market folly

Yesterday afternoon, Bloomberg ran a piece entitled, "Eric Mindich, Like John Paulson, Makes Gold ETF His Fund's Biggest Holding." There's just one problem with that headline: it's not really correct. Here at Market Folly, we pride ourselves on in-depth analysis of SEC Filings, and in particular, the 13F's that disclose the latest hedge fund investments. And today, we get the perfect chance to prove it.

The SPDR Gold Trust (GLD) is not the largest holding at Eric Mindich's hedge fund Eton Park Capital Management. As per the most recent 13F detailing positions as of June 30th, 2010, Eton Park's largest position is puts on the iShares MSCI Emerging Market Index (EEM). At quarter close, Mindich's position in GLD was valued at $800,289,000. His put position on EEM was valued at $895,680,000. In the second quarter, Eton Park actually increased their bet against EEM by 61%, buying puts representing 9,100,000 additional shares. Their put exposure on this name now represents 24,000,000 shares of EEM.

Maybe Bloomberg's data-set didn't take into consideration the put/call column on the actual filing. (Numerous automated data sorting programs skip over this and omit options positions entirely). Maybe it was an honest mistake. Maybe Bloomberg doesn't classify puts as an 'investment' and so it merely comes down to technicalities of the language used in their article. But even if that was the case, you still can't really call the SPDR Gold Trust their single 'biggest reported investment'.

Why? Well, because Eton Park also owns both puts and calls on GLD as well. In the second quarter, Mindich's hedge fund bought the following:

$800,289,000 worth of SPDR Gold Trust (GLD) shares
$608,400,000 worth of GLD calls
$486,720,000 worth of GLD puts

We don't know their true exposure to gold because a 13F filing does not disclose the strike price or expiration date of underlying options positions. However, you could net out their ownership of common shares, calls and puts to find that they have around $921,969,000 worth of long exposure to GLD. But you also have to keep in mind that Eton Park is an arbitrage focused fund. As such, all of these discrepancies are relevant to determine the type of wager they are making with various positions.

The only way that GLD is Eton Park's top holding is if Bloomberg is treating all of the above as gross exposure to GLD or if they are netting out the exposure as we have above. But even then, there was no mention of this in their article at all. They merely cited the $800 million position in the underlying shares. The fact that Bloomberg completely omitted the information that Eton Park owns both calls and puts on the same exchange traded fund is somewhat appalling. It's one thing to own just the shares of GLD as a directional bet (as they've mistakenly construed). It's entirely different when you add in ownership of both puts and calls on the underlying shares as those affect the net position and exposure. Nevermind that Bloomberg missed the fact that their standalone position of GLD shares are not Eton Park's 'biggest reported investment' in the first place.

The comical part of all of this is that Bloomberg completely skipped over Eton Park's options positions in both EEM and GLD, and yet they end their article with this note (emphasis added by MarketFolly):

"The SEC requires money managers who oversee more than $100 million in U.S. equities to report their holdings on a Form 13F within 45 days of the end of each quarter. The filing must include all holdings in stocks that trade on U.S. exchanges, as well as options and convertible debt."

Factually, Eton Park's largest single reported holding is in puts of the iShares MSCI Emerging Market Index (EEM). Their position in shares of the SPDR Gold Trust (GLD) is the second largest reported holding. But even then, there's some ambiguity surrounding their entire GLD exposure and the type of wager they're making when you consider the puts and calls they also own. This just goes to show that attention to detail is a must when examining SEC 13F filings.

Apologies for this little diatribe, but it's irritating when potential misinformation is floated around, especially by a mainstream media source. In the end, Bloomberg will probably update the article from 'biggest' holding to 'big' holding or something of the sort (with zero mention of Market Folly of course). That's perfectly fine, as long as they remedy the misinformation that's currently out there. Our readers know where to come for hedge fund portfolio updates.

Stay tuned this week as we are set to release an in-depth summary of the new batch of 13F filings and latest positions of the top hedge funds in the game. For more on Eric Mindich's hedge fund, we also detailed Eton Park's new Doral Financial (DRL) position.