On November 15th, Pershing Square Capital Management filed with the US Securities and Exchange Commission two new 13D forms. In the first, the firm disclosed a new holding in Federal National Mortgage Association (OTCBB:FNMA) totaling 115,569,796 shares of common stock, or 9.98% of outstanding stock. In the second filing, Pershing Square Capital Management revealed a similar position in the Federal Home Loan Mortgage Corporation (OTCBB:FMCC). According to the document the fund holds now 63,505,693 shares of common stock, which represents 9.77% of the company’s outstanding stock. The disclosure of the mentioned positions shows Bill Ackman’s great interest in public government-sponsored enterprises funds.
Bill Ackman’s Pershing Square Capital Management is not the only hedge fund with a great interest for government secured bonds. On Wednesday, November 13th, Bruce Berkowitz’s Fairholme Capital Management made pubic its interest for acquiring a stake in Fannie Mae and Freddie Mac. So far, the hedge fund holds nearly $3.5 billion face value of the government and $17.3 billion in rights issue on Fannie Mae and Freddie Mac preferred shares. And the new plan to acquire an additional stake is rumored to be worth a total of $52 million.
If US government announcements to ‘wind down’ the two mortgage companies are to be taken seriously, then the transaction is expected to find important tailwinds. According to President Obama, “private capital should take a bigger role in the mortgage markets… I believe that our housing system should operate where there’s a limited government role, and private lending should be the backbone of the housing market.”
Fannie Mae and Freddie Mac have experienced 8% to 9% in appreciation since Fairholme’s move. What the future holds for both government-sponsored mortgage enterprises remains to be seen. Since Berkowitz’s plan is to convert the shares controlled into common equity, Fairholme will need the support of other investors in Fannie Mae and Freddie Mac. As of today, several preferred shareholders are rumored to have reached a principle of agreement. Hence, a response from Bill Ackman is expected soon.