Wednesday, August 15, 2012

The Hedgies and the Banks

As guarantors of MainePERS--and of all the benefits that MainePERS will pay out now and forevermore--we taxpayers have an interest in how the MainePERS investment portfolio performs.  The better the performance, the less we will have to pay out of the General Fund in the future to address pension liabilities.

Here's the problem.  MainePERS has adopted a passive, indexed investment style, which works great in bull markets, but underperforms in bear markets.  MainePERS does not try to time the market.  We ride stocks up, then ride them down.  Financial-sector stocks were big winners in the bubble-licious mid-00s, but have been losers since.  As of June 30 of this year, we still held 926,049 shares of JPMorgan Chase (valued then at over $33 million) and 2,616,812 shares of Bank of America (worth over $21 million).

A year ago we took a look at how three noted hedge-fund managers were handling their investments in Bank of America ("Duck, Duck, GOOSE!").  Unlike MainePERS, these guys DO trade in and out.  When they sense that a firm's business is about to sour, they don't wait for public disclosures from company executives.  They take the money and run.  By the end of 2011 all three had liquidated their entire positions in Bank of America's common stock.

Second-quarter 13-F filings with the Securities & Exchange Commission have just been made public, so we can once again look over the shoulders of the hedge honchos to see what they are doing.  Here's the rundown:

David Tepper, Appaloosa Management LP

Bought almost 7.5 million shares of BAC in Q1, then changed his mind (oops) and sold almost half in Q2.  Cancel that rebound in BAC's business.

John Paulson, Paulson & Co. Inc.

Still has BAC warrants.  Established a new position in JPM (4 million shares) just as the firm was disclosing a trading loss of $5.8 billion (double oops).

George Soros, Soros Fund Management LLC

Exited JPM completely (over 600,000 shares).  Remains BAC-free.  Smart man.

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