Pershing Square Loses $300M On Fannie, Freddie

Mar 12 2014 | 11:58am ET

Pershing Square Capital Management suffered another nine-figure loss on paper yesterday, after the White House and Senate announced an agreement on how to wind-down Fannie Mae and Freddie Mac.

Shares of the mortgage giants plummeted by 31% and 27%, respectively, after Sens. Tim Johnson (D-S.D.) and Mike Crapo (R-Idaho) unveiled plans to replace Fannie and Freddie with a new system of federally-insured mortgage securities that would saddle private investors with more losses. Pershing Square owns about 10% of each company's common shares.

Yesterday's swoon cost the hedge fund about $300 million on paper. Unlike Pershing Square founder William Ackman's similarly-sized losses on Herbalife and J.C. Penney, however, all of yesterday's loss came at the expense of previous gains he'd enjoyed on the stocks; indeed, he's still up at least 75% on his initial $400 million investment.

Until the Johnson-Crapo plan emerged yesterday, Fannie and Freddie had been a major bright spot in Pershing Square's portfolio, helping it return 11% in the first two months of the year. Pershing and other hedge funds have bet, in spite of government plans to shut the companies down, that they'll both eventually return to the public markets. Ackman said last month that he expects lawsuits by Fairholme Capital Management and Perry Capital over the government bailout of the companies to succeed.

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