Activist fund manager Bill Ackman described his investment in mortgage giants Fannie Mae and Freddie Mac as the most interesting since he acquired a stake in General Growth Properties Inc. in 2008.
Ackman’s Pershing Square Capital Management LP said on Nov. 15 that it had bought a 9.98 percent stake in the common shares of Fannie Mae that aren’t owned by the government, as well as a 9.77 percent stake in the Freddie Mac shares available to the public. The firm may seek talks with shareholders, management and the government, which owns almost 80 percent of the agencies since bailing them out.
“Fannie Freddie is a little more dynamic situation where the opportunity for profit is to make multiples of your money, if you can come up with a solution to a problem that has vexed Congress and the Treasury I think since the crisis,” Ackman said in an interview today with Bloomberg Television’s Stephanie Ruhle. “This is the most interesting investment I’ve seen since my investment in General Growth.”
The fund manager helped rescue General Growth from near-collapse by pushing it to file for bankruptcy in 2009, when he also won a board seat. The effort “turned $60 million into $1.6 billion,” he told Bloomberg News in 2011.
Bruce Berkowitz’s $10.5 billion mutual-fund firm, Fairholme Capital Management LLC is proposing that it and other owners of Freddie and Fannie preferred shares buy the mortgage insurance business of the companies and leave common shareholders like Ackman with stakes in the legacy business that would be wound down.
President Barack Obama would reject proposals by hedge funds to recapitalize Fannie Mae and Freddie Mac, National Economic Council Director Gene Sperling said this week, a view that was repeated by Senator Bob Corker of Tennessee at a hearing today.
Ackman, who doesn’t support Berkowitz’s plan, isn’t “yet ready to really talk about what we have in mind,” he said today after speaking at the Robin Hood Investors Conference in New York, which is closed to the public.
Berkowitz and Ackman’s investments highlight how, in the space of two years, Freddie and Fannie went from taxpayer sinkholes to money makers that investment managers are fighting to privatize. Seized by the government in 2008 in a $187.5 billion bailout, both companies returned to profit in 2012, when Fannie Mae had record net income of $17.2 billion. Freddie Mac earned $11 billion last year.
In his General Growth wager, Ackman paid $9.3 million for 20.1 million shares at an average of 46 cents each, according to a filing at the time of his November 2008 purchase. General Growth filed for Chapter 11 protection the following year after weighing itself down with $27 billion in debt that it was unable to refinance because of the financial crisis and collapse of the commercial mortgage-backed securities market.
Berkowitz in 2010 joined Ackman and other investors including Brookfield Asset Management Inc. in committing more than $8 billion to bring the firm out of Chapter 11.
Ackman is also chairman of Howard Hughes Corp., the real estate development company he spun off from General Growth, which owns large tracts of land for housing throughout the U.S. as well as the South Street Seaport in New York. Pershing Square will probably own a stake in the company “forever,” he said.
Activist funds such as Pershing Square typically buy equity stakes in companies and try to force management and directors to make changes that boost share prices and investor returns. Ackman’s $12 billion hedge-fund firm is known for detailed research and concentrated investments.
Pershing Square this year successfully pushed for a shakeup at Air Products & Chemicals Inc., and disclosed stakes in the mortgage companies after two other high-profile bets lost money. Pershing Square sold its stake in retailer J.C. Penney Co. for a $500 million loss after unsuccessfully campaigning for another CEO change, and has a paper loss on its bet that shares of Herbalife Ltd., a weight-loss and nutritional supplement company, will decline.