Berkowitz Liquidates Hedge Fund That Owned Sears Holdings SharesBy
Fairholme Partnership distributed shares to investors
Berkowitz took steps before exiting retailer’s board
Investor Bruce Berkowitz is shutting his hedge fund and distributing its holdings to investors, including a stake in Sears Holdings Corp.
Berkowitz’s Fairholme Capital Management reported the fund’s unwinding, without naming it, in a U.S. Securities and Exchange Commission filing on Oct. 13. The fund is Fairholme Partnership, which Berkowitz created roughly five years ago, according to a person familiar with the situation.
Berkowitz, a contrarian and the second-largest Sears investor, is known mostly for his mutual funds and has struggled this year as some of his biggest investments have declined. He made the move in his private fund before stepping down from the ailing retailer’s board Monday. When money managers shut down a hedge fund, they often distribute the securities in the fund rather than selling and parceling out the cash to investors to avoid flooding the market with shares. It’s also done for tax purposes.
As part of the shut down, the fund distributed 3.14 million Sears shares and warrants. Berkowitz, a Partnership investor, personally received 727,816 Sears shares and warrants on 810,345 shares, according to the filing. The remaining holdings went to Fairholme clients who were previously investors in the hedge fund.
Berkowitz joined the Sears board in February 2016 and has been bullish on the department store chain even as it has bled money. The Fairholme Partnership had $409.3 million of gross assets as of April, according to a regulatory filing.
In statement released Monday, Fairholme said Berkowitz joined the Sears board to better communicate his views about the retailer. “Mr. Berkowitz believes that he has achieved that objective,” according to the statement.
The investor’s $2.1 billion Fairholme Fund, a registered mutual fund, has lost 6.6 percent year-to-date. It has lagged 99 percent of rivals over five years, according to data compiled by Bloomberg.
In his 2017 semi-annual report to investors, Berkowitz reiterated his view that Sears has potential. “Investors may disagree on the exact path forward for Sears, but the company owns many valuable assets and there is huge value in optimizing all of them,” he wrote.
Those assets include real estate that the company controls and its competitive position as an appliance seller, he said.
The liquidation involves both the domestic and offshore versions of the hedge funds.
Berkowitz’s Fairholme Fund holds stakes in mortgage-finance giants Fannie Mae and Freddie Mac.
— With assistance by Lauren Coleman-Lochner