Berkowitz’s Fairholme Fund Picks Up More Shares of Fannie, Freddie


Feb 2, 2015
The Fairholme Fund, a mutual fund run by stock picker and sometimes activist Bruce Berkowitz, released its annual report over the weekend, disclosing that the manager picked up nearly 5 million common shares of mortgage-finance companies Fannie Mae FNMA -0.88% and Freddie Mac FMCC 0.00%.

Mr. Berkowitz has been one of the most outspoken investors in the companies’ shares and is a plaintiff in lawsuits against the federal government for its handling of the two companies.

According to the annual report, Fairholme bought nearly 3.1 million shares of Freddie Mac and more than 1.8 million shares of Fannie Mae between August 31 and November 30 last year. Because the share prices of Fannie and Freddie fell sharply during that period, the purchases maintained the fund’s weighting to the two companies at about 1.1%.

Fairholme has a larger investment in the preferred shares of the two companies, and that weighting dropped by almost half to 7.6%, mostly because of falling values.

Fairholme and other investors are in the midst of lawsuits against the government for a 2012 decision to sweep nearly all of Fannie’s and Freddie’s profits to the U.S. Treasury. After nearing collapse in 2008, Fannie and Freddie received nearly $188 billion in aid. Since the companies became profitable, they have paid more than $225 billion to the government.

Shares of Fannie and Freddie plunged in October, after a federal judge threw out lawsuits by Fairholme and others.

However, investors garnered a small victory in January, after another judge decided a separate lawsuit could proceed even as the appeals processes in the first lawsuits played out.

Mr. Berkowitz used a large chunk of his annual letter to criticize the government’s handling of the companies and the lawsuits. He said that the U.S. government has attempted to shield a large portion of the documents requested by Fairholme’s lawyers by asserting “executive privilege.”

Mr. Berkowitz also said he believes the U.S. Treasury and Federal Housing Finance Agency, which regulates Fannie and Freddie, could decide to release the companies on their own.

U.S. Treasury officials have continually called on Congress to pass housing-finance legislation to replace Fannie and Freddie with a new system. Last week, the director of the FHFA at a congressional hearing also said Congress should pursue housing-finance legislation. However, most experts believe that serious discussions are a long shot for this Congress.

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