market folly

Richard Perry's hedge fund firm Perry Capital returned -0.93% in the second quarter and is up 2.69% for the year. The firm now manages $8.6 billion and has used the market volatility to add to their positions in their highest conviction names.

In a past investor letter, we highlighted how Perry saw a growing amount of event-driven opportunities. Their second quarter letter to investors outlines why they sell existing positions:

1. more compelling opportunities are created by the markets
2. a position reaches value
3. our original thesis is refuted based on newly uncovered data.

Perry also writes, "we are comfortable holding higher cash levels when we see potential opportunities on the horizon. The European sovereign debt crisis could be the cause of the next market dislocation."


Credit Positions

The hedge fund's letter mentioned their position in preferred securities of government sponsored enterprises (GSE's) such as Fannie Mae and Freddie Mac. As 90-day delinquencies have been steadily declining, Perry feels the US taxpayers could recoup the $164 billion preferred investment. In the past we've pointed out how Michael Kao's Akanthos Capital Management likes GSE preferreds as well.

Perry also believes that peripheral European markets will be a 'robust' credit opportunity over the upcoming months. Additionally, Perry utilized the June sell-off to add "a small amount of structured credit to the portfolio with a particular focus on asset-centric instruments."


Equity Positions

The hedge fund sold their position in Equinox Minerals as Barrick Gold (ABX) purchased the company and after Zambian approval, Perry tendered its shares into the offer. They also exited their position in Swiss pharmaceutical company Actelion (ETR:ACT) after a failed attempt by an activist shareholder and a disappointing jury verdict.

They also added to their existing position in Iron Mountain (IRM). You can view Perry Capital's thesis on Iron Mountain here.


For more recent hedge fund letters, we've also posted up:

- Ivory Capital's thoughts on why value investing isn't working in this market

- Dan Loeb & Third Point's Q2 letter

- Oaktree Capital & Howard Marks' thoughts on the US debt ceiling

- Corsair Capital's Q2 letter

- David Einhorn & Greenlight Capital's letter