Gator Financial Up 23% YTD As GSE Preferred Shares Yield Returns

Updated on

Gator Financial is now two for two for 2019 after ending both January and February in the green. It’s a much-needed recovery after last year’s double-digit negative return. According to the firm’s February fact sheet, the month wasn’t as outstanding as January, but it was still a solid return, nonetheless.

Gator Financial was up 4.44% in February

The financials-focused hedge fund reported a return of 4.44% for February to follow up January’s 17.76% return. That brings Gator Financial’s year-to-date returns for 2019 to 22.98%. In all of 2018, the fund posted a return of -16.02%, with the vast majority of those losses coming in December when the fund was down 14.01%.

Get The Full Seth Klarman Series in PDF

Get the entire 10-part series on Seth Klarman in PDF. Save it to your desktop, read it on your tablet, or email to your colleagues.

Q4 hedge fund letters, conference, scoops etc

Gator Financial Partners is a long/ short equity fund with a preference for small- and mid-cap financial companies with less sell-side research coverage. The firm, which is managed by analyst Derek Pilecki now manages slightly under $100 million in assets.

The fund's top five long positions in February included Zions Bancorporation stock and warrants, which accounted for 13.04% of its net asset value. Syncora Holdings made up 9.32% of the portfolio, while 9.31% of the portfolio was in government-sponsored enterprise (GSE) preferred shares. The fund's fourth and fifth biggest long positions were Ambac Financial Group and SunTrust Bank at 8.75% and 7.83%, respectively.

Update on GSE preferreds

Gator is one of many hedge funds banking on GSEs Fannie Mae and Freddie Mac exiting conservatorship this year. So far the bet has paid off for funds like Gator which are holding the shares. Other well-known funds which have been known to hold GSE preferred shares include Blackstone's GSO Capital Partners, Paulson & Co., Pershing Square Capital Management and Perry Capital, The Wall Street Journal reports.

Gator has highlighted its position on the GSEs' preferred shares several times over the years. In a recent letter, the fund's management explained why they expect Fannie and Freddie to exit conservatorship this year. For example, they pointed out that the Trump administration was pushing to get Mark Calabria appointed as the next director of the Federal Housing Finance Agency, which oversees the GSEs. As soon as he's installed, they expect him to immediately push for the end of conservatorship.

We received another update on the FHFA appointment from Fox News' Charlie Gasparino earlier this month. Citing unnamed sources, he said the Trump administration was aiming to have Calabria appointed within the next two weeks. His sources also said Calabria will end the net worth sweep and begin to recapitalize both GSEs slowly before ending their conservatorships.

We certainly expect the many hedge funds which own Fannie or Freddie shares to keep a close eye on the Senate this week. Renowned bank analyst Dick Bove has also been tracking the situation closely, so we expect further updates from him as well.

This article first appeared on ValueWalk Premium

Leave a Comment