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The Morning Brief: Trump Appointee Gives Several Hedge Funds a Windfall

President-elect Donald Trump handed out a few early holiday gifts to several billionaire Wall Streeters — the kinds of people he derided as Hillary Clinton’s friends. First of all, he named former Goldman Sachs partner and one-time hedge fund manager Steven Mnuchin as his Treasury secretary. Mnuchin joins a growing list of extremely wealthy people filling cabinet positions and other leadership roles for the populist president.

Mnuchin in turn delivered a gift to several billionaire hedge fund managers when he told reporters he supports the privatization of Fannie Mae and Freddie Mac, the mortgage companies that the government bailed out during the financial crisis and put in a conservatorship. Since then they have been sending the government a big chunk of their profits. This arrangement could change as early as next year, according to Mnuchin, who made it clear in an interview that removing Fannie and Freddie from the government’s grip is one of his major priorities.

“We will make sure that when they are restructured, they are absolutely safe and don’t get taken over again. But we’ve got to get them out of government control,” Mnuchin said. In response, shares of Fannie Mae and Freddie Mac surged nearly 45 percent.

This is great news for several hedge fund titans who have significant investments in the two companies, including Bill Ackman’s Pershing Square Capital Management and John Paulson’s Paulson & Co.

At a New York Times DealBook conference held two days after election day, Ackman expressed confidence that the situation will be resolved within the first 12 months of the new administration, noting he was looking forward to his second meeting with Trump. At the conference, Ackman surprised the audience and his interviewer, Andrew Ross Sorkin, when the former Democratic supporter famously declared his excitement for Trump, asserting: “I was extremely bullish on Trump, believe it or not. The U.S. is the greatest business in the world. It’s been undermanaged for a very long period of time. We now have a businessman as president.” Three weeks later Ackman enjoyed a big boost from his new president.


Meanwhile Ackman, who has suffered huge losses on his large stake in Valeant Pharmaceuticals International, has another critical issue to deal with. It seems he may have to return several million dollars in fees he earned a few years ago because a former analyst donated $500 to Juliette Kayyem’s failed bid to run for governor in Massachusetts, according to Reuters. Kayyem was the sister of a friend of the analyst, Paul Hilal. Campaign finance laws cap donations at $150 to campaigns for which the individual is not qualified to vote.

Kayyem, a security expert and former Homeland Security official, failed to even get on the ballot for the primary, according to the report. Now Pershing Square may be forced to return two years of fees it earned from managing money for the Massachusetts state pension fund. On Tuesday, Pershing Square asked the Securities Exchange Commission not to require it to return the fees, according to Reuters. “Causing (Pershing Square Capital Management) to forfeit compensation for the two-year period subsequent to the contribution could result in a financial loss that is thousands of times the amount of the contribution,” the hedge fund firm reportedly wrote to the SEC.

In Massachusetts, the governor picks members of the pension board, who select the firms to manage the pension fund. The fear is that there is a pay-to-play implication here.

“I feel horrible,” Kayyem told CommonWealth Magazine, adding that she’s never met Halal. “I saw the donation and I asked, ‘Who is this nice person who gave me money?’ I’m sure it was just done in good faith. He wouldn’t know me from Adam.”


In other bad news for Ackman, shares of Valeant fell nearly 8 percent on Wednesday, to close at $15.83, on news reports that negotiations collapsed over the sale of its stomach-drug unit to Japan-based Takeda Pharmaceutical.


Shares of hedge fund favorite Autodesk plunged 3.5 percent on Wednesday, to close at $72.66, after the maker of 3-D design software provided quarterly guidance that was well below analysts’ models. As of the end of the third quarter, 26 percent of its market capitalization was held by hedge funds, making Autodesk the second-most concentrated hedge fund stock. Two New York hedge fund firms, Eminence Capital and Sachem Head Capital Management, were the third- and fifth-largest shareholders at the time while the stock was the largest position of both firms. Back in March, Autodesk named three new directors to its board under a settlement reached with the two firms. One of the three directors is Scott Ferguson, managing partner of Sachem Head, who also became a member of the board’s compensation and human resources committee.

At the end of September, New York-based Soroban Capital Partners was the sixth-largest shareholder, with a little more than 10 million shares. In October, it bought an additional 7.5 million shares of Autodesk, boosting its stake to more than 17.8 million shares, or 8 percent of the total outstanding, making it the third-largest shareholder. This transaction was disclosed in a 13G filing, suggesting it is a passive investment.

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