Market Folly's 2nd Anniversary!

It's hard to believe that it's been two years already, but today we're celebrating Market Folly's 2nd Anniversary. Given that we cover hedge funds, we thought it'd be fun to provide you with a performance update of our own. Two years ago, the site had zero readers and zero subscribers. On our first anniversary, we noted that at the time we had 2,100 subscribers. Fast forward a year later to today and we are ecstatic to report that we now have over 8,900 subscribers, a 324% year over year increase. Last month, the site received over 337,000 hits. And since inception, the site has seen over 2,339,000 unique visitors and over 3,719,000 hits.

That absolutely blows my mind. I want to sincerely thank each and every one of you for reading. Without you, this site would not exist. To celebrate our second anniversary, we have one simple request: Tell a friend or colleague about MarketFolly.com! We started our first round of hedge fund tracking back on May 19th, 2008. And you can bet your ass that we'll be back with another round of 13F portfolio updates next month. If you have feedback and/or criticism, we welcome it with open arms, so add a comment below or send an email.

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Again, thank you for reading. Without you, this site would not exist. I look forward to interacting with many of you in the future and if you haven't said 'what's up' yet, then what are you waiting for? Drop me an email here as I'd love to connect.

- Jay

Sahm Adrangi & Kerrisdale Capital's Quarterly Letter

While we typically cover prominent hedge fund managers (like John Paulson) here on Market Folly, we're trying to also focus on some talented up and coming managers to follow over the long haul. We recently covered the latest investor letter from Kevin Byun's Denali Investors and today we're turning to Sahm Adrangi's Kerrisdale Capital.

This is the first time we've covered Kerrisdale and we wanted to post up their first quarter 2010 investor letter. Kerrisdale performs rigorous bottom-up fundamental research on public equities and employs a long/short strategy. They are a value oriented and special situations investment manager. You may have seem some of Adrangi's investment analysis write-ups scattered around the internet as they are some of the most detailed we've seen. We'll also attach his latest thoughts on Intercontinental Exchange (ICE) below.

For the first quarter, Kerrisdale was up 17.8% net of fees and the performance speaks for itself. In their letter, Kerrisdale touches on select investments including Ruth's Hospitality Group (RUTH) and DJSP Enterprises (DJSP) Warrants. Additionally, Adrangi discusses his previous bearish stance on the solar industry and argues that solar PV cell makers were "commodity manufacturers operating in an environment suffering from massive and growing oversupply." Solar shorts were 36% of their short book at the end of March. Kerrisdale's largest solar short positions are in Q-Cells (QCE), First Solar (FSLR) and Suntech Power (STP). This is a rare look into a firm's short side of the portfolio as many often keep these investments guarded close to the vest.

Embedded below is Sahm Adrangi's Kerrisdale Capital's first quarter letter to investors:



You can directly download a .pdf here.


Additionally, if you wanted to get a sense of Kerrisdale's research process, we highly recommend checking out Adrangi's recent write-up on shares of Intercontinental Exchange (ICE). The document is embedded below:



You can also download a .pdf here.

That wraps up our coverage of Sahm Adrangi's Kerrisdale Capital. If you found their ICE write-up insightful, then we'd recommend checking out their blog where they often post up their investment theses. For more investor letters from talented investment managers, we recently covered Kevin Byun's Denali Investors and hedge fund Ellington Management's 2010 equity outlook.

Carl Icahn Acquires More Tropicana Entertainment

Corporate Raider Carl Icahn recently filed a Form 4 with the SEC regarding shares of Tropicana Entertainment (TROP). In the disclosure, we see that Icahn, through his various investment vehicles acquired 206,267 shares at a price of $16 per share on April 16th, 2010. This brings his total ownership in Tropicana (through all vehicles) to 12,870,446 shares. Last month, we detailed how Icahn exercised warrants on Tropicana.

Icahn of course graced the updated Forbes' billionaire list and is known for his activism at companies in an attempt to generate shareholder value. Other recent notable activity out of Icahn's camp includes raising his bid for Lions Gate Entertainment (LGF) and acquiring even more Take Two Interactive (TTWO) shares. He's been quite busy as of late and we'll continue to keep you posted on developments.

Taken from Tropicana Entertainment's website, they are "a privately held company that, along with its affiliates, owns or operates 9 casinos and resorts in Indiana, Louisiana, Mississippi, Nevada, and New Jersey."

You can view all our prior Carl Icahn coverage here.

Technical Analysis of Apple (AAPL): Price Target & Key Levels

Given that Apple (AAPL) just reported blowout earnings, Adam over at MarketClub wanted to take a look at the stock and sent out a technical analysis video on AAPL. In it, he pulls up the monthly candlestick chart and identifies $80 and $200 as key levels. From 2008 until early 2010, Apple traded in this range as it sold off hard throughout the crisis but then rebounded stronger. He says this area has created an 'energy field' as the stock consolidated (but that's quite a wide consolidation if you ask us).

The reason he outlines those two levels is to establish a price target. Subtracting the $80 level from the more recent $200 level, you get a 120 point move. Tacking that on top of the $200 level, he feels that a logical price target for Apple is $320 (200 + the 120 point consolidation). On a fundamental basis, this price target could be reasonable (after all, the company is firing on all cylinders.) However, we're not quite sure the technicals set up for such a move as you have to realize Apple has essentially run straight up from $80 to $258 with only one major pause. You can view Adam's video on Apple here.

We think the most notable bit of information to takeaway regarding AAPL's technicals is the $215-220 area. This level was previously an area of resistance and Apple has since blasted through it. Look for that level to serve as support going forward. In an ideal situation, this would be a great place to enter AAPL shares long if you ever see a pullback. Adam doesn't think shares will trade below that level and we'd concur. There's no denying Apple is a monster of a company right now. Not to mention, tons of hedge funds we track hold AAPL as one of their top positions. And you can bet they're not long for the technicals; they're in it for the fundamentals. Click below to watch the technical analysis video on Apple:

Seth Klarman's Baupost Group Exits Facet Biotech (FACT)

Seth Klarman's hedge fund firm Baupost Group recently filed a Form 4 and a 13G with the SEC in regards to shares of Facet Biotech (FACT). In the filings, we see that Klarman's fund sold 1,500,000 shares of FACT at a price of $27 on April 19th, 2010.

Upon completion of this sale, Baupost Group now owns 0 shares of FACT. They have completely sold out of the company and have profited quite handsomely on this investment. You'll recall that Klarman has been selling FACT shares as of late because the company is being bought out at a price of $27 per share by Abbott Laboratories (ABT). Through his activism, Klarman helped Facet Biotech engineer a materially higher takeover offer. And now, Klarman moves on to his next investment. For more on his firm, we recently posted a Baupost Group portfolio update.

Taken from Google Finance, Facet Biotech is "a biotechnology company dedicated to advancing its pipeline of several clinical-stage products and expanding and deriving value from its protein engineering platform technologies to improve the clinical performance of protein therapeutics."

Paulson & Co Clears the Air With Latest Letter to Investors

Hat tip to Barry Ritholtz for posting this up. Below is John Paulson and hedge fund Paulson & Co's letter to investors where they seek to clarify a few things as accusations regarding the Goldman Sachs fraud case start to fly. In addition to the letter below, if you want to be taken through the inside account of Paulson's subprime trade, we highly recommend Gregory Zuckerman's book that focuses on Paulson: The Greatest Trade Ever.


Embedded below is Paulson & Co's most recent letter to investors:



You can directly download a .pdf here.

So, hopefully that helps clear the air regarding their involvement. Also, given the topic of Paulson's letter, we thought it fit to also post up a presentation from one of the CDO investments back in 2007 that Paulson was betting against. If you haven't seen it already, below you will find Goldman Sachs and ACA's flipbook on Abacus 2007-AC1, a $2 billion synthetic CDO referencing a static RMBS portfolio. Here is the document:



You can download it via .pdf here as well.

Paulson sets things straight as to how they went about their investments at the time and it's intriguing to look back on the Abacus presentation and think about how all of this was going on just a few short years ago. For more on the ongoing CDO/CDS/subprime debate swirling around, we also detailed hedge fund Magnetar Capital's recent letter to investors regarding the investments they profited from during the housing bubble as well.

For more on hedge fund Paulson & Co, keep in mind that we've been tracking their equity portfolio and recently detailed their brand new stake in American Capital (ACAS). Additionally, we've covered Paulson & Co's recent performance numbers for those interested.

Send Us Your Hedge Fund Investor Letters & Resources!

Now that first quarter hedge fund investor letters are starting to make the rounds, we want to ask our readers a favor: please send us any hedge fund letters or market related resources that you think would be useful. Your privacy is our top priority and we treat all correspondence as if it were anonymous. Please email us your resources!

If you don't want the letter itself posted, just make a note in your email to us and we can instead type out a brief summary of the letter for our article. A large part of why Market Folly has been so successful is due to our readers' willingness to share hedge fund resources. The more people that send us hedge fund letters, the more resources you as readers will gain access to. After all, our site is completely free so if you have any letters from the hedge funds we cover, please send them over! And again we remind you that anything you send us will be treated anonymously.

You can send us your hedge fund letters here. And if you receive our daily updates via email, you can simply reply to that message.

Long/Short Equity Hedge Funds: Net Long Exposure Below Average

Bank of America Merrill Lynch is out with the latest edition of their hedge fund monitor report where they examine exposure levels of various hedgie strategies. In it, we see that overall market exposure is high for market neutral funds but well below average for long/short equity funds. This is a continuation of the theme we touched on last week where we saw l/s hedgies reducing equity exposure below historical levels.

Despite having opposing market exposures, both market neutral and long/short funds have performed the best thus far for April. Both strategies have favored small cap stocks and low quality names as the high beta rally carries on. Still though, hedge funds are definitely cautious on equities. Long/short funds are now well below their historical average of 35-40% net long. They currently have about 26-28% net long exposure.

Turning now to major moves across asset classes, we see that hedgies bought gold last week and also added to a crowded long in copper. In energy, hedge funds reduced their crude oil long positions (a crowded trade) and added to their deep short position in natural gas. Across the forex landscape they continued to aggressively sell the Yen, something we've noted for a few weeks now as they show no mercy for the Japanese currency. Lastly, in interest rates, hedge funds are *very* short the long end of the curve and continue to add to crowded shorts there. We just recently posted up a report about how hedgies are net short 10 year treasuries.

Embedded below is Bank of America Merrill Lynch's latest hedge fund trend monitor report:



You can directly download a .pdf here.

Overall, long/short funds continue to ratchet down long exposure in the markets as they pay heed to a possible market correction. This concurs with market strategist Jeff Saut's recent thoughts as he is short-term cautious on the market as well.

Many of the same themes prevail across the hedge fund landscape as hedgies are really short the long end of the curve and still really short the Yen. To see what specific stocks these investment managers are buying and selling, head to our daily hedge fund portfolio updates.

Crude Oil & Gold Trading Ranges: Key Levels to Watch

MarketClub recently analyzed two of everyone's most favorite commodities: crude oil and gold. Adam just took a technical look at crude oil and wondered if it has topped out for the year. He draws a fibonacci retracement from the peak during oil's epic rise down to the trough and notes that the commodity is currently trading right around the 38.2% retracement level. In his oil video, Adam concludes that it is currently stuck in a trading range and could be for some time. But he does note that after trading ranges often come explosive moves. He highlights that the $72 level as an absolutely key level for support. If crude oil breaks that level to the downside, then he thinks it sets new lows for the year. One thing their analysis does not take into consideration, however, are the seasonal factors at play with crude. Typically, summer months command higher prices in oil so we'll have to see what happens there. Click below to watch Adam's video:



MarketClub also cranked out a technical analysis video on gold where they wonder whether or not gold is setting up for its next big move. Obviously, the longer term trend has been up and they illustrate how the metal continues to make a large move higher and then consolidate and trade sideways for a while to digest the move. It has repeated this pattern on a large scale numerous times over the past few years as you can see in their gold video. So, similar to crude oil, Adam feels there's really no trend right now and it will continue to trade sideways. He outlines $1,165 as the key level for the metal as it won't be able to start any move higher until it breaches that level to the upside. You can check out their technical look at gold below:

Don Coxe's Basic Points April 2010: A Slow Boat to China

Market Strategist Don Coxe is out with the latest edition of his Basic Points publication. His commentary entitled, 'A slow boat to China' focuses on his latest view on the markets and how he would position portfolios accordingly. As we've covered before, Coxe has been a long-time commodity and agriculture bull so it should come as no surprise that many of his recommendations center around that theme. To get a better idea as to the rationale behind a bullish agriculture bet, we recommend heading to hedge fund Passport Capital's case for agriculture.

Turning to Coxe's most recent market commentary, we see some of his main viewpoints summarized below:

- Underweight integrated oil companies ('big oil' stocks like Exxon Mobil, Chevron, etc).
- Increase equity exposure via mining stocks.
- Overweight oil producers and underweight gas producers.
- Continue to overweight oil sands companies.
- If running a US based portfolio, focus on cyclical equities.
- Within agriculture, add to companies in the equipment and logistics.
- Overweight precious metals (gold & silver).
- If you're investing in bonds, focus on Canadian bonds if you're Canadian and TIPs if you're American.

Lastly, he also lays out some ideas to 'hedge' yourself against a possible double-dip recession after the market stops receiving its heroin fix from Ben Bernanke. If you are holding high exposure to cyclicals, Coxe argues to hold some long-duration bonds as a hedge. We've obviously simplified his viewpoints here so of course read Donald Coxe's April set of Basic Points in its entirety below:



You can directly download a .pdf here.

Overall, it seems Coxe remains a staunch commodity bull, or dare we say super-bull. For a technical look at how some of his favorite commodities have been trading as of late, check out an analysis of gold as well as an analysis of crude oil.

Hedge Fund Lansdowne Partners Long Lloyds Banking Group (LLOY)

According to Reuters, Steven Heinz and Paul Ruddock's hedge fund Lansdowne Partners has built up a £1.1 billion position in Lloyds Bank (LON:LLOY, NYSE:LYG). They've calculated that this represents a 2.5% ownership stake in the bank and keep in mind that the UK government owns over 40% of the company as well. There has not been a regulatory filing regarding Lansdowne's position as their stake is below the 3% threshold that requires a disclosure. What's interesting here is that yesterday we revealed Lansdowne's new short position in Prudential and this position is said to be a hedge to their long positions in UK banks.

The hedge fund firm apparently believes that Lloyds should trade at a higher book value. It appears as though Lansdowne has flipped their view on banks as they had previously been short financial firms throughout the crisis. Heinz and Ruddock's firm now joins hedge fund colleagues GLG Partners who also have a position in Lloyds after recently exiting their stake in Barclays in favor of this bank. Lansdowne's UK Equity fund was up 8.28% through the end of March as noted in our first quarter hedge fund performance numbers.

Taken from Google Finance, Lloyds Banking Group plc is "a financial services group providing a range of banking and financial services, primarily in the United Kingdom, to personal and corporate customers. The Company operates in four segments: Retail, Wholesale, Wealth and International and Insurance. Its main business activities are retail, commercial and corporate banking, general insurance, and life, pensions and investment provision."

For more on Lansdowne, you can check out their new short position here and our past look at some of their portfolio holdings.

Hedge Fund Lansdowne Partners Discloses Short Position

UK based hedge fund Lansdowne Partners has re-opened their short position in British life assurer Prudential Plc (LON:PRU). The hedge fund's bet represents -0.32% of Prudential's outstanding stock, approximately £47 million worth. This is not the first time they've been short Prudential as they previously had a larger short position in this name back in December. Prudential Plc is expected to disclose details of their $20 billion capital raise to finance a $35.5 billion acquisition of AIA, the Asian insurance division of AIG. Please keep in mind that the company referenced above (UK based Prudential) has no ownership link with Prudential of America, a company the majority of you will be familiar with that trades under the ticker PRU on the NYSE. Make sure you don't confuse them.

Lansdowne found success on the short side of their portfolio during the financial crisis as they profited off their shorts in Northern Rock and Barclays. But then again, almost all hedge funds had some sort of success with their shorts back then. For more details on on the disclosure rules for long and short holdings in UK companies see our UK primer here.

Lansdowne of course have constantly been rated as one of the top hedge funds in London and they specialize in long/short stockpicking (although they also employ other strategies as well). Their UK Equity fund was up 8.28% through the end of March as noted in our first quarter hedge fund performance numbers. Late last year we saw that their flagship fund has returned 19.37% annualized since 2001 when we took a look at Lansdowne's portfolio and saw they favored large caps in developed countries.

Taken from Google Finance, Prudential is "a financial services company. The Company has operations in the United States, Asia, Europe and Latin America. Through its subsidiaries, it offers products and services, including life insurance, annuities, retirement-related services, mutual funds, investment management, and real estate services."

Brett Barakett's Tremblant Capital Boosts Liz Claiborne (LIZ) Stake

Due to activity on April 9th, 2010 Brett Barakett's hedge fund Tremblant Capital Group has updated their stake in Liz Claiborne (LIZ). They now show a 5.98% ownership stake in LIZ with 5,668,598 shares. This is an increase over their prior holdings as they previously owned only 1,200,417 shares when we looked at Tremblant's portfolio from December 31st. They've boosted their position by 372%, adding 4,468,181 shares over the past four months. Before founding his own firm, Brett previously was a portfolio manager for Louis Bacon's global macro hedge fund Moore Capital.

Taken from Google Finance, Liz Claiborne is "designs and markets a global portfolio of retail-based brands, including JUICY COUTURE, KATE SPADE, LUCKY BRAND and MEXX. The Company also has a group of department store-based brands with consumer franchises, including the LIZ CLAIBORNE and MONET families of brands, MAC & JAC, KENSIE and DANA BUCHMAN and the licensed DKNY JEANS, DKNY ACTIVE and DKNY MENS brands."

To see what other names Tremblant has gravitated towards, check out the rest of Barakett's investments.

Steven Cohen's Hedge Fund SAC Capital Shows Talbots (TLB) Position

Due to activity on April 7th, 2010 Steven Cohen's hedge fund SAC Capital has updated their stake in The Talbots (TLB). SAC now shows a 9.5% ownership stake in TLB with 6,430,231 shares. This update comes after SAC recently disclosed a position in InterMune (ITMN) as well as a stake in Psychiatric Solutions (PSYS). In the fine print of their recent Talbots filing, we see that this position includes 1,325,000 shares subject to call options and 135,963 warrant shares.

This is a massive increase over SAC's previous TLB holdings. Their last 13F filing which disclosed positions as of December 31st, 2009 showed Cohen's firm owning 370,500 shares represented by call options and 320 shares of common stock. Over the past four months they've gained exposure to 6,059,411 shares, a 1,634% increase in their position. However, we're assuming they didn't simply buy shares on the open market. To see how SAC might have come about their ownership stake in TLB, we turn you to Perella Weinberg Partners' recently filed 13D on Talbots.

In Perella's filing, we see that they have an 8.1% ownership stake in TLB with 5,500,309 shares. On April 7th, Talbots completed its acquisition of BPW Acquisition Corp and BPW was merged into the company. As per the SEC filing, "upon consummation of the merger, subject to limited exceptions, each holder of shares of common stock of BPW immediately prior to the completion of the merger became entitled to receive 0.9853 shares in exchange for the cancellation of each such share of BPW common stock. In accordance with the terms of the merger agreement, the company also offered to exchange , for each outstanding warrant to acquire shares of BPW common stock, either (i) 0.09853 shares or (ii) 0.9853 warrants to acquire shares, in each case subject to certain specified proration mechanics."

You can read more about the merger here. While there's no way for us to know for certain how SAC came about their shares, this is a likely explanation given SAC's exposure to both common stock and warrants. But again, this is purely an assumption on our part. Keep in mind that Cohen's hedge fund is a trading oriented firm and turns their portfolio over much more frequently than all the other funds we cover on Market Folly.

Taken from Google Finance, The Talbots is "a specialty retailer and direct marketer of women’s apparel, shoes, and accessories. The Company operates stores in the United States and Canada. In addition, its customers may shop online or via its catalogs. The Company’s products are sold through its 587 stores, its circulation of approximately 55 million catalogs."

For more on Steven Cohen, check out all our coverage on hedge fund SAC Capital.

John Paulson Buys American Capital (ACAS) Stake

Shares of American Capital (ACAS) were up 5% yesterday after it was revealed that John Paulson's hedge fund Paulson & Co would be buying a 13% stake in the company. This capital will be used to help restructure ACAS' $2.4 billion of debt. They were in need of an infusion, and they certainly got it.

Paulson picked up shares in a $295 million stock offering that was priced at $5.06 per share, a slight discount to where shares ended last week. Paulson will scoop up the vast majority of the offering as his firm buys 43.7 million of the available 58.3 million shares. This should make John Paulson's hedge fund the largest shareholder in ACAS. In terms of other recent investments out of the hedge fund, we recently saw them buy shares of NovaGold Resources (NG) and you can always view the rest of Paulson's portfolio here.

Todd Sullivan over at ValuePlays.net has been long shares of ACAS even before Paulson and obviously can't complain when a prominent investor starts buying shares too. While Sullivan isn't managing $32 billion like Paulson, he recently started his own hedge fund, Pennant Fund LP along with Doug Estadt and they were up an impressive 48% for the first quarter of 2010. John Paulson's various hedge funds have had mixed performance thus far this year. His Advantage Plus fund was -1.18% for the year as of February, his Advantage fund -0.93%, his International fund up 0.47%, his Credit fund up 3.35%, and his Enhanced fund up 0.99%. All of these were noted in our first quarter 2010 hedge fund performance update.

Taken from Google Finance, American Capital is "an equity firm and a global asset manager. The Company invests in private equity, private debt, private real estate investments, early and late-stage technology investments, special situation investments, alternative asset funds managed by the Company and structured finance investments."

For more on John Paulson's hedge fund, head to Paulson & Co's portfolio and of course our in-depth look at their new gold fund.

Hedge Fund Magnetar Capital's Letter to Investors Re: CDOs

John Gapper from GapperBlog at the Financial Times has just posted up hedge fund Magnetar Capital's latest letter to investors. If you peruse our 'What We're Reading' links that we post up each week, you'll recall that recently we linked to a ProPublica piece on Magnetar Capital and how they profited from the subprime trade. Needless to say, Magnetar wasn't too pleased with that and has fired back a retort, deeming the story misleading.

To follow the timeline accordingly, we of course recommend reading ProPublica's piece on the hedge fund first. Then, once you've finished, head down the page to read hedge fund Magnetar Capital's penned assault on ProPublica's story.

Embedded below is Magnetar's letter to investors, courtesy of John Gapper at the FT:



You can directly download a .pdf here.

It's obvious that Magnetar is rightly concerned with how they are being portrayed at a time when Goldman Sachs has come under siege for actions relating to their collateralized debt obligations (CDOs). Magnetar profited off of subprime's downfall much like John Paulson's hedge fund Paulson & Co did. This is certainly the time to 'set the record straight' to avoid any confrontations with the SEC now that the regulatory body seems to be on a CDO-related witch hunt.

In any event, an interesting read from Magnetar in their latest letter to investors. We haven't covered much of the Goldman Sachs fraud case as the SEC examines deals done with John Paulson's hedge fund. We figured we'd let the mainstream media cover that as the information flow has been non-stop. But if you want to learn more about Paulson's subprime trade, we highly recommend Gregory Zuckerman's The Greatest Trade Ever, which has intriguingly been a source of information regarding the recent CDO witch hunt.

Sell in May and Go Away? Jeff Saut Says Don't Wait 'Til Then

Raymond James' Chief Investment Strategist Jeff Saut is out with his latest weekly missive with the clever title, 'Don't Wait for May to Go Away.' This of course is a play on the old Wall Street adage: 'sell in May and go away.' Historically, the period between May and November has underperformed while the period between November and April has solid performance. His latest commentary comes after last week's piece where examined how inflation begins.

Saut essentially is saying take some profits here as he is increasingly cautious in his latest investment strategy publication. He cites numerous factors for this cautionary stance, including contrarian signals such as:

- Sentiment gauges that are as bullish as they were in 1987
- A CBOE equity put/call ratio of 0.32 (very heavy call volume)
- Stocks are the most overbought since the rally began in March 2009

Simply put, Saut thinks that the markets are at a near-term top but he is still long-term bullish. As such, they are recommending hedges for downside protection. You can view his entire market commentary embedded below:



You can directly download a .pdf here.

As we've mentioned in a previous post examining key technical levels in the markets, it never hurts to lock in some profits and raise cash levels as things become extended and more uncertain. While shorting is not necessarily advisable until the market starts to show more signs of weakness, reducing long exposure and employing some cheap hedges is not a bad idea at all and generally we'd agree with his thoughts here. After all, puts are quite cheap right now as Saut referenced. For more from Jeff Saut, check out his previous commentary entitled how inflation begins. Overall though, the market strategist keeps with his short-term cautious, long-term bullish stance.

Bill Ackman's Pershing Square Discloses Yum Brands (YUM) Position

Bill Ackman's hedge fund firm Pershing Square Capital Management recently filed an amended 13F for the fourth quarter of 2009. We found this a bit peculiar given that the new 13F's that will detail first quarter 2010 portfolio adjustments are due out next month. Nonetheless, upon examining their amended filing, we see that Ackman has disclosed a 13.8 million share stake in Yum Brands (YUM) as of 12/31/09.

It's a bit baffling to us as to how Pershing could omit such a material position from their 13F. After all, when you add this amendment to their original 13F, you see that YUM was their second largest position! When we originally t0ok a look at Pershing Square's portfolio, they did not show a position in Yum Brands. Obviously now looking back, that was not the case.

So, to sum up: Pershing Square owned a $483 million stake in Yum Brands as of the fourth quarter 2009 which means it was a new position for them at that time as they did not own shares in the prior quarter. However, Pershing had owned shares of YUM in the past, but not since the first quarter of 2009. Bill Ackman's hedge fund was up 3.7% for the month of March and up 5.62% for the year as noted in our first quarter hedge fund performance update. Our prior coverage of Ackman's firm includes examining Pershing's economic exposure to General Growth Properties (GGP) and their presentation on Kraft (KFT).

Taken from Google Finance, Yum Brands is "is a quick service restaurant (QSR) with over approximately 37,000 units in more than 110 countries and territories. Through the five concepts of KFC, Pizza Hut, Taco Bell, LJS and A&W (the Concepts), the Company develops, operates, franchises and licenses a worldwide system of restaurants, which prepare, package and sell a menu of food items. In addition, the Company owns non-controlling interests in entities in China who operate similar to franchisees of KFC and a non-controlling interest in Little Sheep, a Hot Pot concept."

For more background on Bill Ackman's hedge fund, check out our profile of Pershing Square.

The Invisible Hands: Hedge Funds Off the Record By Steven Drobny (Book Review)

Today we're reviewing The Invisible Hands: Hedge Funds Off the Record, the latest valuable book from author Steven Drobny. Many of you will already be familiar with Drobny from his popular first book, Inside the House of Money. Drobny heads Drobny Global Advisors, a macroeconomic advisory firm that has many leading global hedge funds as clients. Needless to say, if you want a great book on hedge funds, he's your guy.

Right off the bat we can tell you we wildly enjoyed reading this solely for the vast amount of information and advice divulged. The Invisible Hands is divided into three parts. The first section deals with "real" money management, a.k.a. the institutional investing of endowments, pensions, & family offices and brings up some very prudent questions regarding portfolio construction. This part of the book includes commentary from Jim Leitner of Falcon Management. Those of you who have read Inside the House of Money will recall that the Family Office chapter in that book which focused on Leitner was one of the most popular. This is an extension of their conversation updated to focus on the market crisis and we found it very insightful given the fact that many endowments did not fare well during the downturn. Additionally, the section also details views from Dr. Andres Drobny of Drobny Global Advisors.

The second section of the book is probably the most entertaining as it features interviews with various global macro hedge fund managers. The chapters are divided into various archetypes Drobny has bestowed upon each manager, including: The House, The Philosopher, The Bond Trader, The Professor, The Commodity Trader, The Commodity Investor, The Commodity Hedger, The Equity Trader, The Predator, and The Plasticine Macro Trader. Needless to say, there is something for everyone in this section of the book as all kinds of global macro hedge fund strategies are detailed. The insight divulged in part two of The Invisible Hands is priceless.

One possible pitfall to potential readers could be the fact that each hedge fund manager's identity is hidden. Before reading the book, we were slightly skeptical that this aspect would diminish credibility. For those of you who may be hesitant, we'll go ahead and allay those fears for you right now. We were quickly proven wrong upon sampling the worthwhile words of wisdom each manager had to offer. We also had the chance to ask Drobny himself about this and he highlighted a very prudent point: without anonymity, this book would have never been written. Drobny mentioned to us that, "Normally, people don't get access to sit down and have a chat with managers at this level so the anonymity allowed that to happen."

This just goes to reinforce how secretive and guarded the hedge fund world is. Each bit of information comes at a price, and this time the price you pay is identity. As such, it's a no-brainer to take insight masked by anonymity over no information at all. The book not only contains wisdom from managers who survived the crisis unscathed, but also from those who prospered. As far as personal favorites go, Chapter 13: The Plasticine Macro Trader steals the show. You'll start the book casually wondering who some of these managers are and you'll end the book really wanting to know all their identities. We have a very good guess as to who Chapter 13 is, but we'll wait for that manager to "out" themselves. But if you want a hint: we've covered this eclectic manager on the site numerous times before.

The Invisible Hands concludes with part three and an interview with The Pensioner. This final chapter turns back to "real money" managers and highlights a successful pension fund manager that did not lose money in 2008. Those of you further interested in the topics of risk management and portfolio construction will find this last section compelling.

Many books that have come out of the financial crisis focus on learning from mistakes. Drobny's book, on the other hand, pinpoints managers who fared well in 2008 as they were either able to preserve capital or grow it. The book targets global macro funds because their foundation is anchored by the tenets of risk management rather than returns. This allows readers to learn from those who found success during a time when many others failed.

All in all, we treasured The Invisible Hands: Hedge Funds Off the Record and highly recommend it to anyone looking to learn from top hedge fund managers. We found the book's particular focus on global macro strategies especially intriguing given that the majority of the coverage on our site centers on long/short equity hedge funds. Those of you looking for a peephole into the fast paced world of global macro would find this book advantageous. And if you manage money, then Drobny's new book is simply a must read.


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For more insightful books on markets and investing, be sure to check out our recent reviews of Harry Markopolos' book No One Would Listen and Scott Patterson's The Quants. Additionally, we've assembled quite the compendium of recommended reading lists worth checking out.

Eliav Assouline's Hedge Fund Axial Capital Management Adds to a Position

This is the first time we've covered Eliav Assouline and Marc Andersen's hedge fund Axial Capital Management so we'll cover some brief background before diving into the latest portfolio update. Assouline founded the fund in 2005 and is known as a 'Tiger Seed' because Axial was seeded by legendary hedge fund manager Julian Robertson. Axial offices along with other Tiger Seeds at the historic 101 Park Avenue address and joins the proverbial Tiger Management family tree.

Now, turning to the latest portfolio activity out of Axial, we see that they have filed a 13G with the SEC in regards to shares of Macquarie Infrastructure Company (MIC). The filing was made due to activity on April 5th, 2010 and they now own 5.03% of the company (MIC) with 2,283,210 shares. This is an increase in their position as they previously owned 1,428,734 shares on December 31st, 2009. This means that Axial boosted their stake by 59.8%, adding 854,476 more shares over the past four months.

Year to date for 2010, shares of Macquarie are up over 31%. Also, we see that another Tiger Seed hedge fund has a large stake in shares of MIC: Manish Chopra's Tiger Veda Management. Taken from Google Finance, Macquarie Infrastructure Company LLC (MIC) "owns, operates and invests in a diversified group of infrastructure businesses in the United States. The Company operates in two segments: the Energy-Related Businesses and the Aviation-Related Business."

To see what other top investment managers are up to, head to our latest hedge fund portfolio tracking.