Seth Klarman's Baupost Group Sells PDL Biopharma (PDLI)

Recently, Seth Klarman's hedge fund filed a flurry of 13G's and we're back again as always to track the latest developments out of Baupost Group. Both documents were filed due to Baupost's activity on July 31st, 2009. Firstly, they've filed an amended 13G on Horizon Lines (HRZ). They are now showing a 7.28% ownership stake in the company with 2,199,129 shares. This is down from their previous 3,641,545 shares that they disclosed owning in their previous 13F filing.

Secondly, they've filed an amended 13G on PDL Biopharma (PDLI). In the filing, we learn that Baupost Group now has a 0% ownership stake in PDLI with 0 shares. In other words, they've completely sold out of this position. Previously, Klarman's fund owned a sizable stake in PDLI as it was their 3rd largest holding when we covered Baupost's portfolio. From their 13F filing that detailed positions as of March 31st, 2009 Baupost owned 15,559,608 shares. New 13F filings are due out this and next week so we'll get an update on the rest of Baupost's positions. They were definitely out selling the two names mentioned above though. Klarman's fund has been pretty busy lately as we also covered them selling their Omnova (OMN) position.

Remember that Baupost's insane long-term track record is a major reason they've landed in our custom Market Folly portfolio that is seeing 25.8% annualized returns. We cloned our portfolio based on multiple hedge fund managers with the help of Alphaclone and Klarman was an easy choice because he is the definition of a value sleuth. And the fact that Baupost has seen annual compounded returns of 20% over the course of 25 years doesn't hurt either.

Klarman started working at Baupost at age 25 after receiving his Harvard MBA. Baupost Group was ranked 13th in the recent 2009 hedge fund rankings. Klarman has been patient through the market turmoil and had nearly half their $14 billion in assets in cash. But, with crisis sprouts opportunity. And as such, Klarman has begun deploying their dry powder, leaving them with around a fourth of assets left in cash. To learn more about his investing ways, check out the now out of print book that Klarman has authored, Margin of Safety.

Taken from Google Finance,

Horizon Lines is "a container shipping and integrated logistics company. The Company's subsidiaries include Horizon Lines, LLC (Horizon Lines), Horizon Logistics Holdings, LLC (Horizon Logistics) and Horizon Lines of Puerto Rico, Inc. (HLPR). The Company owns or leases 21 vessels, 16 of which are qualified Jones Act vessels, and approximately 20,800 cargo containers.The Company ships a spectrum of consumer and industrial items ranging from foodstuffs (refrigerated and non-refrigerated) to household goods and auto parts to building materials and various materials used in manufacturing."

PDL Biopharma is "engaged in the business of management of its antibody humanization patents and royalty assets, which consist of the Company’s Queen et al. patents and license agreements with several biotechnology and pharmaceutical companies."

Sprott Asset Management Market Update: July 2009

Thanks as always to a reader in Toronto for the latest from the Sprott Asset Management camp. Their hedge fund was -7.89% for the month of July and they are now -9.32% for the year. The past 2 months have not been their best and have swung them back to negative for the year. However, we should also quickly point out the long-term track record of Sprott. They are seeing a compound rate of return of 21.37% annualized and a cumulative return of 442.63% since inception. For whatever reason, everyone is so focused on near-term performance these days. "A bad 2 months in a row? Oh, we're pulling our money out." We here at Market Folly are trying to shift the focus back towards outperformance over the long-term. While it is obviously prudent to monitor your investments in the near-term, a long-term focus can generate some serious Alpha and some solid returns.

Included below is the performance breakdown of Sprott's hedge funds, including their LP, LP II, Bull/Bear RSP Fund, Opportunities Fund, Opportunities RSP Fund, and Small Cap Fund. RSS & Email readers will need to come to the blog to view the embedded documents. (Or you can try downloading the .pdf here however long the link lasts).

Sprott-7 09 Hedge Funds


Additionally, we've got the summary of performances drilled down into one convenient document:

Sprott-7 2009 Performance Summary

(Try to download the .pdf here).

We've started to cover Sprott in more detail on the blog now and just a few weeks ago featured their July Market Commentary. Additionally, we've also covered their long and short positions within their Canadian Equity Fund. We're not kidding when we say we've posted a lot of Sprott stuff up recently as we seek to play catch-up in adding them to the list of 40+ prominent hedge funds that we track.

Some other resources worth checking out are some articles featuring members of the Sprott team that are scattered about online. Here is the list below:

• July 24, 2009 - Morningstar's "Veteran manager is back on top after last year's 'humbling experience' " featuring Allan Jacobs, Director of Small Cap Investments
• June 26, 2009 - The Gold Report interviews Charles Oliver & Jamie Horvat, Senior Portfolio Managers in "Keep the Faith—Higher Gold Price Will Come"
• July 25, 2009 - Peter Hodson, Senior Portfolio Manager, submission to the Financial Post entitled "Where to be when inflation strikes"
• July 24, 2009 - John Embry, Chief Investment Strategist, submission to Investor's Digest entitled "Ontario Heading in same direction as California"

Stay tuned as we continue to cover Sprott Asset Management going forward.

PIMCO's Bill Gross Investment Outlook: August 2009

Some of you may have already read the latest from PIMCO's Bill Gross. But if you haven't, then here's the August 2009 commentary from the bond-trooper himself, entitled 'Investment Potions,' which can be found on PIMCO's website.


"

I took my troubles down to Madame Rue
You know that gypsy with the gold-capped tooth
She’s got a pad down on 34th and Vine
Sellin’ little bottles of – Love Potion #9
– Love Potion #9, Circa 1959

I’ve never known any gold-capped tooth money managers, but without squinting very hard there is undoubtedly a strong resemblance between all of us “managers” and the infamous Madame Rue selling Potion #9. Instead of love, though, we sell “hope,” but very few are able to seal the deal with performance anywhere close to compensating for the generous fees we command. Hope has a legitimate price, of course, even if its promises are never fulfilled. It is the reason we put a five spot into the collection plate on Sunday mornings and why we risk a 25-dollar chip at the blackjack table. In the former case we usually rationalize it as “insurance,” and with the latter as “entertainment.” Whatever – I’ve already alienated all of you with strong faith in the hereafter or the ones who actually believe they’re going to win on their next trip to Las Vegas. But my point is that those who sell investment “potions” must wrap their product with an extra large ribbon because history is not on their side. Common sense would dictate that the industry as a whole cannot outperform the market because they are the market, and long-term statistics revealing negative alpha for the class of active managers confirms it. Yet, what a price investors are willing to pay! A recent Barron’s article pointed out that stock funds extract an average 99 basis points or virtually 1% a year in fees from an investor’s portfolio. Bond managers are more benevolent (or less pretentious) at 75 basis points, and many money market funds manage to subsist at a miserly 38. Still, those 38 basis points are as deceptive as the pea that disappears beneath the shell of a street-side con game. Since money market funds barely earn 38 basis points these days, much of the return winds up in the hands of investment managers. A mighty expensive potion indeed. While some index and ETF proponents avoid this extreme absurdity with lower fees, roughly 90% of the $1.5 trillion in 401(k) and other defined contribution assets in mutual funds are in actively managed offerings with expenses close to 1%. Paying for those potions during an era of asset appreciation with double-digit returns may have been tolerable, but if investment returns gravitate close to 6% as envisaged in PIMCO’s “new normal,” then 15% of your income will be extracted based on the beguiling promise of Madame Rue. The solution, of course, is to compare long-term performance with fees and approach 34th & Vine with informed confidence, as opposed to Pollyannaish hope that you’ll get your money’s worth. Down the hatch and good luck!

Investors looking for love potions or successful investment strategies in this new normal economy dominated by deleveraging and reregulation must focus on some very macro-oriented ingredients as opposed to typical news-dominated minutiae. The latest quarterly earnings report from Goldman Sachs may be an indicator that the financial sector is getting some color in its cheeks, but it doesn’t really let you know what needs to happen in order for the real economy to stabilize as well. My last month’s Investment Outlook commentary on the significance of wage and employment trends remains the key focus. Common sense tells us that consumer spending growth comes from highly employed, well-compensated labor, and we are far-far from even approaching that elemental condition. The fact is that near double-digit unemployment has resulted from numerous business models that are now broken: autos, home construction, commercial real estate development, finance, and retail sales. Construction of a new Humpty Dumpty capitalistic “oeuf” will be a herculean task.

Potion hunters, however, should also understand the following macro concept that will dominate the indefinite future, one which I will humbly try to explain in the next few pages in 500 words or less: Reflating nominal GDP by inflating asset prices is the fundamental, yet infrequently acknowledged, goal of policymakers. If they can do that, then employment and economic stability may ultimately follow.

To explain:
A country’s GDP or Gross Domestic Product is really just an annual total of the goods and services that have been produced by its existing stock of investment (capital in the form of plant, equipment, software and certain intangibles) and labor (people working). Over the last 15 years or so in the U.S. that annual production (GDP) has increased in nominal (real growth and inflation) terms of 5-7% as shown in Chart 1. Not every year, certainly not in boom or recessionary years, but pretty steadily over longer timeframes, and consistently enough to signal to capitalists that 5% was the number they could count on to justify employment hiring, investment spending plans, and which would serve as well as a close proxy for the return on capital that they should expect. Nominal GDP is in fact a decent proxy for a national economy’s return on capital. If each and every year we grew by 5%, then that would be sort of like a stock whose earnings grew by the same amount. Companies and investors then would be able to estimate the present value of those cash flows, and price investment and related assets accordingly – a capital asset pricing model or CAPM based on nominal GDP expectations.

While objectively hard to prove, logic dictates that that is exactly what has happened over the past several decades. Businesses expanded with a developing certainty that demand, expenses, and return on the economy’s capital would mimic this 5% consistency. Debt was issued with yields that reflected the ability to service those payments through 5% growth in both real and inflationary terms, and stocks were issued and priced as well with the same foundation. Pension obligations and similar liabilities were legitimized on comparable logic, as were government spending programs forecasting tax revenues and benefits. Both real economy and financial markets then, were geared to and, in fact, mesmerized by this 5%, GDP/CAPM, “model.”

Now, however, things have changed, and it is apparent that there is massive overcapacity in the U.S. and indeed the global economy. As reflexive delevering has unveiled the ugly stepsister of the “great 5% moderation,” nominal GDP has not only sunk below 5%, but turned at least temporarily negative. If allowed to continue – and this is my critical point – a portion of the U.S. production capacity and labor market will have to be permanently laid off. Nominal GDP has to grow close to 5% in order for the economy’s long-term balance to be maintained. Otherwise, employment levels become unsustainable, retail shopping centers unserviceable, automobile production facilities unprofitable, and the economy itself heads towards a new normal where unemployment averages 8 instead of 5%, housing starts total 1.5 instead of 2 million, and domestic auto sales 12, instead of 16 million annual units. Critically in the readjustment process, debts are haircutted via corporate defaults and home foreclosures, and equity P/Es are cut based upon increased risk and substantially lower growth expectations. A virtuous circle of expansion turns into a vicious cycle of recession or low-growth stagnation. Label it what you will, but a modern capitalistic economy based on levered financing and asset appreciation cannot thrive if its “return on capital” or nominal GDP suffers such a significant shock.

Policymakers/government to the rescue –we hope. 0% interest rates, quantitative easing, $1.5 trillion deficits, trillions more in FDIC or explicit government guarantees, a trillion plus in MBS and Treasury bond purchases, TALF, TARP – I could, but I need not go on. Can they do it? In other words, can they successfully reflate to 5% nominal GDP and recreate an “old” normal economy? Not likely. The substitution of government-backed vs. private-leverage is one strong argument against the possibility. Despite the attractive financing rates incorporated with the TALF, TLGP and other government-subsidized financing programs, they come with quality constraints (larger collateral haircuts and mortgage down payments, to name a few) that inhibit the “new normal” lenders from approaching the standards of the 5% nominal-based shadow banking system. Just last week, President Obama proposed new “transaction fees” for “far out transactions” undertaken by financial companies. “If you guys want to do them,” he said, “put something into the kitty.” In turn, there are internal Washington Beltway/external Main Street USA, politically imposed limits which will thwart policy expansion beyond the current stasis. Most of the politicos and even ordinary citizens are screaming for limits on monetary/fiscal expansion: “No TARP II! 1.5 trillion dollar deficits are enough! The Fed must have an exit plan!” etc. If there are such future political constraints or caps (both domestically and from abroad), then one should recognize that most of the ammunition has been spent stabilizing the financial system, and very little directed towards the real economy in terms of job loss prevention. Where is the political will or wallet now to grant corporate tax breaks for private sector job creation or to even hire new government workers, aside from a minor positive push with military enlistment? In brief, the “new normal” nominal GDP, the future return on our stock of labor and capital investment, will likely be centered closer to 3%, for at least a few years once a recovery is in place beginning in this year’s second half. Diminished capitalistic risk taking and constrained policymaker releveraging will lead to that likely conclusion.

Investment conclusions? A 3% nominal GDP “new normal” means lower profit growth, permanently higher unemployment, capped consumer spending growth rates and an increasing involvement of the government sector, which substantially changes the character of the American capitalistic model. High risk bonds, commercial real estate, and even lower quality municipal bonds may suffer more than cyclical defaults if not government supported. Stock P/Es will rest at lower historical norms, and higher stock prices will ultimately depend on tangible earnings growth in the form of increased dividends, not green shoots hope. An investor should remember that a journey to 3% nominal GDP means default/haircuts for assets on the upper end of the risk spectrum, as well as extremely low yielding returns for government and government-guaranteed assets at the bottom end. There is no investment potion for this new environment other than steady income-producing bond and equity investments in companies with strong balance sheets and high dividend yields, as well as selectively chosen emerging market commitments where nominal GDP growth prospects are tilted upward as opposed to gravitating to new lower norms. Madame Rue has met her match.

William H. Gross
Managing Director

"


Alternatively, you can try downloading the .pdf here while the link lasts. And if you missed his July Investment Outlook, we touched on that in one of our recent hedge fund/market guru news summaries.

Tudor Investment Corp Says Bear Market Rally

Hedge fund manager and macro trader Paul Tudor Jones has claimed that the massive 40%+ rally we've seen in equities since March is nothing more than a bear market rally. In Tudor Investment Corporation's latest letter to investors, Jones says that, "impressive counter-trend rallies are a feature, not an oddity, of secular bear markets. We are not inclined to aggressively chase the market here. Many doubts remain about the sustainability of this recovery, most prominently the weakness of household income growth."

Tudor essentially sees the market rallying then falling, and then repeating the cycle again. We are currently in the midst of a large rally which he feels will subside and give way to a decline in markets come September of this year. Tudor cites numerous negative catalysts for the move, including slowed growth in China. However, he still thinks that the markets will end the year then on a positive note and would be a buyer on large dips purely for the trade. This is because he thinks that 2010 could be another negative year for stocks as the rallying then declining cycle plays on. Being nimble is the name of the game and letting the tape lead you is the key here.

If you're unfamiliar with Paul Tudor Jones, he is regarded as one of the best traders around and some of his early work is showcased in the 1987 PBS Film, Trader: The Documentary. Years after the film's release, Tudor sought to buy every copy in existence in an effort to stop circulation. Since the video was so hard to find, it almost became a form of Wall Street contraband and fetched hundreds, if not thousands of dollars on eBay. However, the video recently surfaced and you can watch Paul Tudor Jones in action here.

Back then, Tudor managed a little over $100 million. Today, his firm manages in excess of $10 billion. $8.9 billion of those assets are in their main BVI Global fund, which is up 10% this year through the end of July. For the year of 2008, Tudor was down 4.5%, as noted in our year-end hedge fund performances post.

Since Tudor is a macro trader, we also wanted to point out some macro themes that he is seeing right now. For one, he thinks that Japan is an interesting story going forward due to the lower-house elections where the Liberal Democratic Party lost. Tudor feels this will spur new investment into the country and he is not the only hedge fund manager that we've seen talking about Japan lately. This will be an interesting theme to follow as more and more managers begin to warm-up to the previously frigid investment opportunities in that country. Additionally, Paul Tudor Jones is bearish on the U.S. dollar as he feels, "reserve accumulation and diversification trends will be persistent and mutually reinforcing the direction of the U.S. dollar."

For more resources on Tudor Investment Corp, we've covered Tudor's equity portfolio. Then, turning to Paul Tudor Jones himself, we posted an excellent compilation of quotes from Paul Tudor Jones as well as his hedge fund manager interview.


Pictured above is Paul Tudor Jones back in the day with one of his favorite phrases on the wall, "Losers average losers."

What We're Reading (8/7/09)

Bit of an interview theme this week:

Lessons from Irwin T. Yamamoto [The Kirk Report]

Part 2 of the interview with Market Folly (a.k.a. yours truly) [Commodity Bull Market]

An interview with the founder of Zero Hedge, Tyler Durden [Wall St. Cheat Sheet]

Ask Dennis Gartman [Globe Investor]

CHP Designation: Only 45 Registration Spots Left!

Just wanted to give everyone an update and let you know that there are only 45 available registration slots left for the Certified Hedge Fund Professional (CHP). The Fall 2009 sign-up was open to 200 participants and it has filled up very quickly. We'd recommend acting fast to get one of the last 45 registration spots. The CHP is similar to the CFA or CAIA, except it is specifically geared towards hedge funds. Whether you're an asset manager, a hedge fund manager, or someone looking to get into the industry, this designation can help build your knowledge base and credentials. Not to mention, it opens up a fabulous set of networking opportunities to professionals in the field.

And remember that all Market Folly readers receive the exclusive $50 discount. In order to receive it, simply enter your information in the fields below. Submitting your information through the form below identifies you as a Market Folly reader and ensures you receive the discount should you go on to register.



Sign up now, because otherwise you'll have to wait until the registration period opens again next Spring. If you're unfamiliar with the CHP Designation, we've posted an informative interview with Richard Wilson, the founder of the program. Part 1 is here and Part 2 is here. (Email & RSS Readers: you have to come to the blog to enter your information).

Dan Loeb's Recommended Investing Books

Third Point hedge fund manager Daniel Loeb recently outlined his recommended books on investing.  He says that, "everybody has to read" the following books:


- Edwin Lefevre's Reminiscences of a Stock Operator. Loeb says this is a classic and we definitely agree, as it has graced our recommended reading lists before. This book takes you inside the mind of a trader and provides you with insight, wisdom, and anecdotes from the financial world. "Let your winners run and cut your losses quickly" as well as "the trend is your friend" are legendary pieces of advice to come out of this book.

- Joel Greenblatt's You Can Be a Stock Market Genius. Dan mentioned that this is, "probably the best book ever." It details the niches of risk arbitrage, spin-offs, bankruptcies, mergers and the like as it relates to investing. Citing that these areas are often 'overlooked' by analysts, Greenblatt argues that you can exploit inefficencies. Loeb certainly agrees with that as Third Point's investment style is often centered around these types of strategies.

- Howard Schilit's Financial Shenanigans: How to Detect Accounting Gimmicks & Fraud. This book takes an in-depth look at accounting fraud and how to identify warning signs of a company's impending problems. Obviously this book makes sense for anyone looking at balance sheets, 10-Q's and 10K's on a regular basis.

- Kathryn Staley's The Art of Short Selling. Loeb calls this "another good book" and he is not the only hedge fund manager that thinks so. In the past, we've covered Blue Ridge Capital's recommended reading lists and The Art of Short Selling was one of their top picks on the analytical side of things. This book covers a topic essential to those in the hedge fund game.

- *Updated* with new 2020 recommendation from Loeb - Quality Investing: Owning the Best Companies for the Long Term by Lawrence Cunningham.  Recommended in a recent quarterly letter from Loeb reflecting his current investment focus in 2020.

- *Updated* 2020 recommendation - No Rules Rules: Netflix and the Culture of Reinvention by Reed Hastings - The new book by Netflix's founder.

While that wraps up Loeb's favorite investing and finance reads, he did mention he had another favorite "non-investing" book. Jim Loehr's The Power of Story piqued his interest, as the book deals with how you can "change your destiny in business and in life." Hopefully you all enjoyed this collection of Dan's favorite reads, as there are definitely some good ones listed.


As always, you can check out our recommended reading lists in the following categories for further insightful books on the topics of investing, trading, and finance in general. Our recommended reading lists:

- Fundamentals / Valuation

- Technical Analysis / Charts

- Hedge Fund Blue Ridge Capital's Picks

- Overall good Investing & Trading Books

- Books By Stock Market Gurus

Chase Coleman's Tiger Global Sells More Longtop Financial (LFT)

The hedge fund firm ran by Chase Coleman continues to sell shares of Longtop Financial Technologies (LFT). Tiger Global is now showing a 12.3% ownership stake in LFT with 6,313,181 shares as per an amended 13D filing. The filing was made due to activity on July 17th, 2009. When we last covered Tiger's LFT activity, we saw that they owned 14.2% of the company at that time. In the span of about two weeks (July 1st to July 17th), Tiger has sold 980,318 shares. We even covered their initial sales back in late June, so there is obviously a lot of selling going on here. What's interesting to note, however, is the fact that in this most recent filing, Tiger states that "there were no transactions by the Reporting Persons of Issuer's Ordinary Shares in the last 60 days other than the Secondary Sales described below." And then they attach this breakdown showing which fund sold shares on which date and at what price:

(click to enlarge)

(click to enlarge)

We apologize if the lists are hard to read even after enlarging them, as that is the best we could get it. Tiger has suffered a bit of a rough year so far in 2009 as their financial and REIT short positions hurt them earlier on, as detailed in their quarterly letter where they were -8.1% for the year at the end of April. A meager year thus far aside, Tiger has a great historical track record and that's why we track them here on the blog. In fact, Tiger Global is one of the hedge funds that comprises the Tiger Cub Portfolio created with Alphaclone where you can replicate their positions and enjoy 15.5% annualized returns since 2000. For more on Coleman and Tiger Global, check out their background and focus in the middle of the linked post.

Taken from Google Finance, Longtop Financial Technologies "together with its subsidiaries, provides a range of software solutions and services to the financial institutions in the People’s Republic of China (PRC), including the development, licensing and support of software solutions, the provision of maintenance, support, and other services, and system integration services related to the procurement and sale of third party hardware and software."

Perry Partners Investor Letter: Q2 2009

Here's the latest investor letter from hedge fund Perry Partners presented without comment embedded below. RSS & Email readers will need to come to the blog to view the letter. Alternatively, you can attempt to download the .pdf here assuming that link still functions.

Perry Q2 Letter

Harbinger Capital Partners Sells Shares Of Leap Wireless (LEAP) & Solutia (SOA)

In two separate amended 13D filings made with the SEC, Philip Falcone's hedge fund has disclosed sales of shares of both Leap Wireless (LEAP) and Solutia (SOA). Firstly, Harbinger Capital Partners now shows a 9.7% ownership stake in Leap Wireless (LEAP) with 7,484,000 shares. On July 24th, 27th, and 28th, Harbinger sold a total of 3,041,000 shares at prices ranging from $25.44 to $27.05, with the bulk of their sale coming at $26.70 and $27.05. Upon quick glance, it looks like the vast majority of the selling was done in their Special Situations Fund.

Secondly, we also see that Harbinger has sold even more shares of Solutia (SOA). We've covered this development for a while now, as we detailed their sales of SOA back in late June. Back then, they sold shares around $4.80 per share. Most recently, they've sold shares much higher at $7.50 a share on July 29th. They are now showing a 9.4% ownership stake in SOA with 11,233,573 shares owned in total. This is way down from their previous total of over 16 million shares.

In the middle of July, we also detailed Harbinger's acquisition of a Zap.com (ZPCM) stake through their already large position in Zapata (ZAP). Additionally, Harbinger has also started a new position in Morgans Hotel Group (MHGC). Last year, Harbinger was ranked #1 in the top 10 asset losers, losing 60.8% on a year over year basis as their Offshore fund finished -22.7% for 2008. We then got word that Falcone would be returning to his roots in terms of investing style and would be opening a new fund. As always, we'll continue to monitor the developments regarding their holdings. For further background on Falcone & Harbinger, check out our post on their portfolio.

Taken from Google Finance,

Leap Wireless is "a wireless communications carrier that offers digital wireless service in the United States under the Cricket brand."

Solutia is "a global manufacturer and marketer of a variety of chemical and engineered materials that are used in a range of consumer and industrial applications. The Company maintains a global infrastructure consisting of 25 manufacturing facilities, six technical centers and over 29 sales offices globally, including 14 facilities in the United States."

Atticus Capital Sells Shares Of Unite Group, Their Only UK Holding

Just yesterday, the London Stock Market announced through the Regulatory News Service that Timothy Barakett's hedge fund Atticus Capital had reduced its stake in Unite Group from 4.1% to 3.8%. Unite Group Plc (UTG) is a developer and manager of student accomodation and is Atticus' only disclosed holding in a British company. Unite Group's share price fell significantly during the last couple of years from a high of 549P in February 2007 to a low of 39P in March of this year; that's quite some fall! If Atticus were clever enough to start accumulating Unite Group stock in February or March of 2009, it is likely that they will have turned a good profit on the small amount of shares they have just sold. However, we are unable to know for sure at what price Atticus paid for the first part of their position. This is due to the rules of UK disclosures, as funds are not required to disclose a position until they have acquired 3% or more of any given company.

In terms of U.S. positions, we also disclosed yesterday that Atticus Capital had amended two separate 13G filings. In the filings, we saw that Timothy Barakett's hedge fund was selling shares of Sotheby's (BID) and Transatlantic Holdings (TRH).

This article is a new edition to Market Folly's expanding hedge fund coverage. Typically, we've covered U.S. equity positions as disclosed to the SEC. Now, thanks to a reader's help, we are also detailing the changes prominent hedge funds make to their portfolios in the UK market. We kicked off our coverage in this regard yesterday by detailing the UK positions of Stephen Mandel's hedge fund Lone Pine Capital. And the post above regarding Atticus marks our second article in this new coverage. Stay tuned as we continue to cover both the U.S. and UK holdings of top hedge fund managers.

Below you will find the breakdown of Atticus' transaction. Lastly, for background information on Barakett & Atticus, head to our post here.

Unite Group Plc

Date of transaction	No. of shares	% of total shares	Estimate of price per share
04/06/2009	3852513	3.1	-
18/06/2009	5163291	4.1	125p
31/07/2009	4806652	3.8	128p

Dan Loeb Video: Hedge Fund Manager Of Third Point LLC

Hat tip to Simoleon Sense for this find. Interesting video embedded below featuring a lengthier speech/chat by Dan Loeb of hedge fund Third Point LLC. In the video, Loeb details his background, talks about the investment industry, and gives a lot of great advice. And, since this was pretty recent (June 2009), he details the turmoil his firm suffered in 2008 and walks us through his progress thus far in 2009. A funny quote from the video comes when Loeb talks about his bearish outlook when the new year began, as Third Point was positioned defensively and owned a lot of gold. Loeb said, "if we could have stockpiled guns at Third Point, I probably would have." Good times. But, as we here on Market Folly have already covered, Third Point's gold position was mainly a hedge against uncertainty and they have since moved out of it, as detailed in one of their investor letters.

Third Point is a $2 billion activist and value based hedge fund. Specifically, they deem themselves to be "event driven, value oriented investors." While Loeb actually got his start in private equity, his passion has always been the markets. Loeb founded the firm back in 1995 with $3.3 million in seed capital and is still running the show these days. While Third Point is technically an activist fund, Loeb often has numerous passive investments as well. Loeb himself is quite well known for his searing and critical letters to management of various companies. Third Point has seen annual returns averaging over 15% since inception (including the crazy year that was 2008), a Sharpe Ratio of 0.9, and a correlation to the S&P500 of 0.4. For some of Third Point's hedge fund movements, we covered Loeb's recent activity here.

Here is the video (RSS & Email readers will need to come to the blog to view it:

Market Folly Custom Portfolio Performance: July 2009

As promised, we'll now be giving monthly performance updates from our Market Folly custom portfolio created with Alphaclone. For a background on our hedge fund replicator portfolio, check out the introduction to our portfolio: Part 1 & Part2. Simply put, we've cloned a portfolio based on hedge fund holdings and the performance has exceeded our expectations over the long-term. Let's get right to it:

July 2009 Performance

MF clone: +1.6%
S&P500: +7.6%

Obviously, the 50% hedge our portfolio employs has hurt us this year. Our clone is up 10.5% year to date versus S&P being up 12.6%. However, we will be quick to point out that our hedge fund portfolio is now seeing huge annualized returns with an Alpha > 15 and a Sharpe Ratio approaching 1.0. Since inception, our hedge fund portfolio has seen an over 500% total return compared to an abysmal return for the market in general. Admittedly though, the main drawback about our clone is that it is more volatile than the S&P 500. However, if you ride it through and simply rebalance 4 times a year, the returns are phenomenal. And, we created this portfolio with the sole goal of outperforming over the long-term.

Since this is our first in-depth post purely on performance, we also want to play catch up a little bit and post up the previous monthly performances thus far for 2009. Here is our breakdown:

January: MF clone +5.9% / S&P -8.4%
February: MF clone +1.2% / S&P -10.6%
March: MF clone +1.3% / S&P +8.8%
April: MF clone +2.4% / S&P +9.6%
May: MF clone +1.2% / S&P +5.6%
June: MF clone +-3.1% / S&P +0.1%
July: MF clone +1.6% / S&P +7.6%


Back in June, we posted up a portfolio update and noted that Alphaclone has included our MF portfolio on their list of available clones. As such, anyone using the cloning service can check out our portfolio. To see what positions our Market Folly clone holds, head over to Alphaclone. Be sure to check out their 14 day free trial to the full membership package where you can clone unlimited hedge fund portfolios & groups.

Hedge Fund Lone Pine Capital's UK Positions

We're excited to report that Market Folly is now expanding its coverage to positions that hedge funds hold in foreign markets. Typically, the positions we cover in our hedge fund portfolio tracking series are restricted to long equity, options, and note positions in U.S. markets. Since the hedge funds are filing the 13F's, 13D's, and 13G's with the American regulatory body (the SEC), they are only required to disclose positions in those markets. There are really only 2 major ways for us to find out their holdings in other markets. Firstly, the manager could reveal the positions via investor letter (as David Einhorn of Greenlight Capital has done before). Secondly, one can find the positions by thoroughly searching through each separate country's regulatory body. And, with many thanks to a reader's help for transcribing the information below, we are now prepared to delve into the positions that major hedge funds hold in the UK markets.

The bad news for the ‘would be’ investor in UK companies is that most of the US hedge funds that are tracked here on Market Folly are not all that active in the UK. The good news, however, is that a handful are involved with UK listed companies (including a few of the brightest managers). It’s exciting to report that Stephen Mandel's Lone Pine Capital is an active participant in the London market. Just yesterday, in U.S. market news, we revealed that Lone Pine had significantly boosted its stake in Vistaprint (VPRT). Today, we'll take a look at some of their UK positions.

Why get excited you might ask? Well, as we've pointed out before, Lone Pine has returned over 25 percent annually since its inception in 1997. Before setting up Lone Pine, Mandel worked as a consumer/retail analyst for Tiger Management under the leadership of Julian Robertson. Mandel has a reputation for the quality of his investment research. Seth Klarman recently singled Mandel out for praise in an interview as someone who does exceptionally detailed and high quality work on companies. Mandel looks for undervalued companies but tends to favor high quality businesses with good management. Once Mandel commits to buying stock in a company, he tends to hold onto his investment for a relatively long period of time. And, for these very reasons, Lone Pine is an excellent candidate for hedge fund portfolio cloning with the Alphaclone replication tool.

Lone Pine currently has six disclosed long positions in UK companies:

1. Intertek Group Plc (ITRK)
Intertek is Lone Pine's biggest position at nearly 38 percent of its total UK portfolio. Lone Pine holds 12 percent of Intertek's total equity. (American readers, please note that the date column listed on the tables below is in European format. European readers: everything is normal for you, carry on).

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Intertek provides testing, inspection and safety services to a range of companies involved in consumer goods, building, telecoms, autos, oil, chemicals, pharmaceuticals, mining and agriculture. It also provides trade services to public standards bodies and governments.


2. Autonomy (AU.)
Autonomy is Lone Pine's most recent purchase in the UK with the last two disclosures coming on the 1st and 20th of July 2009. Lone Pine holds 4.26 percent of Autonomy’s equity. Autonomy makes up 22 percent of Lone Pine's UK portfolio.

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Founded in 1996, Autonomy is a dramatic growth story. The company has a market cap of $4 billion, the second largest pure software company in Europe. Autonomy is a market leader in corporate search software which is capable of capturing information from the workplace in the form of documents, presentations, videos, phone conversations and emails. Autonomy’s software aims to help enterprises to understand and extract the value from this sea of data. Their software can also help companies meet reporting obligations and prepare for legal investigations. Autonomy has been profitable in every quarter for over six years and has no net debt. It has a global presence with dual headquarters in Cambridge, UK and San Francisco and offices throughout the world including North America, Western Europe, Australia, Asia Pacific, Japan and China.


3. Ashmore Group Plc (ASHM)
Lone Pine holds 6.2 percent of Ashmore's total equity. Ashmore makes up 16 percent of Lone Pine's UK portfolio.

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Ashmore is an investment manager that specializes in emerging markets. It is involved with emerging market external debt, local currency, special situations, corporate high yield and equity. As of June 2009 it managed $24.9 billion in pooled funds, segregated accounts and structured products.


4. Michael Page Plc (MPI)
Lone Pine holds 6 percent of Michael Page’s equity. MPI constitutes 10 percent of Lone Pine’s UK portfolio.

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Michael Page is a recruitment consultancy. Its specialist areas include accounting, tax, banking and financial services, strategy and change, engineering and manufacturing, healthcare, human resources, information technology, legal, marketing, oil and gas, procurement, property and construction, retail and hospitality, sales and secretarial. The Company has 163 offices in 28 countries.


5. Rightmove (RMV)
Lone Pine holds 10 percent of Rightmove’s stock. RMV constitutes 8.72 percent of Lone Pine's UK portfolio.

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Rightmove’s principal business is the operation of the Rightmove.co.uk website which provides residential home buyers with properties to search online. Its customers include estate agents, letting agents, new homes developers and overseas homes agents who pay fees for the right to display properties on the website. The company provides data to property professionals and property related businesses. It also provides support services including property valuation for lending purposes.


6. Ishaan Real Estate (ISH)
Lone Pine holds a very large stake in Ishaan at 39 percent of Ishaan’s equity. Ishaan constitutes 4.5 per cent percent of Lone Pine’s UK portfolio.

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Ishaan is a real estate investment company invests in development projects in southern and western India. It holds interests in real estate projects in and around the cities of Mumbai, Hyderabad, Pune and Bangalore.


That about sums up Lone Pine's larger long positions in UK markets. The data that has been provided here on Lone Pine’s holdings comes from the London Stock Exchange (LSE). The initial trigger point for a disclosure to be made in the UK occurs when a fund acquires 3 percent of a company’s stock. Given that Mandel is a long term investor, Lone Pine may have additional unseen holdings including holdings that represent less than 3 percent of a company’s equity. For American readers, this disclosure is most similar to a 13G filing in which a company acquires a large amount of shares in a company, breaching a threshold. In the UK's case, that threshold is 3% of the company's shares. In the U.S., the threshold is 5%. We've covered numerous 13G filings here on the blog, including Lone Pine's most recent 13G filing.

Our many thanks again to a reader for diving into this information and helping Market Folly continue our hedge fund portfolio tracking efforts. For more on Stephen Mandel's Lone Pine Capital, you can check out their U.S. portfolio here. However, be advised that new portfolio filings are due in only a couple of weeks time and their portfolio has most likely been shifted around a bit.

Timothy Barakett's Atticus Capital Sells Shares Of Sotheby's (BID) & Transatlantic Holdings (TRH): 13G Filings

Atticus Capital has amended 2 separate 13G filings recently. In a 13G filed due to activity on July 31st, 2009, Timothy Barakett's hedge fund is now showing a 3.9% ownership stake in Sotheby's (BID) with 2,612,942 shares. They have decreased their position from a previous 5.4% stake when we covered their initial 13G filing on Sotheby's. That original disclosure was made due to activity on June 11th, 2009. So, in a little over a month, Atticus has sold 971,168 shares of BID.

In a second 13G filing made due to activity on July 29th, 2009, Atticus is also now showing a 2.4% ownership stake in Transatlantic Holdings (TRH) with 1,589,800 shares. This is a decrease from their previous 5.6% ownership stake reported when they filed their initial 13G on TRH in early June of this year. So, yet another position that Atticus has been selling down. Between June 8th and July 29th, Atticus sold 2,099,800 shares. To see what else Atticus holds, you can view the rest of their portfolio.

This is yet another development on the rollercoaster of a ride otherwise known as: "tracking Atticus' portfolio." In the past, we've detailed how Atticus has ramped up their portfolio, only to drastically scale it back... and then ramp it up again. These filings are the perfect illustration of that. They assembled large positions in both BID and TRH in early June and are already selling sizable pieces of their stake just over a month later. If you think about it, you can't really blame them as they will have locked in some nice profits over a short period of time. Still though, the whipsawing and rollercoastering is making us a bit seasick. Either things are still not quite totally stable over there after their rough 2008, or they are more concerned about locking in solid gains while they have them. Either way, the portfolio turnover game at Atticus plays on.

Atticus was ranked #2 on the Top 10 Asset Losers for 2008 in hedge fund land. And as we mentioned above, their portfolio has been all over the place. Over the course of 3 quarters, they've gone from selling a ton of long equities exposure one quarter, loading up on options positions the next, then most recently only reporting 5 material long equity positions. In two weeks time when the next round of 13F filings come out, one can only guess what their portfolio will look like next.

Timothy Barakett received both his BA in Economics and his MBA from Harvard. It's very evident that Barakett employs macro based investment theses. Once he has decided on what the trend is, he will find the best company within that trend and he will place a big bet. And, when needed, he will step in and take an activist role, ensuring the company is performing to his liking. A fun fact about Barakett is that he was a Harvard hockey teammates with Philip Falcone of Harbinger Capital Partners, whom we also cover.

Taken from Google Finance,

Sotheby's is "an auctioneer of fine art, antiques and decorative art, jewelry and collectibles. The Company’s operations are organized into three business segments: Auction, Finance and Dealer. In addition to auctioneering, the Company’s Auction segment is engaged in a number of related activities, including the brokering of private purchases and sales of fine art, jewelry and collectibles."

Transatlantic Holdings "conducts its operations principally through its three operating subsidiaries: Transatlantic Reinsurance Company (TRC), Trans Re Zurich (TRZ) and Putnam Reinsurance Company (Putnam). The Company offers reinsurance capacity for a range of property and casualty products on both a treaty and facultative basis. These products are offered directly and through brokers, to insurance and reinsurance companies, in both the domestic and international markets."

Image courtesy of NewYorkSocialDiary

Lone Pine Capital Boosts Vistaprint (VPRT) Stake (13G Filing)

In a 13G filed with the SEC, Stephen Mandel's hedge fund Lone Pine Capital has disclosed a 5.6% ownership stake in Vistaprint (VPRT). The filing was made due to activity on July 21st, 2009 and they now own 2,365,511 shares. This is up massively from the last position they disclosed in VPRT as of March 31st, 2009 when they previously owned 258,100 shares. So, somewhere between April and July, Lone Pine has significantly increased their VPRT holdings.

Stephen Mandel's hedge fund has been quite busy over the past few months and we've covered all their moves. At the end of June, Lone Pine filed a 13G on Smithfield Foods (SFD). In terms of other big bets Lone Pine has made recently, we saw that Mandel likes Strayer Education. He presented this choice at the 2009 Ira Sohn Conference where numerous hedge fund managers each presented an investment idea. You can check out the rest of Lone Pine's portfolio here.

His $7 Billion fund has returned over 25% annually since its inception in 1997, but had a rough year in 2008. The term 'Lone Pine' comes from Mandel's days at Dartmouth College, where the school has a historical lone pine tree. He is well versed in the ways of finding undervalued companies and he typically likes to sniff out solid companies with good management that are trading below their intrinsic value. In Alpha's 2009 hedge fund rankings list, Lone Pine was ranked 21st.

Taken from Google Finance, Vistaprint is "an online provider of coordinated portfolios of customized marketing products and services to small businesses worldwide. The Company offers a spectrum of products and services ranging from business cards, brochures and post cards to apparel, invitations and announcements, holiday cards, calendars, creative design services, copywriting services, direct mail services, promotional gifts, signage and Website design, and hosting services."

Check back at MarketFolly.com tomorrow because we will be running a special piece that details some of Lone Pine's holdings in foreign markets.

Coatue Management Discloses Stake in ETrade (ETFC)

In a 13G filing made with the SEC late last week, Coatue Management has disclosed a 5.03% ownership stake in E*Trade Financial (ETFC) and they own 56,057,572 shares. This is a brand new position for them, as they did not show a holding in ETFC as per their last 13F filing which disclosed positions as of March 31st, 2009.

While we don't usually cover Coatue here on Market Folly, we wanted to highlight this filing as we came across it while reading some other SEC activity. Longer term readers will already know that ETrade's largest shareholder is none other than Ken Griffin's hedge fund Citadel Investment Group. So, it looks like ol' Ken has some company in this position now. We're keeping tabs on this since it's a pretty large position for them and they had a rough year in 2008. But, they seem to have bounced back as they are up 32% as of the end of June (noted in our hedge fund performance update post).

E*Trade recently offered $600 million worth of shares at a price of $1.10 per share. As of last Friday, ETrade was trading around $1.50. Taken from Google Finance, ETrade is "a financial services company, that provides online brokerage and related products and services primarily to individual retail investors, under the brand E*TRADE Financial. The Company’s products and services include investor-focused banking primarily sweep deposits and savings products and asset gathering."

British Pound Long Term Cycle: Chart

Wanted to highlight an intriguing chart from Kevin. He points out that the British Pound is essentially trading in cycles over an extended time period, hitting a pivotal low every 8 years or so. Under this premise, the GBP has hit one of those 'bottoms' a few months ago and should trade higher for an extended period. It will however be interesting to see if it can sustain such a cyclical movement given the extremely unique macro environment we are currently seeing. At any rate, take it for what it's worth:

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Late last week we also looked at the chart of gold for those of you who may have missed it. And, as always, there are plenty of good reads on our technical analysis recommended reading list.

Best Performing Stocks In 2009

Great bit of research from Bespoke Investment Group that shows how crazy things are getting in the markets thus far in 2009. So far, there are 15 stocks up 100% or more and 73 stocks that are up 50% or more. Below they list the top performing stocks thus far in 2009.

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Most Popular Articles On Market Folly

It's been a little while since we last highlighted the most popular articles on Market Folly, so we wanted to point out the posts receiving the most views as of late:


1. Chartered Hedge Fund Associate (CHA Designation) - Exclusive $50 discount for Market Folly readers

2. David Einhorn's hedge fund Greenlight Capital stores physical gold

3. Free 14 Day Trial of Alphaclone - Our favorite hedge fund portfolio replicator

4. Trader The Documentary: 1987 PBS Film featuring hedge fund great Paul Tudor Jones

5. Crude Oil - Interview with CME Group's Joseph Ria

6. Profile/Biography on Bill Ackman & Pershing Square

7. Hedge fund Blue Ridge Capital's recommended reading lists

8. Performance numbers from hedge funds in June

9. Discounts on financial publications

10. Hedge fund legend Julian Robertson's steepener swap play



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