Ackman Boosts Stake In Fannie Mae, Freddie Mac In Surprise Move

Ackman Boosts Stake In Fannie Mae, Freddie Mac In Surprise Move

Hedge fund manager Bill Ackman, embroiled in a fight to take down Herbalife Ltd. (NYSE:HLF) and boost his short crusade in the company with apparent Congressional assistance, has just increased his fund’s stake in Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) – again a company exposed to government involvement.

Regulatory filings show increased stake as confidence Fannie Mae and Freddie Mac remain intact improves

According to 13-D regulatory filings released today, Ackman’s activist hedge fund, Pershing Square Capital, boosted its stake in Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) from 9.8% to nearly 11.1% as speculation the mortgage related companies will continue to operate and the bi-partisan bill introduced by US Senators Johnson and Crapo will not pass Congress.

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The move in acquiring the common stock gives Pershing Square Capital some 115 million shares and comes as a surprise to market watchers.  The common stock is considered a less secure bet than the preferred stock.

Preferred shareholders had been fighting the government

As previously reported in ValueWalk, major hedge funds such as Fairholme Capital and Perry Capital were aggressive buyers of the fallen mortgage giants after the companies took a dramatic fall in the wake of the 2008 financial crisis.  Sophisticated hedge funds picked up preferred shares for pennies on the dollar as many mom and pop retail investors bailed out of the firm after the US government stepped in with its own bail out, ultimately claiming all Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) profits were to be swept into the US Treasury in a unilateral move currently being questioned in court by the hedge fund titans.

Speculation is that Ackman could be betting on Fannie Mae and Freddie Mac remaining intact — and if not, at least an equitable settlement for the common shareholders from the government.

The story was first reported by CNBC’s Scott Wapner, who discussed the issue with David Faber this morning.  Faber noted that Ackman had chosen a much more risky approach by purchasing the common stock, while many of the hedge fund players have invested in the preferred.  Wapner responded by noting it’s the common shareholders who stand to lose everything.  The preferred stock holder hedge funds are in the process of battling the government in court, assuming that the preferred shareholders will receive compensation before the common shareholders.

“He’s a gunslinger”

“He’s a gunslinger,” Wapner said of Ackman after having a phone conversation with him on his positions this morning.  “There are those on Capital Hill who are saying there is not a lot of support to get this done, that being the Johnson & Crapo plan,” Wapner said, speculating that Ackman’s play is that the firms will continue to operate independently.

On Friday ValueWalk reported that noted bank analyst Dick Bove had lowered his estimates for Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) from $1.53 per share to $1.52 per share for 2014, from $1.51 to $1.42 per share in 2015, and from $1.64 to $1.32 per share in 2016. “The sharp reduction in the 2016 forecast is due to the expected reduction in fees from mortgage put-backs,” explains Bove in a March 28 report.

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Mark Melin is an alternative investment practitioner whose specialty is recognizing a trading program’s strategy and mapping it to a market environment and performance driver. He provides analysis of managed futures investment performance and commentary regarding related managed futures market environment. A portfolio and industry consultant, he was an adjunct instructor in managed futures at Northwestern University / Chicago and has written or edited three books, including High Performance Managed Futures (Wiley 2010) and The Chicago Board of Trade’s Handbook of Futures and Options (McGraw-Hill 2008). Mark was director of the managed futures division at Alaron Trading until they were acquired by Peregrine Financial Group in 2009, where he was a registered associated person (National Futures Association NFA ID#: 0348336). Mark has also worked as a Commodity Trading Advisor himself, trading a short volatility options portfolio across the yield curve, and was an independent consultant to various broker dealers and futures exchanges, including OneChicago, the single stock futures exchange, and the Chicago Board of Trade. He is also Editor, Opalesque Futures Intelligence and Editor, Opalesque Futures Strategies. - Contact: Mmelin(at)

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