Bill Ackman, the founder and CEO of Pershing Square Capital Management said the most interesting investments in his portfolio right now are Fannie Mae / Federal National Mortgage Association and Freddie Mac / Federal Home Loan Mortgage Corp.

During his appearance at CNBC’s Institutional Investor Delivering Alpha Conference, Ackman said “no one really noticed” his investment in the nationalized mortgage lenders. Fannie Mae and Freddie Mac gained more than 18% and 14% of stock value, respectively year-to-date.

Fannie Mae AIG

Fannie Mae, Freddie Mac offer the most upside

The activist investor said his investment in Fannie Mae and Freddie Mac offer the “most upside and well, probably has the most downside of anything we own.” However, Ackman believed that the downside scenario is very unlikely.

The United States government provided a $187 billion bailout for Fannie Mae and Freddie Mac during the financial crisis. The government acquired 79% of the common stock of Fannie Mae and Freddie part of the deal. The mortgage lenders were placed under the conservatorship of the Federal Housing and Finance Agency.

According to Ackman, “This cannot become a precedent where the U.S. government can come in and unilaterally take 100 percent of the profits of a private corporation forever.”

Ackman says China is a bigger global threat

During the conference, Ackman emphasized that the concerns related to China’s stock markets are far bigger than Greece. He said, “China is a bigger global threat by far. The Chinese stock market is a fairly remarkable phenomenon, and I think kind of a frightening one.”

Chinese equities lost nearly $4 trillion in value after investors who borrowed money to buy shares exited their positions.

The activist investor expressed concern about China’s lack of transparency. He also questioned the reliability of the country’s economic data. Ackman said people should be concerned about the short-term prospects of China although it has good long-term prospects.

“If you look at the Chinese financial system, you look at shadow banking; you look at the amount of leverage. You look at how desperately they worked to keep the stock market up. It looks worse to me than 2007 in the US,” said Ackman.

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