Activist investor Bill Ackman is betting again on the future of mortgage giants Fannie Mae and Freddie Mac — but this time he’s taking the opposite side of the trade.
Ackman’s $11.45 billion Pershing Square hedge fund has taken a nearly 10 percent stake in both companies, becoming the latest hedge fund heavyweight to place money on a private-sector future for the government-backed mortgage insurers.
In 2007, as the housing crisis mounted, Ackman took a different tack and shorted the two companies, profiting as they teetered on the brink of collapse in 2008.
At that time, Ackman also weighed in with a reorganization plan that would have wiped out stockholders and put the company in government conservatorship without any taxpayer money.
The government did put them in conservatorship, but opted to bail out Fannie and Freddie to the tune of $187 million and received preferred shares in exchange for its investment. The two companies returned to record profitability last year as the housing market rebounded, and are close to repaying the government loans.
Once that’s done, the Obama administration has said it wants to wind down Fannie and Freddie.
But investors banking on the turnaround have other ideas. A proposal put forth earlier this week by Bruce Berkowitz, who runs Fairholme Capital Management, seeks to spin off the mortgage insurance portion of their business with a $52 billion capitalization.
The transaction would primarily benefit preferred shareholders, including Fairholme and Perry Capital, both of whom sued the government earlier this year over the bailout terms.
Ackman, who began buying the common stock on Oct. 7 — weeks before Berkowitz unveiled his plan — hasn’t put forth a proposal, although any Ackman plan would be different from the
Fairholme plan.
“No one could expect to make money from the common stock unless the companies are restructured in a way that is supported by the government, the taxpayers, the homeowners, mortgage investors and the preferred stockholders,” said an investor.
In a regulatory filing Friday, Pershing Square said in light of the Fairholme proposal, it may engage the mortgage giants on a number of issues, including their “business, assets, capitalization, financial condition, operations, governance, management, strategy and future plans.”
Ackman paid $401 million for his holdings, which were worth $538 million before he revealed them Friday morning.
Fannie Mae gained 7.84 percent, to close at $3.30, and Freddie Mae ended the day up 6.21 percent, to close at $3.08. To date, Ackman has made a 44 percent return on the investment.