Berkowitz's Fund Soars in November Thanks to Steve Mnuchin

  • Fairholme gains 29% as Fannie, Freddie jump on Mnuchin comment
  • Treasury nominee wants mortgage giants to exit federal control

Money manager Bruce Berkowitz capped a remarkable month in November thanks to Steve Mnuchin.

Berkowitz’s $2.9 billion Fairholme Fund climbed 11 percent Wednesday after the nominee for Treasury Secretary said Fannie Mae and Freddie Mac should leave government control. The mortgage-finance giants soared, propelling the fund to a 29 percent gain for November.

That’s the best monthly performance among more than 3,800 U.S. stock funds, according to data compiled by Bloomberg, and a reward for Berkowitz. He backed Donald Trump for president and his firm is a top investor in Fannie and Freddie. After being nominated for Treasury, Mnuchin said the incoming administration will move to free the companies “reasonably fast.”

A fight over the future of the companies has been raging since they were bailed out in 2008 for an eventual cost of $187.5 billion. There’s been competing legislation proposed in Congress over the U.S. Treasury taking most of the companies’ profits.

Fairholme and other investors are also in the midst of multiyear lawsuits against the U.S. alleging that a 2012 change in the bailout agreement was illegal because it diverted profits to the Treasury. Since the takeover, the companies have sent the Treasury more than $250 billion.

Fannie Mae’s preferred shares maturing in 2049 with an 8.25 percent coupon rose 36 percent Wednesday and have almost doubled in value since Election Day. Freddie Mac’s 8.375 preferred shares maturing the same year climbed 39 percent Wednesday and have more than doubled since Election Day. Berkowitz’s firm is the largest holder of both securities.

The preferred shares rose again Thursday. At 12:48 p.m. Fannie Mae preferreds were up 6.8 percent, while the Freddie Mac shares gained 4.3 percent.

The Fairholme Fund, which Berkowitz started in December 1999, had other winners in November. Florida real estate developer St. Joe Co. gained 18 percent and troubled retailer Sears Holdings Corp. climbed 16 percent. Berkowitz is the biggest shareholder in St. Joe and the second-biggest owner of Sears.

Berkowitz, 58, is known for running a concentrated portfolio that looks nothing like the stock market as a whole. As a result, his returns can vary wildly each year. In 2011, the fund lost 32 percent, trailing more than 99 percent of peers. In 2012, it gained 36 percent, beating 99 percent of rivals, according to data compiled by Bloomberg. In 2015, it trailed 95 percent of comparable funds.

Berkowitz contributed $125,000 to the president-elect’s campaign. Paul Scarpetta, an outside spokesman for Fairholme, declined to comment on Berkowitz’s performance.

(An earlier version of this story was corrected to show that the companies have returned more than $250 billion to the Treasury.)

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