This content is from: Portfolio

Morning Brief: Baupost Takes Pioneer Stake Despite Einhorn

Seth Klarman’s Baupost Group established a sizable stake in Pioneer Natural Resources in the first quarter, according to a new quarterly regulatory filing. This works out to a little more than 2 percent of Pioneer shares and now accounts for 8.7 percent of Baupost’s U.S. stock portfolio at the end of the first quarter. Pioneer is the fracking stock singled out by Greenlight Capital’s David Einhorn to short at the Sohn Investment Conference. Einhorn made a case against fracking companies, which he argued have taken on too much debt and are overvalued. He said Pioneer’s value based on its discounted cash-flow is roughly one-quarter its market value. Baupost, of course, is far from a stock specialist or long-short manager; it’s more of an eclectic investor, so the Pioneer bet is a small part of its overall portfolio. Baupost’s equity portfolio stood at $5.95 billion at the end of March, nearly at the top of its range of $5.1 billion and $6.14 billion over the past four quarters. Altogether, the firm ran $28.5 billion at the beginning of the year, making it the ninth-largest hedge fund firm in the world. In any case, Pioneer stock closed on March 31 at $163.51 and at $168.33 on the day Einhorn made his bearish case. It closed Friday at 154.67, up nearly 1 percent.

___

Interestingly, O. Andreas Halvorsen’s Viking Global Investors cut its stake in Pioneer for the second straight quarter after building a huge position in the third quarter of 2014. Even so, it remains the fifth-largest shareholder and the Greenwich, Connecticut Tiger Cub’s seventh-largest holding.

___

Jeffrey Ubben’s ValueAct Holdings in the first quarter established small positions in two stocks he has not previously owned. The San Francisco activist bought 569,000 shares of Precision Castparts and more than 1 million shares of Wesco International. These are minor positions for now but could graduate into core holdings in the future. The two stocks combined only account for roughly 1 percent of ValueAct’s portfolio.

___

In unrelated news, Allison Transmission Holdings Friday announced that it appointed Gregory Spivy to its board of directors. Spivy is a partner of ValueAct, Allison’s largest shareholder with more than 10 percent of the shares. Interestingly, Allison was only ValueAct’s 11th largest holding at the end of the first quarter. In December 2014, Allison and ValueAct announced a cooperation agreement that allowed ValueAct to place Spivy on the Allison board any time before the 60th day prior to Allison’s 2016 annual meeting.

___

Activist Sachem Head Capital Management continues to build out a big bet on health care. The New York hedge fund headed by Scott Ferguson, which owns just eight stocks, established a new stake of 725,000 shares worth $125 million in Salix Pharmaceuticals, which is being acquired by Valeant Pharmaceuticals International. As a result, nearly half of its $1.5 billion U.S. stock portfolio is invested in health care-related stocks. In the first quarter, the firm unloaded its entire stake in Dollar General. Ferguson is a former analyst at William Ackman’s Pershing Square Capital Management. Sachem Head was up 10.8 percent in the first quarter, according to an investor.

___

Magnetar filed three amended 13F reports for prior quarterly periods, revealing stakes in high-profile takeover candidates not previously disclosed. The Evanston, Illinois hedge fund firm, which Thursday reported selling a minority stake to Blackstone Group, said in an amended filing that as long ago as June 2014 it owned nearly $136 million worth of Time Warner Cable common stock plus call options. At the time Time Warner Cable had agreed to be acquired by Comcast, a deal Comcast recently terminated. Magnetar also amended its September 30 quarterly filing to show it boosted its stake in Time Warner Cable and also to disclose that it owned $41 million worth of common stock in Allergan as well as a larger position in its call options. At the time, Valeant Pharmaceuticals International was trying to buy Allergan in a hostile takeover, which did not succeed. Magnetar also filed an amended version of its 13F for the fourth quarter, which shows it trimmed its Time Warner Cable stake but boosted its investment in Allergan to $270 million and $106 million worth of call options. In its 13F for the December 2014 quarter, Magnetar said it had owned just $7 million worth of Allergan. In the amended version of the December report, it also revealed sizable stakes in other takeover targets, including TRW Automotive Holdings, whose acquisition by ZF Friedrichshafen was completed this past Friday, Staples and two other companies. In the original year-end filing, Magnetar only disclosed a $7 million stake in TRW and no position in Staples. Interestingly, Chicago-based Citadel, which is located just miles away from Magnetar, also recently filed amended 13F reports that disclosed holdings in Allergan and Time Warner Cable for several prior periods not previously disclosed.

___

Greg Jensen, co-chief investment officer of Bridgewater Associates, the world’s largest hedge fund firm, and colleague Jacob Kline, said in a note to clients they think asset prices are high but that they are not worried about a potential bubble, according to a report from CNBC. “Assets not being in a bubble doesn’t mean they can’t decline and aren’t vulnerable to surprises, but it does make a cascading pop in asset prices much less likely,” the two reportedly wrote. Among the reasons they are skeptical of the bubble thesis: Although prices have risen, they have not climbed as fast as during previous bubbles, valuations are still in “normal territory,” leverage is not playing a major role in asset price increases and U.S. retail and foreign investors have “modest” positions.

Related Content