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A Fund Manager Sees Gains Ahead for AIG

Fairholme Capital is now the insurer's No. 2 investor

"The government is going to make good money"

Who owns American International Group (AIG)? We do! U.S. taxpayers, that is. The federal government has an 80% stake in the bailed-out insurer. And at least one shrewd investor thinks we're on to a good thing. Fairholme Capital Management, the investment firm run by Bruce R. Berkowitz—named domestic stock fund manager of the decade by Morningstar (MORN) in January—has acquired about 15 million AIG shares, second only to Uncle Sam.

Fairholme started building the stake in the second half of 2009 "as we started to see cash flows of AIG turn positive," Berkowitz says. His firm's shares are valued at about $625 million based on the Apr. 20 closing price of $41.63. The stock has gained almost 40% this year as Chief Executive Robert H. Benmosche struck deals to sell two life insurance units for about $51 billion to help repay the government. Washington's aid package ultimately swelled to $182.3 billion.

Berkowitz says that Fairholme has also invested in the debt of AIG. "It is still a good company with a good global brand," he says. "The government is going to make good money on AIG."

The bottom line: Bruce Berkowitz is betting on CEO Robert Benmosche's leadership and the power and global reach of AIG's brand.

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