Saturday, 30 July 2016
Last updated 5 hours ago
Jun 9 2014 | 11:58am ET
Event-driven hedge fund Maglan Capital added 2.87% (net of fees) in May, putting its year-to-date gains at 12.74%.
Over the past 12 months, the fund is up 42.53%.
In their most recent monthly letter, Maglan CIO Steven Azarbad and President David D. Tawil discuss their bet on Fannie Mae and Freddie Mac common stock—a play they share with heavy hitters like Carl Icahn, William Ackman's Pershing Square and Fairholme Capital.
Fairholme has been leading the push to save the two companies—its mutual fund arm sued the Treasury last summer after it moved to seize all of the profits of the mortgage giants.
Both Congress and the White House want to see Fannie and Freddie—which required $187 billion in federal bailout funds during the financial crisis—wound down and replaced with a new system that keeps less taxpayer money at risk.
“We believe that the GSEs' [government sponsored entities'] shareholders are fundamentally correct and that eventually their rights will be vindicated and compensated,” wrote Azarbad and Tawil.
“Moreover, in the near- and medium-term, the coast seems clear on the political front and most of the market-moving news should be generated from the progress of the court cases, which should be favorable to the shareholders. Moreover, despite the fragile housing market, the GSEs will continue to generate substantial profits and cash flow, and recent news and statistics indicate that the GSEs have become an even more vital part of the housing finance market, making extrication and dissolution impossible without a broad-based bi-partisan consensus.
“The nearest legal events are expected to occur this summer when the courts are expected to rule on the pre-trial motion practice and the legal discovery is conducted. In light of the anticipated near-term positive catalysts, we positioned our investment to reap the greatest reward from these events, concentrating on the common stock of the GSEs.”