reading

- Blue Ridge's favorite Behavioral Finance books

- Blue Ridge's recommended Economics reading




Background on Blue Ridge:

Griffin is a Tiger Cub, and as mentioned above, he was Julian Robertson's right hand man. So, needless to say, he knows his stuff. Blue Ridge seeks absolute returns by investing in companies who dominate their industries and shorting the companies who have fundamental problems.

Both Griffin at Blue Ridge and Lee Ainslie over at Maverick Capital like to effectively hedge with a solid balance of both long and short positions (like a true hedge fund... not like some of the crazy funds these days that aren't truly hedged). Griffin attended the University of Virginia for undergrad and received his MBA from Stanford.

Bill Ackman's Pershing Square Sells Entire Wendy's Arby's Group (WEN) Position

In an amended 13G filed with the SEC due to activity on April 30th, 2009, Pershing Square Capital has updated their stake in Wendy's Arby's Group (WEN). Bill Ackman's hedge fund now shows a 0% ownership stake in Wendy's and owns 0 shares. They have completely sold out of their position. In their previous 13F filing, which disclosed their positions from December 2008, Pershing owned over 45 million shares. Now, they own none.

Bill Ackman has been quite busy lately, as we just yesterday covered his thoughts on his positions in General Growth and Target. Pershing runs a concentrated portfolio of around 8-10 long positions. Ackman's main focus is currently on his largest position, Target (TGT), where he is leading an activist campaign to illicit change in the company's board. He is also dealing with the bankruptcy of General Growth Properties, whom he thinks will emerge out of Chapter 11 with shareholders intact. Wendy's Arby's Group was one of his smaller positions and he seems to be moving on to his other projects now. You can view the rest of Pershing Square's portfolio, but be aware that they are due to update their filings at the end of the week. We will be covering their new portfolio changes in our hedge fund tracking series, so be on the look out.

If you haven't had enough of Bill Ackman yet, you can get more thoughts from him in his interview with Charlie Rose and his letter to Target shareholders. Pershing Square employs value and activist strategies to run their portfolios.

Taken from Google Finance,

Wendy's Arby's Group is "the parent company of Wendy’s International, Inc. (Wendy’s) and Arby’s Restaurant Group, Inc. (ARG), which are the franchisors of the Wendy’s and Arby’s restaurant systems. As of December 28, 2008, the Wendy’s restaurant system consisted of 6,630 restaurants, of which 1,406 were owned and operated by the Company. As of December 28, 2008, the Arby’s restaurant system included 3,756 restaurants, of which 1,176 were owned and operated by the Company."

Hedge Fund April 2009 Performance Numbers

Time to get a quick update on how hedge funds performed in April of 2009. After starting off 2009 on the right foot, a few funds were caught off guard with the sharp rally, as it is has started to affect performance. We previously got a peek at their mid-April performance and now we're here with the month end results.

International Financial Services London thinks hedge fund assets could drop more than 20% in 2009. And, this would be in addition to the 30% drop we saw last year. Obviously, only time will tell. But, we'd wager that it would take another major market shift to really cause a second major wave. We've already identified some of the biggest asset losers in 2008 were. And, in general, very prominent names still top the 2009 hedge fund rankings. Data shows that redemptions for April fell to $8.6 billion, down from the $15.7 billion redeemed in March. As we've said before, we think the major tidal wave is behind us and smaller ripples will continue until the system stabilizes (bar any unforeseen circumstances... which unfortunately we can't rule out quite yet). At the end of April, hedge fund assets in general were around $1.32 trillion.

Hedge Funds in general were +3.2% for the month of April.

SAC Capital (Steven Cohen): Their International fund was -0.8% for April and is now +9.9% year to date.

Pershing Square (Bill Ackman): International fund was +6.8% for April, and now +10.8% year to date. We've detailed a lot of Ackman's recent maneuvers, as he takes an active role in his Target and General Growth positions. Their performance breakdown shows that in terms of positions greater than 0.5% of their portfolio, they have 5 longs and 3 shorts.

Greenlight Capital (David Einhorn): Einhorn's crew had a solid April, +9%, bringing them up to +13.8% for 2009. We recently covered his new portfolio positions & investor letter.

TPG Axon: Their LP was -2% for April and sits at +4.3% year-to-date.

Tiger Global (Chase Coleman): The Tigers were -12.9% for April and are now -8.1% for 2009. Their pain can be sourced from their short positions in REITs and financials. Tiger still has high conviction in those shorts despite the market rally, as we wrote about when we recently covered Tiger's latest investor letter.

Clarium Capital (Peter Thiel): This global macro hedge fund was +1.7% for April and are now -0.3% year-to-date. When we covered Clarium's April performance, we noted that they were net short US equities, among other positions.

Lastly, we note that Renaissance Technologies (Jim Simons) has had a rough year in some of their funds, along with many other quants. Their RIEF fund was down over 9% for April and is down over 17% for 2009 as of the end of April.


If you missed our previous updates, we've also covered some March '09 numbers, February '09 numbers, as well as 2008 year end numbers.

Goldman Sachs Conviction Buy List Changes

With the market ramping up the past few months, Goldman Sachs has been quite busy editing their coveted Conviction Buy List. For those unaware, Goldman's Buy List is simply a list of the names they deem to be 'the best' at present. They also have a Conviction Sell List, which outlines stocks to be avoided at all costs. Just last week, we went through and updated the changes to their Conviction Buy List. And, here we are yet again with another round of some additions and a lot of subtractions.

Before we begin, do note that we don't necessarily place too much weight on individual analyst calls. As evidenced by the massive market decline of 2008, many analysts were behind the ball and were reactive rather than proactive. As such, we take it all with a grain of salt. That said, we also realize that many of these reports can move markets and influence opinion of various stocks, which is why we cover them. As we like to say, you have to "trade the perception, not the reality."

Conviction Buy List

Additions to the Buy List: International Game Technology (IGT), Bank of New York Mellon (BK), Teradyne (TER), Tenneco (TEN), Devon Energy (DVN), Owens Illinois (OI), and Lincoln National (LNC).

Stocks removed from the Buy List: Federal Mogul (FDML), Penn National Gaming (PENN), Chesapeake Energy (CHK), Northern Trust (NTRS), PMC Sierra (PMCS), Biiogen Idec (BIIB), Gap (GPS), L-3 Communications (LLL), Dollar Tree (DLTR), EOG Resources (EOG) and W. W. Grainger (GWW).

There are a lot of moves listed above, but let's check in on some of the more extravagant and bold calls. Goldman has practically doubled IGT's price target from $11 to $20, which is somewhat hard to stomach given the fact that they supply casinos and Vegas is in massive amounts of pain. Originally, Goldman had IGT listed as neutral, so they've really changed their stance on this one. Interestingly enough, they removed Penn National Gaming (PENN) from their Buy List at the same time. While we realize that each company in the gaming segment should be treated as an individual entity, we can't help but notice the interesting dynamic here. Goldman still lists PENN as a buy, but it is no longer on their coveted list, most likely due to the recent earnings release.

In typical Wall Street fashion, we see that as the financials all rally back from the abyss, Goldman adds Bank of New York Mellon (BK) to their Conviction List. "Oh, everything's fine and dandy again, buy buy buy!" Where was this upgrade back on the lows? This is a textbook example of being reactionary rather than proactive. In fairness to them, we're being pretty harsh here because BK is only up 10% over the past 3 months and is considered to be in slightly better shape than most other financials out there. BK has surfaced in our coverage before when we looked at the gap between tangible common equity and tier 1 capital in some financials. While BK was added to their Conviction List, we curiously see Northern Trust (NTRS) removed from the Conviction List. Both of these financial institutions are perceived to be less risky and more stable than most of the other volatile financials out there. As such, it's interesting to note that Goldman currently favors BK over NTRS.

We also noted that Chesapeake Energy (CHK) has also been removed from the Conviction List, but still retains a buy rating from Goldman. You'll remember that last week we touched on the highest paid CEOs of 2008 and Aubrey McClendon of CHK controversially topped the list.

Also, we see that Biogen Idec (BIIB) has been removed from the Conviction Buy List. We highlight this because longer-term readers of ours will know that we've documented a large hedge fund presence in this name. Hedge fund Shumway Capital Partners had BIIB as their 5th largest holding in the fourth quarter of 2008. Additionally, rabblerouser and well-known activist Carl Icahn has a sizable position in BIIB, as he looks to shake things up there. Goldman still remains a regular buy rating on the name.

In another sizable call from Goldman, they have upgraded Tenneco (TEN) from neutral to buy and have added it to the Conviction List. Their price target on the name is now $10, way up from their previous $2.10 price target. Tenneco designs automotive emission controls and clearly Goldman sees a lot of upside in this name. In fact, their upgrade alone pretty much sent the stock up 10%.

In one last big call, we also see Goldman's big change of heart on shares of Lincoln National (LNC) as they upgrade it from sell all the way up to buy and add it to their Conviction List. This move is very perplexing, seeing how shares of LNC are already up over 80% in the last month. Again, we ask, where was this upgrade a month ago?

That about covers the major moves this time around, as we saw a lot of names removed from the Conviction Buy List. Make sure you also check out our update from last week where we outlined some of the other recent changes to Goldman's Conviction List. We'll continue to track the major movements on Goldman's coveted lists.

Bill Ackman of Pershing Square Talks General Growth Properties (GGWPQ) & Target (TGT)

Hedge fund manager Bill Ackman recently sat down with CNBC and gave his thoughts on two of his well publicized positions. In the first video, he talks about his stake in General Growth Properties where he has a position of $177 million in unsecured debt, 24% of the company's equity, and has been in talks regarding debtor in possession (DIP) financing. General Growth of course has filed for Chapter 11 bankruptcy. Ackman sees General Growth as having one of the premier commercial real estate portfolios in the country, as they have flagship malls in numerous key markets. He cites the fact that GGP (now trading as GGWPQ) has around 91-93% occupancy and has very strong cashflow. The credit crunch simply caused them problems and Ackman wants to see a better capital structure and reorganization. He feels that the company will not have to be liquidated and that bankrupcty courts will merely draw out the maturations on their debt and he hopes that current shareholders should come out ok. He sees some potential deleveraging afterward as well.

In the second video, Ackman touches on his big plan to get his slate of directors elected to the Target's (TGT) board. Ackman points out that while Target serves in the retail, grocery, and credit card business, none of their board members really have experience in these areas. Ackman seeks to rectify this by bringing in an impartial board, with each member having expertise in a certain area to fill the void. He also cites a big problem in that there is no 'ownership culture' on Target's board. He says that board members own less than 0.02% of Target stock and seeks to change this.

Ackman's struggle with his Target position has been well documented, as one of his hedge funds, Pershing Square IV, invests solely in shares of Target, and with leverage (through call options that expire at the $35 strike in 2011). Target is by far Pershing's overall largest position, as we detailed when we covered Pershing's portfolio. Their new portfolio will be released in a few days and we'll be updating their changes in our hedge fund tracking series. Since the losses, Ackman has ponied up $25 million of his own money into the position as well. It's very clear that he is doing whatever it takes to institute change at Target. He recently sent out a letter to Target shareholders as well.

His position in this name leaves him with ample lessons, as he recently stated, "The investment business is about being confident enough to know that you’re right and everyone else is wrong. Yet you have to be humble enough that you recognize when you’ve made a mistake. Earlier in my career, I think I had the confidence part pretty solid. But the humbleness part I had to learn."

For more thoughts from Ackman, also check out his interview with Charlie Rose.


Video 1 (GGP)



Video 2 (Target)

D.E. Shaw & Co Sells Owens Corning (OC) Shares (Per SEC Form 4 Filing)

Hedge fund firm D.E. Shaw & Co recently filed a Form 4 with the SEC that we wanted to update you on. D.E. Shaw & Co was selling Owens Corning (OC) shares on May 6th, 7th, and 8th. They sold at the prices of $18.4592, $19.7434, $16.3648, $17.6882, and $16.3806. The bulk of their sales were made at $18.xx and $16.xx. In total, Shaw sold 2,207,313 shares over those three days. As per the SEC filing, they now hold 10,887,829 shares after all their selling. You can also view D.E. Shaw's portfolio from Q4 2008 if you're curious as to what else they hold. As always, we'll continue to monitor their movements and will update their long equity portfolio in our hedge fund tracking series in a week or so.

D.E. Shaw & Co was founded in 1988 by David E. Shaw and manages around $33 billion as of December 1st 2008. They focus on intertwining technology and finance and are a hedge fund, private equity firm, and technology development shop all in one. In Alpha's hedge fund rankings, D.E. Shaw is ranked 6th in the world. Taken from their website, they invest “in a wide range of companies and financial instruments within both the major industrialized nations and a number of emerging markets. Its activities range from the deployment of investment strategies based on either mathematical models or human expertise to the acquisition of existing companies and the financing or development of new ones.”

Shaw himself oversees strategic maneuvers at the firm, but no longer is active in the day to day operations. He received his Ph.D. from Stanford University. Shaw also was recently seen on Forbes' billionaire list, as well as the list for Top 25 highest paid hedge fund managers for 2008. They employ mainly quantitative strategies and do a lot of statistical arbitrage. As such, we need to add a disclaimer to this article. We're merely presenting what they've filed with the SEC. Since they are primarily a quant firm, we don't know the rhyme or reason behind their moves.

Some notable former employees include Jeff Bezos (before founding Amazon.com) and Lawrence Summers, who left the firm to serve on President Elect Obama’s economic team. Shaw has had a decent year thus far, seeing their Composite fund +0.8% for March and sitting at +5.59% year to date (through 3/31/09) as detailed in our March hedge fund performance numbers update. In terms of other activity, we touched on their SEC filing on Orient- Express Hotels (OEH) back in January (which is an ongoing saga). Lastly, for those of you potentially interested in working at such an outfit, check out some of Shaw's past interview questions.

Taken from Google Finance,

Owens Corning is "a producer of glass fiber reinforcements and other materials for composites and of residential and commercial building materials. The Company operates within two product categories: composites, which include the Composite Solutions segment and building materials, which includes its insulating systems, roofing and asphalt and other building materials and services reportable segments."

Seth Klarman's Baupost Group Sells Some OMN - Omnova Solutions (Per Amended 13G Filing)

Hedge fund Baupost Group has filed an amended 13G on Omnova Solutions (OMN) and has disclosed a 7.4% ownership stake due to activity on April 30th, 2009. They now own 3,242,800 shares. This is not a new position for Klarman, as they previously owned 5,920,750 shares. That 5.9 million shares figure was as of December 31st, 2008 when we looked at Baupost's entire portfolio. Since December, Baupost has obviously decreased their position in Omnova. As you can see, we've covered Klarman's moves and will update his entire long portfolio when it is filed in a week or two via 13F filing.

Klarman has been quite busy lately, filing a flurry of 13D's and 13G's with the SEC. Most recently, we noted that Baupost has gone activist on both their Breitburn stake and their Facet Biotech stake. In addition to their filings, Klarman himself sat down and gave a video presentation that outlines his investment philosophies and thoughts on the current market.

Baupost Group's outperformance over the years is one of the main reasons that we selected them as one of the hedge funds in our custom Market Folly portfolio. Our model hedge fund portfolio has seen a total return of 194% since mid-2002 and is returning 17% annualized thanks in part to Baupost. We created the model portfolio with Alphaclone, where you can replicate hedge fund positions & portfolios for your own investment.

Klarman's hedge fund was recently ranked 13th in the 2009 hedge fund rankings, jumping way up from being ranked 49th in Alpha's 2008 rankings. Klarman has always considered himself a value investor and has been patient through the market turmoil. The past few years they have had nearly half their $14 billion in assets in cash. But, with turmoil comes opportunity and Baupost's cash has been gradually deployed. To see why they've begun deploying capital, we'll leave you with some of Klarman's additional thoughts on recent market action in his interview with Harvard Business School and his thoughts from Value Investor Insight. Klarman once wrote, "At Baupost, we are big fans of fear, and in investing, it is clearly better to be scared than sorry." His investment process is also further detailed in his hard to find book Margin of Safety.

Taken from Google Finance,

Omnova Solutions is "a provider of emulsion polymers, specialty chemicals and decorative and functional surfaces for a variety of commercial, industrial and residential end uses. The Company’s products provide a range of functional and aesthetic benefits to products that people use daily. OMNOVA operates in two business segments: Performance Chemicals and Decorative Products."