Thomas Steyer and Farallon Capital Management’s Winning Picks

Thomas Steyer’s Farallon Capital Management reduced its Beacon Roofing Supply Inc (BECN) by about 300,000 shares, according to a recently filed Form 13G. Thomas Steyer also reported in the filing that Jason Moment, Ashish Pant, Richard Voon and William Duhamel aren’t with them anymore. The four managers left the firm to start their own fund.


Founding Farallon in 1986, Thomas Steyer is managing the firm with Andrew Spokes, who is a citizen of United Kingdom.  Tom Steyer is also a managing director of the private equity firm, Hellman & Friedman. Before founding Farallan, Steyer worked under Robert Rubin in the risk arbitrage department of Goldman Sachs (GS). He has an MBA from Stanford. His net worth is north of $1 Billion and he, along with Warren Buffett and Bill Gates, agreed to donate half of it to charity (see Warren Buffett‘s stock picks).

Farallon Capital Management is the world’s 14th largest hedge fund, managing $21 Billion. Farallon invests in various asset classes. US equities are a small percentage of their investments. At the end of September, their equity investments were under $3 Billion, less than 15% of their AUM. Nevertheless, we’ll be following Steyer because he’s a fundamental analysis oriented investor, not a trader. This is how Farallon explains its investment approach:

Farallon seeks to achieve superior risk-adjusted returns through a process of fundamental, bottom-up analysis. We pursue multiple investment strategies on an opportunistic basis, which include Credit Investments, Value Investments, Merger Arbitrage, Real Estate-related Investments, and Direct Investments. Each investment is evaluated independently on a fundamental basis. Farallon invests globally, focusing on developed and emerging markets alike. We make investments in public and private debt and equity securities, and direct investments in private companies and real estate.

Farallon places a priority on the preservation of capital. While we value and employ risk management analytics, we primarily manage risk through rigorous research and analysis. We also seek to build strong relationships with the management of the companies in which we invest.

Farallon Capital returned about 14.5% per year since 1986. Farallon also retuned 20% in 2006, 14.8% in 2007, -36% in 2008, 33% in 2009 and mid-teens in 2010. Here are Farallon’s 10 largest stock holdings at the end of September:

1. Alcon Inc (ACL): Farallon had more than $200 Million of Alcon shares at the end of September. The stock lost 2.2% since then. Alcon is one of the top 10 stocks hedge funds own the most of. Barry Rosenstein’s Jana Partners and Daniel Loeb’s Third Point are among these hedge funds.

2. Novartis (NVS): Thomas Steyer owned Novartis put options with a $168 Million value for the underlying stock. Novartis lost 2.2% since the end of September.

3. Allegheny Energy (AYE): Steyer owned $130 Million of AYE, which returned 6.9% since the end of September. Allegheny is one the stocks Wall Street analysts are pessimistic about.

4. Hudson Pacific Properties (HPP): Farallon lost 10.9% from its $116 Million long position at HPP since the end of September.

5. Viacom Inc (VIA-B): Farallon gained 17.3%, beating the SPY, from its $110 Million Viacom investment since September. Chase Coleman’s Tiger Global also has a large Viacom position.

6. Genzyme (GENZ): Farallon’s $109 Million investment in Genzyme returned only 1% since the end of September. This is also a hedge fund favorite stock.

7. Home Depot Inc (HD): Home Depot returned 16.7% since September. Farallon had $107 Million invested.

8. Charles Schwab Corp (SCHW): The stock returned 31.6% since the end of September. Farallon had $103 Million invested.

9. BMC Software Inc (BMC): Steyer’s $95 Million investment returned 18.4% since September.

10. State Street Corp (STT): Farallon’s $92 Million investment returned 27.4% since the end of September, beating the SPY.

11. Oracle Corp (ORCL): Oracle gained 21.6% since the end of September, beating the market. Brevan Howard and Lee Ainslie’s Maverick Capital are among the other hedge funds with significant Oracle positions.

Farallon’s next five largest positions are Check Point Software (CHKP), McAfee (MFE), Wells Fargo (WFC), Target (TGT), and Directv (DTV).