The Hedge Fund Herd Mentality, Piggybacking & Crowded Trades

Loosely defined, the hedge fund 'herd mentality' is when various investment managers seemingly all invest in the same stocks. It's a trend that has occurred for years and is exemplified via Goldman Sachs' VIP list of stocks that are most commonly owned by hedge funds. It is the epitome of groupthink and can often lead to explosive situations. After all, hedgies are often perceived as primal creatures, each grasping for every basis point of performance. So, why should you be concerned with the herd mentality? Well, probably because prominent fund manager Dan Loeb is concerned about it and is taking what little steps he can to prevent it.

Earlier this morning, we posted up hedge fund Third Point's latest investor letter. In it, we got a glimpse at their portfolio, latest allocations, and manager Dan Loeb's frustration with regulators. However, none of that was as intriguing as a footnote he made on page five of his letter.

In the section regarding equity investments in Third Point's letter, Loeb writes, "Please note that we will no longer discuss investments made prior to our public 13-F filings. We have found that discussing our ideas may result in 'piling on' by other hedge funds who may subsequently sell at inopportune times resulting in greater hedge fund concentration and volatility, which is not in the interest of our investors."

Basically, he is stating that if his firm makes a new investment, investors (and everyone else) won't find out about this position until it becomes public at least forty-five days after they've established the stake. As we've detailed countless times in our hedge fund portfolio tracking series, 13F's are filed with the SEC on a time-lagged basis. For instance, the most recent filings we've covered for the first quarter were filed around May 15th, 2010 but reflect hedge fund positions as of March 31st, 2010. In the past, we'd learned about some of Loeb's new investments via his investor letters. But alas, no longer. It's a good thing that we already track Third Point's portfolio via 13F filings to begin with.

Loeb clearly doesn't want managers splashing in and out of his investments causing unnecessary tidal wives. What's interesting here is the fact that he is so certain other hedge funds are "piling on" his trades to begin with. While he might be able to discern that by price action alone in some stocks, it's as if he's received confirmation of this from traders, other fund managers, or word of mouth. While many fund managers seemingly talk their book in hopes of convincing other investors to join in on the investment, Loeb has now taken a completely converse approach. A true contrarian, indeed. In an effort to combat herd mentality, he will now only be talking about his positions long after the fact.

We highlight this because it is now the second time we've seen the herd mentality referenced in a prominent hedge fund investor letter. Andreas Halvorsen's Viking Global previously discussed the concentration of hedge funds in particular stocks in response to investor questioning. In this case, investors were essentially worried that many of Viking's holdings were (or had become) hedge fund favorites. The cause for concern was that an increase in concentration could potentially lead to elevated volatility. Halvorsen argued that it doesn't necessarily matter if other hedgies are in the same trades, as long as Viking is proven right in their analysis. On the topic of crowded hedge fund trades, Halvorsen adds,

"There is obviously some risk associated with being in an investment alongside likeminded investors who may have been trained in the stock-picking trade in similar ways in that we may decide to sell at the same time. To limit the consequences of crowded exits, we pay attention to the liquidity of the stocks we trade and take large positions only in the most liquid stocks in the world. The problem of crowding is most acute in our shorts due to the risk of unlimited loss and the potential for canceled borrow arrangements. Here we do tread carefully. As you are aware, we are guarded in disclosing our shorts to anyone and we do on occasion limit the size of our positions, or eliminate them altogether, when we perceive a position to be tight in the borrow market or crowded by equity long-short investors. Ultimately, we live and die by our analysis, portfolio management skills and efforts to contain risk - managing risk is merely another challenge we face in delivering attractive returns at reasonable risk."

So, the approach for dealing with crowded trades and the herd mentality differs between two prominent fund managers. Third Point's Dan Loeb is now attempting to prevent it from occurring in the first place by not discussing new investments until after they've been disclosed publicly via SEC filings. While his approach seems good in theory, the public will still be able to see his investments and "pile on" his investments, albeit on a time-lagged basis. Viking Global's Halvorsen, on the other hand, acknowledges and accepts crowded trades as a component of financial markets. Instead, he seems inclined to tackle it from a portfolio risk management perspective. Given that more prominent funds have sent signals of their stance and voiced their opinion on the topic, we'd expect others to follow suit and chime in as investor concern over the issue rises.

More than anything, this fixation with herd mentality most likely stems from horror stories during the financial crisis when many crowded trades imploded due to various hedge funds that were under duress. These investors were forced to liquidate positions and the severity of declines in certain stocks was only amplified by the fact that high hedge fund concentration led to greater volatility. A perfect example of this is Freeport McMoran (FCX), a metals & mining play that was owned by a plethora of hedge funds. As global economies weakened and hedge funds started their fire-sale, shares of FCX cratered from $123 in June 2008 all the way down to $17 in only six months' time. Peak to trough, the move marked a jaw-dropping 86% decline.

While the above is an extreme example, you can't help but see why some managers would attempt to alleviate or prevent any sort of herd mentality. Indeed, aligning yourself with the hedge fund herd can potentially lead to trampling outcomes. But, there can also be positive outcomes as well. 'Piggybacking', or the notion of following another manager into an investment, can be wildly fruitful if done correctly. As hedge fund replicator Alphaclone has continually demonstrated, investors can easily outperform the market indices and generate hedgie-like returns simply by following the top picks of prominent equity focused managers.

For instance, we just took a look at Alphaclone's top 3 holdings clone of Dan Loeb's Third Point to see what kind of performance could be generated via some simple piggybacking. The portfolio clone rebalances quarterly based on 13F filings and the backtested results are pretty stunning. The 'Third Point Clone' has returned 15.2% annualized since 2000 while the S&P 500 has annualized -0.9% over the same period. This long-only portfolio has a total return of 340.5% compared to the S&P 500's cumulative return of -9.3%. You can take a free 14 day trial to Alphaclone to play around with other funds and strategies as well to see just how successful piggybacking can be.

There is a slight difference between piggybacking and the herd mentality in that there is a cause and effect relationship. In short, piggybacking causes the herd mentality; one is a direct result of the other. The only thing that matters here is the endgame in which certain investment managers all end up owning the same stocks. Yet, just like piggybacking, we see (via backtesting) that you can still garner solid performance by investing in many 'herd mentality' stocks as well.

Alphaclone has also created a Tiger Cub Clone portfolio that simply buys the 10 most popular holdings amongst various hedge funds with past ties to legendary manager Julian Robertson. The long-only version of the Tiger Cub Clone has returned 8.1% annualized since 2000 whereas the S&P 500 has returned -0.9% over the same period. Yet again, we see a perfect example of mimicking prominent investors leading to outperformance.

With piggybacking and the herd mentality comes a bounty of positives, negatives, benefits and risks. It's commendable that Dan Loeb seeks to reduce volatility for his investors by no longer discussing new positions in his investor letters. At the same time though, those investors have a right to know where he is allocating capital and why. Unfortunately for investors, it now seems as though they'll be relegated to scouring over SEC 13F filings just like MarketFolly.com does on a daily basis. Despite various hedge funds' best efforts to thwart them, piggybacking and the herd mentality are traits that will seemingly never die. After all, they've been laced into Wall Street's DNA for generations.

If you enjoyed this post and/or are interested in daily updates on hedge fund portfolio movements, consider receiving our free updates via email or our free updates via RSS reader.

Dan Loeb Sells Financials: Third Point's Investor Letter (Q1 2010)

Dan Loeb's hedge fund firm is now fifteen years old. They have a lot to celebrate too considering Third Point has grown assets under management from $3.3 million to now billions. And when we checked in on Loeb's firm back in May, we saw his Offshore Fund had annualized returns of 18.6% versus 5.2% for the S&P 500. With cumulative performance of 892%, Loeb has certainly found success. To get on track toward emulating such success we'd refer you to Dan Loeb's recommended reading list. So, what has he been up to lately? We'll dive into Third Point's first quarter investor letter below.

While Loeb notes that his firm started betting on a recovery in April 2009, he fixates on the fact that investor confidence is still not what it should be. He attributes this lack of pizazz to a continually shifting regulatory environment where the rules are rapidly and repeatedly revised. In his typically eloquent fashion, Loeb summons his famously penned CEO-bashing days of old. This time though, he has a different target. He writes, "The Administration appears unable, or unwilling, to let free-market capitalism resume. Indeed, it is neither health care nor financial reform which has stressed markets most in 2010, but rather the continued politicizing of the regulatory process and the abandonment of free market capitalist principles that have undermined investor confidence".

In fact, Loeb's confidence in the system has been shaken to the point where he has sold out of practically all of Third Point's positions in financial companies. Third Point has exited their Citigroup (C) and Bank of America (BAC) stakes. Additionally, Loeb sold mostly out of his Barclays (BCS) position and only holds a small residual position in a regional bank (to the tune of less than 1%). Loeb is now the perfect example of his own point on investor confidence. Most investors haven't been confident in the markets. Loeb, on the other hand, hasn't been confident in the administration and its actions. However, his lack of confidence in regulators has in turn caused lack of confidence in the ability to invest in financial companies.

In what will surely be labeled as a strange and potentially questionable maneuver, Loeb notes that he talked about his positions in BAC and C back on January 20th at Third Point's annual investor presentation. However, in his first quarter letter he reveals that he quickly sold out of those positions only days later. While he provides rationale for his abrupt exit, it certainly wreaks of oddity and might rub some investors the wrong way that he would essentially be 'pitching' them on the latest investments in financials, only to sell out of them in the days following the event. Loeb labels political action as part of his reason for exiting and so maybe more than anything he is using this as an example to showcase how much of an effect regulators are having on investor confidence.

It's truly intriguing to see the dynamic at play with financial stocks. While Third Point exited Citigroup in the first quarter, Bill Ackman's hedge fund Pershing Square just started a position in C. As always, this is the beauty of a market and the dichotomy of opinion. Loeb also reveals that Third Point has exited their position in Wellpoint (WLP), a health care company. He says his firm is no longer able to predict how legislation or regulation will affect the company and its industry and such unknowns present too much of a risk.

On the short side of the portfolio, Loeb reveals that they have increased shorts in the for-profit education sector. This theme is now running rampant through hedge fund land as Steve Eisman presented the short case for these companies at the recent Ira Sohn Investment Conference. This stock battleground becomes even more intriguing when you consider that some of the biggest hedge funds have also previously had long positions in these companies. We'll have to see if they have since caved in with their positions or whether they are standing strong. In the past though, we have noted certain hedge funds exiting long positions in the for-profit education space.

Loeb also mentions that Third Point has reduced gross and net exposure. We of course have already taken a recent look at Loeb's portfolio positioning with Third Point's latest exposure levels. In terms of other equity investments, Third Point still fancies post-bankrutpcy equities as they are still very cheap. In terms of new portfolio activity, we've highlighted how Third Point disclosed a stake in Xerium Technologies as well as a new position in Roomstore. And for more on Loeb's holdings from the first quarter, we've detailed Third Point's equity portfolio.

Embedded below is Third Point's first quarter letter to investors:



You can download a .pdf copy here.

For now, it certainly seems as though Loeb's confidence in regulators, financials, and the financial system is certainly shaken. We'll have to see what it means for his portfolio in the coming quarters, but it sounds as though he's still finding ample opportunities in his event-driven value niche. For more resources on Third Point, be sure to check out Dan Loeb's recommended reading list, as well as Third Point's latest exposure levels.

Battle of Bulls & Bears: Key Stock Market Levels

Adam over at MarketClub recently took a look at the S&P 500 from a technical analysis perspective and has concluded that we'll continue to see choppy market action for a while. In his latest market analysis, he points out a series of lower highs, typically a sign that favors the bears. Basically, he argues that the key level to watch in the market is S&P 1,100. If the market rallies above that level, it has a strong chance of resuming the longer term uptrend we've seen over the past year or so. However, if the market continues to stall at 1,100 (as it has previously), then the bears are in control. This level becomes even more interesting when you consider it's currently right around where the market is trading and this could be a potentially pivotal point.

Additionally, he points out 1,040 as a second key level to watch in the S&P 500. This level could potentially be a double bottom as the market tested that level in late May and then again in early June. He notes that we'll get confirmation of this double-bottom (a bullish pattern) if the market rallies above that 1,100 level. So, all said and done, 1,100 is the key level to watch on the upside as it seems to hold all the technical keys. Overall though, Adam concludes that it will continue to be rough waters throughout the summer, typically a time of lighter volume as many traders/investors are on vacation. Click below to watch the latest analysis of the S&P 500:

Third Avenue Funds: Manager Commentary & Semi-Annual Report

Below is the semi-annual report from Marty Whitman's Third Avenue Funds. In it, you'll find portfolio manager commentary from their Value Fund, Small-Cap Value Fund, Real Estate Value Fund, International Value Fund, and Focused Credit Fund. We typically like to highlight intriguing market commentary from fund managers and you can view all our posts via our posts on hedge fund investor letters.

Turning to Third Avenue's latest missive, we get commentary on numerous topics. Most notably though, is the Chairman's letter from Marty Whitman. While his commentary these days is obviously less frequent than it once was, it's still always interesting to get his take on things. Last time around, he was out defending the managed mutual fund space. This time around, his letter focuses on 'eight areas of financial misunderstanding' including the "too big to fail" concept. While he readily admits that he is prejudiced since he is from the mutual fund industry, he attributes that a lot of success in his industry stems from strict regulation. As such, he argues that strict regulation of financial institutions is absolutely imperative.

Below is the latest commentary from Whitman as well as the portfolio managers of the various Third Avenue funds:



You can download a .pdf here.

If you want to learn more about Whitman and his value investing philosophies, we point you of course to his book, The Aggressive Conservative Investor. Interestingly enough, this book has landed on legendary investor Seth Klarman's recommended reading list as well. That testimonial obviously speaks for itself.

Dan Loeb's Third Point Discloses Position in Xerium Technologies (XRM)

Due to activity on May 25th, 2010, Dan Loeb's hedge fund firm Third Point has filed a 13G with the SEC regarding shares of Xerium Technologies (XRM). Per the filing, they show an 8.6% ownership stake in the company with 1,294,507 shares. This is a newly disclosed position for Loeb's firm as they previously did not show an equity stake when we covered Third Point's portfolio. However, it is very likely that Third Point owned a position in Xerium's debt as the company just exited bankruptcy (a security that they aren't required to disclose).

Per the restructuring, Xerium exchanged $620 million of existing debt for $10 million in cash, $410 million in new term loans, and 82.6% of the new common stock of Xerium. So, this is a new equity stake for Loeb's firm but they've likely received it due to the recent debt conversion. Loeb has also been active in other companies as of late since we just disclosed his new Roomstore stake. Third Point was -5.6% for May but is still up 12.6% for the year according to our May hedge fund performances update. To get an idea as to how Third Point may have generated such performance, we previously detailed their latest exposure levels as well.

Taken from Google Finance, Xerium Technologies (XRM) is "is a global manufacturer and supplier of two types of consumable products used primarily in the production of paper: clothing and roll covers. Xerium’s clothing segment products include various types of industrial textiles used on paper-making machines and other industrial applications."

To learn how to become a successful investor like the hedge fund manager himself, head to Dan Loeb's recommended reading list.

15% Discount to the Value Edge Newsletter From ValueHuntr

Today we're very excited to announce that we've secured an exclusive 15% discount to the Value Edge newsletter for Market Folly readers. Click here to receive the discount. The Value Edge newsletter normally sells for $199 per year for 12 issues but Market Folly readers receive it for only $169. You can check out a free sample newsletter here.

So, what is Value Edge and why should you care? It's a monthly newsletter full of professional investment ideas based on various stock screens and proprietary data gathering. It generates both long and short ideas and is the perfect starting place for investment scanning. In the newsletter you'll find ideas for the long side categorized by contrarian, deep value, cheap franchises, international value, potential activist targets, potential liquidations, merger arbitrage, and ValueHuntr's proprietary screen.

For shorts, the Value Edge newsletter highlights potential ideas segmented by 'herd mentality,' traditional overvalued companies with poor business prospects, companies with high M-score parameters, companies with low Z-score parameters, and more. These aggregated stock screens are actionable and resourceful for both institutional and individual investors. Many prominent investment managers are always scavenging through lists like these for their next big play.

You can checkout securely via credit card of PayPal here. Embedded below is a sample issue of the Value Edge newsletter from ValueHuntr:



You can download a free sample newsletter here.

Be sure to take advantage of the exclusive 15% discount we've secured for Market Folly readers. Click here to receive the discount. After that, you'll receive a new issue of the Value Edge newsletter from ValueHuntr each month for the next 12 months. Enjoy!

Hedge Fund Performance Numbers: May 2010 Was Brutal

As you've undoubtedly already heard, May was a brutal month for the markets. But at the same time, it was also brutal to many hedge funds who couldn't seem to effectively 'hedge' against the 8% decline in the indices. Compare these numbers to say those of the first quarter hedge fund performances and you'll see night and day. Below are some recently updated performance numbers from some of the most prominent hedge funds out there and some of the results will surprise you:

Andreas Halvorsen's Viking Global: -3.2% for May and now -2.62% for the year. As we've previously detailed, Visa (V) and Express Scripts (ESRX) are some of Viking's largest holdings. Visa could be partially responsible for their poor numbers as the stock was down over 20% in May, while ESRX on the other hand performed well on a relative basis as it was only down around 3% over the same timeframe. You can view Viking Global's portfolio here.

Shumway Capital Partners (Chris Shumway): -4.72% for May as we see yet another Tiger Cub hedge fund struggling. Many of their top stocks have taken a beating as of late including Teva Pharmaceuticals (TEVA), Equinix (EQIX) and Cisco Systems (CSCO), among others. You can view Shumway Capital's portfolio here.

Bill Ackman's Pershing Square: -2.2% for May but still up 5.87% for the year. We recently learned that Ackman bought shares of Citigroup (C) and is also still bullish on General Growth Properties (GGP).

Dan Loeb's Third Point LLC: -5.6% for May but still up an impressive 12.6% for the year. We recently detailed Third Point's exposure levels where we saw they were still quite long distressed debt and MBS.

John Paulson's firm Paulson & Co: His Advantage fund was -4.9% for May and his Credit Opportunities fund was down 4.2% for the month as well. For those interested in their equity investments we detailed Paulson's portfolio.

Ricky Sandler's Eminence Capital: -5.2% for May and down a whopping 9.37% year to date. In a prior Eminence investor letter, we saw that they favored large cap high quality names.

David Einhorn's Greenlight Capital: Bucking the trend, his firm was up 0.3% in the month of May, believe it or not. For those interested, we posted up Einhorn's presentation from the Ira Sohn Investment Conference.

Renaissance Technologies' RIEF: -4.46% for May but up 0.74% thus far through 2010. This of course is their fund that is open to outside investors which has not seen anywhere near the level of success as their closed and highly secretive Medallion fund. (We recently took a look at Medallion's performance numbers for those interested).

Paul Tudor Jones' BVI Global Fund (Tudor Investment Corp): -2.26% for May leaving them down 0.49% for the year. It appears that even global macro funds have had rough sailing in these choppy waters. This is not necessarily new information though as it was already publicized that global macro funds were struggling.

Louis Bacon's Moore Global: -9.15% for May and down 6.17% for the year. Obviously May was a hell of a month to the downside for the firm as it looks to have singlehandedly destroyed their year. We haven't highlighted Bacon's firm as of late but we previously posted up Moore Capital's investor letter.

Lansdowne Partners UK Equity Fund: -3.98% for May yet still up 1.07% for the year. While their short of Prudential has worked out for them, they still managed to have a rough month.

Jamie Dinan's York Capital: Down 4.8% for the month of May and up 0.67% for 2010 year-to-date. Dinan recently presented investment ideas at the Ira Sohn Conference which we summarized.

Jeffrey Altman's Owl Creek Asset Management: -2.80% for May. In the past we've covered some of Altman's thoughts at a hedge fund panel.

Odey European: Down a whopping 10.96% in the month of May alone. Ouch.

For more hedge fund performance numbers see below for the embedded report from HSBC:



You can download a .pdf copy here.

May was a brutal month for many hedgies, to put it lightly. For more from hedge fund land, be sure to check out the industry's latest exposure levels and keep up to date with the latest investments in our hedge fund portfolio tracking series.

Profile of Seth Klarman & Baupost Group

Absolute Return + Alpha is out with an excellent in-depth profile of legendary investor Seth Klarman and his investment firm, Baupost Group. Stephen Taub has penned a nine page history lesson on the guru laced with various tidbits such as the fact that 'Baupost' is an acronym for the names of the four founders of the firm, but Klarman was left out of that because he 'came in later.' And, interestingly enough, we see that the founders took a chance on a relatively inexperienced Klarman at the time and paid him only $35,000 a year. That certainly turned out to be a hell of a deal (for the founders, anyways).

We've of course been longtime followers of Baupost Group given their patience, unique style, and impressive returns. We recently highlighted Seth Klarman's recommended reading list as a great resource for those trying to learn to be a better investor. And of course you can track down Klarman's own investing book, Margin of Safety to learn about his framework. Klarman's investing career speaks for itself and his is one of the few names that can be uttered in the same sentence as the almighty Warren Buffett.

While we've tracked Baupost Group's equity portfolio on an in-depth basis, this profile just goes to emphasize what little equity exposure Klarman truly has. Only around 7% of Baupost's overall assets under management are invested in equities. But, when you consider that these are the only publicly available disclosures, what other choice do we have? The article confirms that Klarman often prefers bonds as they are a senior security, offer more safety, and pay current principle and interest. Klarman is also famous for keeping large amounts of cash on hand (20-30%) as he lies in wait for screaming opportunities.

However, he currently doesn't see too many. As we've detailed thoroughly, Klarman is worried about the markets. He professed his concern at the recent CFA Conference in Boston and then again at the Ira Sohn Investment Conference. You don't see too many public appearances from the Baupost manager, so when he speaks, you listen. His concern for the markets obviously coincides with the fact that he now has around 30% of Baupost's assets in cash. While he doesn't focus on macro calls, Klarman will hold cash until he sees opportunities. And right now, he doesn't see too many opportunities.

Despite Klarman's typically high levels of cash, Baupost has still generated astonishing performance. It was up 22% in 2006, 54% in 2007, and around 27% in 2009. During the crisis in 2008, Klarman's funds lost "between 7% and the low teens." Still though, he certainly outperformed the market indices and much of his investment management brethren in a time of panic.

So while we'll have to wait and see if Klarman's extreme worry is duly warranted, you certainly have to take his words seriously as his pedigree is unquestionable. He says he refined his investing principles via mentors Max Heine and Michael Price and attributes much of his success to the fact he was able to learn under those talented managers. That experience, he says, is far more valuable than anything learned in a classroom. You certainly can't argue with that. And you can't argue with Baupost Group's 19% annualized returns, either.

The profile of Seth Klarman and Baupost Group is embedded below in its entirety courtesy of AdvisorAnalyst.com:



You can download a .pdf copy here.

Definitely an insightful and in-depth piece done by Stephen Taub. Make sure to take a free two week trial to Absolute Return + Alpha if you're interested in all things hedge fund. And as always, for more on Seth Klarman, you can continue to follow him via our coverage of Baupost Group.

What We're Reading ~ 6/11/10

Ex-Polar Capital star founds new hedge fund [FINalternatives]

Good presentation on Benjamin Graham's ideologies [ValuePlays]

Which prompted us to re-read through Graham's book, The Intelligent Investor [Ben Graham]

The mega bearish chart [dshort]

A random walk through secular bear markets [Trader's Narrative]

Thoughts for those buying BP [Big Picture]

A look at Seahawk Drilling (HAWK) [Greenbackd]

And also an analysis of Noble (NE) [Manual of Ideas]

Where is the commercial real estate crash? [Fortune]

A great resource for retail bond investors looking for quotes & transparency [InvestingInBonds]

Prominent hedge funds piece together succession plans [Business Week]

George Soros' recent speech claiming we're entering Act II of the crisis [Dealbook]

Chime in on what fellow blogger David Merkel should do next [Aleph Blog]

Another casino buy for John Paulson [Fortune]

How George Soros broke the Bank of England [TheAtlantic]

A BP dividend cut? Game theory [Financial Crookery]

In-depth look at Charles Schwab and retail investors [BusinessWeek]

Eddie Lampert's payout may shield him from tax increase [Bloomberg]

Julian Robertson's wife loses battle with cancer. Our condolences to him and his family [FINalternatives]

Hooked on gadgets & paying a mental price [NYTimes]

Mark Rachesky's MHR Fund Management: SEC Filing on Emisphere Technologies

Mark Rachesky's investment firm MHR Fund Management recently filed a Form 4 with the SEC regarding shares of Emisphere Technologies (EMIS). The filing detailed that Rachesky's firm was just issued warrants on Emisphere per a previous agreement. We see that MHR Fund Management received warrants for the right to buy 865,000 shares (in total) with an exercise date of August 21st, 2014 and a conversion price of $2.90. This is the first time we've covered portfolio activity out of MHR Fund Management and we plan on doing so from here on out.

Here's some background for those of you unfamiliar: Mark Rachesky received his B.S. in molecular aspects of cancer from the University of Pennsylvania and an M.D. from Stanford University School of Medicine. As if that wasn't already enough, he also holds an MBA from the Stanford Graduate School of Business. Rachesky previously served as Carl Icahn's senior investment officer and managing director. After that, he went on to found his own firm, MHR Fund Management LLC.

While Rachesky obviously has ties to Icahn it's interesting to see them now essentially pitted against each other in another one of his investments. As we've detailed numerous times before, Icahn has been bidding for Lions Gate Entertainment (LGF), one of MHR Fund Management's largest holdings. So, it will certainly be interesting to watch the master and the apprentice potentially do battle there. (Though, you could easily argue that Rachesky is an apprentice no longer).

Taken from Google Finance, Emisphere Technologies is "a biopharmaceutical company that focuses on a delivery of therapeutic molecules or nutritional supplements using its Eligen Technology."

To see what some of the biggest hedge funds have been up to, make sure to stay updated via our hedge fund tracking series.

Dan Loeb's Third Point Discloses Roomstore Position

Dan Loeb's hedge fund Third Point LLC filed a 13G with the SEC regarding shares of Roomstore (ROOM) due to activity on May 28th, 2010. Per the filing, Third Point shows a 1.8% ownership stake in Roomstore with 174,644 shares. This disclosure was actually jointly filed with Ian Wallace and River Run Management who disclose a 12.9% stake in the company with 1,255,242 shares.

This is the first time Third Point has disclosed this position because in their last 13F filing that detailed positions as of March 31st, 2010 they did not show a stake. For the rest of Loeb's investments, we covered Third Point's equity portfolio. To get a better idea as to Loeb's overall portfolio allocations, check out Third Point's latest exposure levels.

Taken from Yahoo Finance, Roomstore is "engages in the retail sale of furniture, bedding, and home decorating accessories through its retail stores and Internet operations."

To learn how to become a distinguished investor like the hedge fund manager himself, head to Dan Loeb's recommended reading list.

Patrick McCormack's Hedge Fund Tiger Consumer Starts New Position

Patrick McCormack's hedge fund Tiger Consumer Management just filed an a 13G with the SEC regarding shares of Red Robin Gourmet Burgers (RRGB). The filing was made due to activity on May 21st, 2010 and the hedge fund now shows a 5.16% ownership stake in RRGB with 806,534 shares. This is a brand new position for Tiger Consumer as they did not show a position as of March 31st per their last 13F filing.

This is the first time we've covered Pat McCormack's hedge fund and so some brief background: Tiger Consumer is one of the many hedge funds seeded by Julian Robertson, the founder of Tiger Management. McCormack's fund offices at the same Park Avenue address that Robertson's legendary firm once called home. As such, Tiger Consumer is one of the 'Tiger Seed' funds out there and as of March 31st, 2010 reported $919 million in assets. For those interested, you can view the whole Tiger Family Tree here. And obviously, as his hedge fund's name implies, McCormack's focus is on the consumer sector. We're starting to cover more of the Tiger Seed funds in addition to our longstanding coverage of Chase Coleman's Tiger Global.

Taken from Google Finance, Red Robin Gourmet Burgers is "together with its subsidiaries, is a casual dining restaurant chain focused on serving burgers. As of December 27, 2009, Red Robin had 21 franchisees, which were operating 133 restaurants in 21 states and 2 Canadian provinces, and it had eight exclusive franchise area development arrangements with those franchisees."

For more of the latest investment activity from prominent managers, head to our hedge fund portfolio tracking series that is updated daily.

Seth Klarman's Baupost Group Dumps Avantair (AAIR)

Seth Klarman's investment firm Baupost Group just filed an amended 13G with the SEC regarding shares of Avantair (AAIR) due to activity on April 30th, 2010. Per the filing, Baupost Group has disclosed a 0% ownership stake in Avantair with 0 shares. Obviously, this means they no longer own a position. What's curious is that their most recent 13F filing which disclosed Baupost's portfolio as of March 31st, 2010 did not list AAIR as a position either. We would fathom that since AAIR is traded over the counter (OTC), that maybe it is not a security deemed reportable by the SEC for 13F purposes. Regardless, the thing to take away here is that Baupost no longer owns shares.

We track Baupost Group because its manager is one of the most successful of our generation. To learn to invest like this guru we'd of course defer to the man himself via Seth Klarman's recommended reading list. A normally somewhat recluse Klarman has been actively in the spotlight as of late, giving speeches at numerous events. We summarized Klarman's talk at the CFA Conference and also detailed his thoughts from the Ira Sohn Conference. Maybe his sudden public appearance blitzkrieg coincides with the fact that he is more worried about the markets than he ever has been. (Or maybe it was just how his schedule played out). Either way, it's always great to hear his perspective.

Taken from Google Finance, Avantair is "engaged in the sale of fractional ownership interests and charter card usage of professionally piloted aircraft for personal and business use and the management of its aircraft fleet. As of June 30, 2009, the Company operated 52 aircraft within its fleet, which is comprised of 46 aircraft for fractional ownership, five company- owned core aircraft and one leased and company- managed aircraft."

You can view the rest of Baupost Group's portfolio here.

Eliav Assouline & Marc Andersen's Axial Capital Acquire QLTI Shares

Eliav Assouline and Marc Andersen's hedge fund Axial Capital recently filed a Form 4 with the SEC regarding shares of QLT Inc (QLTI). We see that Axial acquired 100,000 shares at a price of $6.24 on June 4th as well as 100,000 shares on June 7th at $6.27 and finally 100,000 shares on June 8th at $6.10. In total, they acquired 300,000 new shares and their total position now stands at 5,776,229 shares. QLTI is currently trading slightly below their purchase price at around $6.01.

This is only the second time we've detailed portfolio movements from Assouline and Andersen's firm but we will continue to do so in the future. (We previously posted when Axial added to another position as well). Axial was founded in 2005, was seeded by legendary hedgie & Tiger Management founder Julian Robertson and in fact offices out of 101 Park Avenue, the prior address of famed Tiger Management. As such, Axial is a 'Tiger Seed' and you can view the proverbial Tiger Management family tree here. As of their last 13F filing, Axial Capital reported assets to the SEC totaling $799 million.

Taken from Google Finance, QLT is "biotechnology company. The Company is engaged in the development and commercialization of therapies for the eye. The Company focuses on its commercial product, Visudyne, for the treatment of wet age-related macular degeneration (wet AMD), and developing its ophthalmic product candidates."

For more of the latest moves from prominent investment managers, stay up to date with our daily hedge fund portfolio tracking series.

Renaissance Technologies' Medallion Fund: Performance Numbers Illustrated

Few investment managers garner the label 'hedge fund royalty'. Jim Simons and Renaissance Technologies' Medallion Fund certainly do. While founder and CEO Jim Simons retired at the end of last year, the fund and his legacy certainly live on. It's a known fact that almost all things about this secretive hedge fund are, of course, secret. However, despite not knowing the specific trading methodologies or algorithms, it's common knowledge that the fund is successful. Very successful according to Rachel E.S. Ziemba and William T. Ziemba's book, Scenarios for Risk Management and Global Investment Strategies which reveals Medallion's performance numbers.

Renaissance Technologies (commonly referred to as Rentec) houses one of the most prominent hedge funds in the world under their roof. Yet, practically no one knows anything about it due to the high levels of secrecy. What we do know, though, is that the fund's investor base is limited to employees of the firm and is closed to outside investors (except for around six people apparently). Medallion charges an obscenely high 5% management fee and 44% performance fee. But, when you're generating the kind of returns Rentec's Medallion is, you can get away with that.

For a closer look at Medallion's performance numbers, we reference Ziemba's Scenarios for Risk Management and Global Investment Strategies. Astonishingly, out of the 148 months that elapsed between January 1993 and April 2005, Medallion only had 17 monthly losses. Out of 49 quarters in the same time period, Medallion only posted three quarterly losses. Additionally, it has seen a yearly Sharpe ratio of 1.68. In twelve plus years of trading, Rentec's Medallion Fund has never had a down year.

Embedded below is an excerpt from Scenarios for Risk Management that illustrates Rentec's Medallion Fund returns:



You can download a .pdf copy here.

And that's not all. Medallion's magnificent march upward has continued in recent years. As we detailed previously, Medallion returned 80% in 2008 in a year where many hedge funds stumbled and some completely crumbled. Additionally according to Barron's, Medallion returned 39% in 2009 and has a 3 year annual compound return of 62.8%. While it's cheesy to say, Medallion certainly holds the gold medal in the land of hedge fund lore. For more on Medallion's performance and an in-depth look at hedge fund strategies, be sure to check out Ziemba's Scenarios for Risk Management and Global Investment Strategies.

Julian Robertson's Tiger Management Bets on Intel, Wal-Mart & Monsanto: 13F Q1 2010

(This post is part of our series on tracking hedge fund portfolios. If you're unfamiliar with tracking investments they disclose via SEC filings, check out our series preface on hedge fund filings.)

Next up is investment guru and legend Julian Robertson who founded one of the lauded hedge funds of the era, Tiger Management. He grew the fund from $8 million at inception to over $22 billion at its peak. Between 1980 and 2000, Tiger compounded a gross rate of 31.5%, but after losses of 4% in 1998 and 19% in 1999, Tiger shut down. For more information on Julian, check out Daniel Strackman's book entitled, Julian Robertson: A Tiger in the Land Of Bulls And Bears.

Since Tiger's dissolution, Robertson's former employees have started successful funds of their own, deemed the 'Tiger Cubs'. Additionally, Robertson has himself seeded some other managers with vast potential, dubbed the 'Tiger Seeds'. This vast and expansive network of hedge fund managers is almost akin to a farm system for stockpickers and we track the majority of these funds. To learn more about Tiger Management, head to our in-depth profile of Julian Robertson.

While his hedge fund Tiger Management closed down years ago, Julian Robertson still makes investments via the Tiger Management LLC vehicle as evidenced by SEC filings. As such, we will continue to track Robertson's holdings via this vehicle's public disclosures. In the past, we've gotten a tiny glimpse at Robertson's portfolio when in late 2009 we saw he had placed a bet that interest rates would rise in the future via constant maturity swaps. We haven't heard too much from him as of late but we'll of course post anything of interest in the future. If you want to jump back in time, we've posted an interview with Robertson from back in 1998 around Tiger's peak.

The positions listed below were Tiger Management's long equity, note, and options holdings as of March 31st, 2010 as filed with the SEC. All holdings are common stock unless otherwise denoted:


Brand New Positions
Priceline.com (PCLN)
Apollo Group (APOL)
Hologic (HOLX)
LCA Vision (LCAV)
Madison Square Garden (MSG) ~ due to a spin-off from Cablevision
Sensata Technologies (ST)


Increased Positions
Verisk Analytics (VRSK): Increased position size by 30.3%
Intel (INTC): Increased by 20.6%
EMC (EMC): Increased by 17.5%


Reduced Positions
Solutia (SOA): Reduced position size by 31.9%
Mastercard (MA): Reduced by 24.5%
Lamar Advertising (LAMR): Reduced by 19.7%
Fidelity National Information (FIS): Reduced by 19.6%
DirecTV (DTV): Reduced by 18.6%
Talisman Energy (TLM): Reduced by 15.1%
Visa (V): Reduced by 14.8%
Skyworks Solutions (SWKS): Reduced by 13.6%


Positions They Sold Out of Completely
Google (GOOG)
Walmart (WMT)
Thermo Fisher Scientific (TMO)
SBA Communications (SBAC)
Teradata (TDC)
Maxim Integrated (MXIM)
Genoptix (GXDX)
IAC Interactive (IACI)


Top 15 Holdings (by percentage of assets reported on 13F filing)

1. Wal-Mart Stores (WMT) Calls: 8.22%
2. Monsanto (MON) Calls: 5.96%
3. Intel (INTC): 4.58%
4. Wuxi Pharmatech (WX): 3.68%
5. Apple (AAPL): 3.48%
6. CVS Caremark (CVS): 3.47%
7. DigitalGlobe (DGI): 3.45%
8. Visa (V): 3.44%
9. Solutia (SOA): 3.35%
10. Mastercard (MA): 3.26%
11. Skyworks (SWKS): 3.15%
12. Dick Sporting Goods (DKS): 3.13%
13. Verisk Analytics (VRSK): 3.13%
14. DirecTV (DTV): 3.09%
15. EMC (EMC): 3.08%

It should come as no surprise that the Tiger Management founder himself has a portfolio reminiscent of other 'Tiger Cub' hedge funds. After all, since Robertson often gets to listen in on meetings and chat with these managers, he can cherry pick their best ideas as well as add his own into the mix. Julian has a large position in CVS Caremark, just like Lee Ainslie and Maverick Capital which is probably hurting performance after the recent plunge in shares. Additionally, Robertson owns DirecTV which we've seen Chase Coleman's Tiger Global is bullish on. Lastly, Tiger holds perennial favorites like Apple, Mastercard, Visa, and Verisk Analytics.

On a sector level, Robertson severely decreased technology exposure and ramped up positions in services. In terms of sales, Robertson liquidated his Google (GOOG) position which is intriguing because many other managers own this name as it's one of the most important stocks to hedge funds. Since Robertson exited in the first quarter, it seems to have been the right decision as GOOG shares have spiraled down. He also sold off Wal-Mart (WMT) common stock but maintains a very hefty position in WMT call options. Tiger Management's portfolio overall saw more selling than buying as assets reported decreased. The 13F filing shows Tiger had $574 million in reported assets this quarter, down from over $600 million in the quarter prior (remember that these filings are not representative of the hedge fund's entire base of AUM).

To see the latest hedge fund portfolios, we recommend using Alphaclone as Market Folly readers receive a special free 14 day trial. It's our source for hedge fund data, replication, backtesting and more. This post is part of our daily hedge fund portfolio tracking series. We've already detailed activity from numerous managers so click the links below to be taken to the respective portfolio updates. We've covered investment gurus such as: Seth Klarman's Baupost Group and Warren Buffett's Berkshire Hathaway, and George Soros.

Additionally, value and activist funds such as: Bill Ackman's Pershing Square, David Einhorn's Greenlight Capital, Eddie Lampert's RBS Partners, David Tepper's Appaloosa Management, Mohnish Pabrai's Investment Fund, Bruce Berkowitz's Fairholme Capital Management, Dan Loeb's Third Point.

'Tiger Cub' funds like: Stephen Mandel's Lone Pine Capital, John Griffin's Blue Ridge Capital, Lee Ainslie's Maverick Capital, Andreas Halvorsen's Viking Global, Roberto Mignone's Bridger Management, and Shumway Capital Partners.

'Tiger Seed' funds that were seeded by Julian Robertson, including: Chase Coleman's Tiger Global.

Our latest addition, hedge funds started by former employees of various Tiger Cub/Tiger Seed funds: David Stemerman's Conatus Capital.

And lastly, other hedge funds employing various other strategies ranging from risk arbitrage to distressed to global macro: John Paulson's hedge fund Paulson & Co, Phil Falcone's Harbinger Capital Partners,

Be sure to check back daily for new hedge fund updates.

Whitney Tilson Buys BP & Explains Why

Whitney Tilson of hedge fund T2 Partners recently appeared on CNBC and revealed he is now long BP (BP). This company of course has dominated headlines for the drastic oil spill in the Gulf of Mexico. More than anything, this investment is the definition of being greedy when others are fearful.

Currently, it's very apparent that the majority of investors are being fearful due to BP's potential liability associated with the oil spill. Not Tilson, though. He is zigging while the crowd zags and argues that this stock is simply "too cheap." While some are speculating about potential bankruptcy surrounding BP, he notes that this company earns north of $20 billion a year in profits and will be able to pay-off spill cleanup and any other potential liabilities.

BP is currently trading around 5.5x earnings and paying a 9% dividend yield. Being a value investor, Tilson obviously is not trying to make a quick trade here given the headline risk and instead is in it for the long haul. He fully acknowledges that headlines can (and probably will) continue to be negative, but he thinks it's just starting to get ridiculous. Tilson mentions that it is around a 4% position in their portfolio (rather than say 10%) because there always is the potential for an armageddon scenario where there are just years and years of problems.

In addition to Tilson's new stake in BP, we also previously learned that he is long Anheuser-Busch InBev (BUD). T2 revealed this investment idea at the Value Investing Congress and we posted up their BUD presentation for those interested. Tilson's investment in BP is an example of a stock presenting potentially extreme value through extenuating circumstances while his investment in BUD is more-so buying an attractively priced high quality business. This showcases the dynamic in value investing and stockpicking as no two investments are really ever identical.

Embedded below is Tilson's video interview where he outlines why he bought BP (Email readers will need to come to the site to view it):



For other activity from hedge fund T2 Partners, we also recently saw that Whitney Tilson and Glenn Tongue are still cautious on the markets and we received a portfolio update with their May letter to investors. Additionally, we note that they are still bearish on the housing market as well.

It definitely seems as if hedge fund managers are willing to share their new investment ideas as of late. Maybe it has something to do with the fact that hedge funds had a horrible May performance wise, but some would argue hedgies are always talking their book. Either way, no complaints as it's always refreshing to see new positions and hear a thesis. For more on hedge fund T2 Partners, be sure to check out some of their short positions as well.

Soros Fund Management Bullish on Petrobras, Suncor & DirecTV: 13F Filing Q1 2010

(This post is part of our series on tracking hedge fund portfolios. If you're unfamiliar with tracking investments they disclose via SEC filings, check out our series preface on hedge fund filings.)

Next up is George Soros' hedge fund firm, Soros Fund Management. While he is still slightly involved, the bulk of the portfolio activity you see below comes from his son Robert Soros who runs the flagship Quantum Endowment. For 2009, Soros' Quantum Endowment Fund was up 28% as noted in our hedge fund performance numbers list. We follow Soros for sector leans due to their global macro tilt. Given that they dabble in pretty much any asset class they please, remember that the equity positions below are only a brief part of a cohesive whole.

George Soros has in the past voiced his concern over the deleveraging of the US consumer as he feels it could hurt consumer spending (and thus growth) in the future. Soros' thoughts from the markets are detailed in his most recent book, The New Paradigm for Financial Markets: The Credit Crisis of 2008 and What It Means. And of course you can receive a primer on all things finance from the man himself in his first book The Alchemy of Finance.

The positions listed below were their long equity, note, and options holdings as of March 31st, 2010 as filed with the SEC. All holdings are common stock unless otherwise denoted:


Brand New Positions
Conexant Systems (CNXT) Notes
Cobalt International Energy (CIE)
iShares Emerging Markets Index (EEM) Puts
PNC Financial (PNC)
Telecom Argentina (TEO)
Covanta (CVA) Notes
Westport Innovations (WPRT) ~ we previously detailed Soros' new stake
Solar Capital (SLRC)
Petrohawk Energy (HK)
AMR (AMR)
JDS Uniphase (JDSU) Notes
RF Micro (RFMD)
Nokia (NOK)
ADC Telecomm (ADCT) Notes
Global Crossing (GLBC) Notes
Dow Chemical (DOW)
Staples (SPLS)
Exco Resources (XCO)
International Paper (IP)
Armstrong World (AWI)


Increased Positions
NovaGold Resources (NG): Increased position size by 435.8% ~ we previously detailed this
DirecTV (DTV): Increased by 27.3%
Suncor Energy (SU): Increased by 22.4%
Cadence Design System (CDNS) Notes: Increased by 20%
Lawson Software (LWSN) Notes: Increased by 19.6%
Petroleo Brasileiro (PBR): Increased by 17.7%
Verizon (VZ): Increased by 16.7%


Reduced Positions
Plains Exploration (PXP): Reduced position size by 24.7%
Monsanto (MON): Reduced by 17.4%
Hess (HES): Reduced by 16.1%
Emdeon (EM): Reduced by 12.2%
SPDR Gold Trust (GLD): Reduced by 9.6%


Positions They Sold Out of Completely
Mcdata (inactive) Notes
CSG Systems International (CSGS) Bonds
Terra Industries (TRA)
Select Sector Financials (XLF) Calls
Bunge (BG)
Coach (COH)
Heinz (HNZ)
Sandridge Energy (SD)
Energy XXI (EXXI)
iShares US Telecom Sector (IYZ)
CVR Energy (CVI)
James River Coal (JRCC)
Mechel (MTL)
Steel Dynamics (STLD)
Denbury Resources (DNR)
Windstream (WIN)
McMoran Exploration (MMR)
Patterson-UTI (PTEN)
Sterling Construction (STRL)
Century Aluminum (CENX)


Top 15 Holdings (by percentage of assets reported on 13F filing)

1. SPDR Gold Trust (GLD): 6.95%
2. Petroleo Brasileiro (PBR): 4.63%
3. Hess (HES): 3.46%
4. Suncor (SU): 3.26%
5. LSI Corp (LSI) Notes: 3.2%
6. Petroleo Brasileiro (PBR-A): 2.66%
7. Monsanto (MON): 2.62%
8. Linear Tech (LLTC) Notes: 2.49%
9. Lawson Software (LWSN) Notes: 2.22%
10. Interoil (IOC): 2.19%
11. RF Microdevices (RFMD) Notes: 2.11%
12. DirecTV (DTV): 2.03%
13. Verizon (VZ): 2.00%
14. Flextronics (FLEX) Notes: 1.98%
15. Plains Exploration (PXP): 1.80%

Firstly, please note that since Soros Fund Management is a global macro oriented firm, they undoubtedly have positions in other markets (debt, currencies, commodities) that are not required to be disclosed by the SEC. As such, the above is only partially representative of Soros' portfolio. That said, you can definitely see some themes via their equity exposure as they are long various oil and agriculture names.

Additionally, they seem to like the satellite play DirecTV (DTV). As we've detailed previously, Chase Coleman's hedge fund Tiger Global is bullish on DTV. It was also interesting to see Soros have a sizable long in Interoil (IOC) as many investment managers and pundits have labeled IOC as a potential fraud. Whitney Tilson's hedge fund T2 Partners has been short IOC under the notion that IOC has no real proven reserves and is essentially just a public relations hype machine. This dichotomy of opinion is what truly makes a market.

Overall, the natural resource and energy theme continues to garner a prominent position in Soros Fund Management's portfolio. Gold is their top holding, followed by large stakes in Petrobras, Hess, Suncor, Monsanto, Interoil, and Plains Exploration. They also show a large addition to NovaGold Resources, but we had already mentioned this position increase back when the transaction took place as both Soros and John Paulson bought shares.

Assets reported on Soros' 13F filing were $8.75 billion this quarter. Data from the SEC is aggregated and sorted automatically by Alphaclone, our source for hedge fund tracking, replicating, and performance backtesting (Market Folly readers can receive a special free 14 day trial). Remember that these filings are not representative of the hedge fund's entire base of AUM.

This post is part of our daily hedge fund portfolio tracking series. We've already detailed activity from numerous managers so click the links below to be taken to the respective portfolio updates: Seth Klarman's Baupost Group, Warren Buffett's Berkshire Hathaway, Stephen Mandel's Lone Pine Capital, and Bill Ackman's Pershing Square, David Einhorn's Greenlight Capital, Eddie Lampert's RBS Partners, David Tepper's Appaloosa Management, Mohnish Pabrai's Investment Fund, John Griffin's Blue Ridge Capital, Lee Ainslie's Maverick Capital, Bruce Berkowitz's Fairholme Capital Management, Andreas Halvorsen's Viking Global, Dan Loeb's Third Point, John Paulson's hedge fund Paulson & Co, Chase Coleman's Tiger Global, Roberto Mignone's Bridger Management, Phil Falcone's Harbinger Capital Partners, David Stemerman's Conatus Capital, and Shumway Capital Partners. Be sure to check back daily for new hedge fund updates.

Bill Ackman's Ira Sohn Presentation: Rating Agencies, General Growth Properties & Citigroup

We had previously covered a brief summary of Bill Ackman's thoughts at the Ira Sohn Investment Conference and now we'll take an in-depth look at the Pershing Square hedge fund manager's thoughts. Below is his full presentation encompassing topics of how to save the ratings agencies, his continued bullish stance on General Growth Properties (GGP), a new book he is the subject of, and his brand new purchase of Citigroup (C).

Ackman first critiqued the ratings agencies and laid out a plan on how to 'save' them. He mainly thinks they need to negate conflicts of interest, institute a new payment scheme as well as a new issue ratings moratorium. Ackman feels we need a new system whereby investors are not so overly reliant on ratings and can do their own due diligence. In the end, he believes NRSROs should be removed from the structuring and underwriting process and you can view his full thoughts in the presentation below. You'll recall of course that fellow hedge fund manager David Einhorn of Greenlight Capital is bearish on the sector. In fact, he mentioned in his new Ira Sohn presentation that he was still short the ratings agencies and we've also covered his original thesis from last year, The Curse of the Triple A.

Ackman's next topic revisited an old (and still current) investment. At least year's Ira Sohn Conference, you may remember that Bill Ackman made a presentation on General Growth Properties. Back then, the stock was trading around $1 per share as the mall REIT operator was on the verge of bankruptcy. Ackman's investment turned out to be his most successful ever, but he's not done yet. His new presentation details the plan to save the company from bankruptcy as well as the continued bullish prospects. He cites a bouncing-back US consumer, demand for mall REIT debt and equity capital, increased mall traffic, as well as decreasing cap rates.

Most notably, Ackman delves into General Growth's bankruptcy emergence where the company will become two separate entities: General Growth Properties (GGP) and General Growth Opportunities (GGO) He notes an estimated value of GGP at $15 and an estimated value of GGO at $5. GGP would be considered the cashflow cow as it holds all the income producing assets while GGO holds more non-income producing properties (via real estate development assets). Ackman also makes note that shares of GGP would have to be added back to real estate indices, thus generating natural buyers because when the company entered bankruptcy it was removed from these indices. You'll recall of course that we previously detailed how Ackman thinks GGP could double over the next few years. Hedge fund Pershing Square is definitely still in the bullish camp as we've detailed their large economic exposure to GGP. For the rest of Ackman's investments, head to Pershing Square's equity portfolio.

Rounding out Ackman's presentation, he then casually mentions that people have always accused him of talking his book (who doesn't talk their book these days?) As such, he ties in the suggestion that you buy Christine Richard's new book, Confidence Game: How a Hedge Fund Manager Called Wall Street's Bluff, which he is the subject of. Lastly, Ackman leaves one presentation slide up regarding Pershing Square's brand new purchase of 150 million shares of Citigroup (C) and comically comments that he doesn't have time to talk about this large new addition. Later in the week though, we did manage to determine why Bill Ackman bought Citigroup.

Embedded below is Bill Ackman & hedge fund Pershing Square's full presentation from the Ira Sohn Investment Conference analyzing the ratings agencies, General Growth Properties, and more:



You can download a .pdf copy here.

Given his new Citigroup purchase, we'll probably see an in-depth slide show on that investment at some point in the future from Pershing. Even though General Growth Properties has already been his single most successful investment, Ackman thinks shares are still heading higher. For more on Bill Ackman, head to our profile of Pershing Square. For more hedge fund manager presentations, head to the summary of the Ira Sohn Investment Conference as well as David Einhorn's presentation and Steve Eisman's presentation.

Hedge Fund Third Point's Latest Exposure Levels: 27.3% Net Long Equities

For the month of May, Dan Loeb's hedge fund Third Point was down 5.6%. While this was a sub-par month by their standards, they still outperformed the S&P 500 which was down 8% over the same time period. Third Point's offshore fund has $1.8 billion under management and has generated 18% annualized returns (836% cumulative performance). To learn to be such a successful investor, we'd of course refer you to Dan Loeb's recommended reading list. Throughout 2010, they've been reducing their gross exposure. In terms of long/short equity exposure, we see that their biggest net long positions are in the financial sector at 8.8% and consumer sector at 5.1%.

In the profits and losses column, the consumer sector was also their biggest loser, returning -1.7% net for the month. Overall long/short equity exposure came in at 40.2% long and -12.9% short, leaving them 27.3% net long. As we've highlighted recently, hedge funds have very low net long exposure. However, Third Point's exposure levels seem to be above that of the overall hedge fund industry. For more detail on their specific positions, we've also covered Third Point's equity portfolio.

Moving next to credit, we see Loeb is still very long distressed at 28.6% net exposure and MBS at 19.1% net. This of course continues from the past few months where we've highlighted how Loeb has been net long distressed debt. Across all asset classes, distressed was also most responsible for their poor month as they lost 2.7% there. In terms of overall geographic exposure, Third Point is 87% net long the Americas, 14% net long Europe, and -1% net short Asia.

In a big down month, it should come as no surprise that three of their short positions were their top winners. Unfortunately, they don't disclose the positions (but can you really blame them?) Their top losing positions consisted of Lyondell, Dana Holding, Barclays, Liberty Media, and Xerox. You'll recall that Jamie Dinan of York Capital recently stated he was bullish on Lyondell at the Ira Sohn Investment Conference (notes from the event here).

Overall, Third Point's top positions were as follows (keep in mind that they hold multiple types of securities in each of these names):

1. Chrysler
2. Delphi
3. CIT Group
4. PHH Corp
5. Dana Holding Corp

Embedded below is the recent monthly report from Dan Loeb's Third Point Offshore Fund:



You can download a .pdf copy here.

So, a poor month performance wise for the hedge fund firm, but they still have solid year to date numbers. We'll have to see if they continue to ratchet down gross exposure as this seems to be a building trend amongst hedge funds. For more from Third Point, be sure to check out Dan Loeb's recommended reading list as well as Third Point's equity portfolio.