market folly

Benzinga has an excellent interview up with the founder of Passport Capital, John Burbank. In it, we get a good look at how he became a hedge fund manager and the investor he is today. Passport was up 219% in 2007 due to his successful bet against subprime securities. While the hedge fund has seen some volatility the past few years, you can't argue with their solid returns of 23.6% annualized. As of late, Passport has been short Japanese government bonds under the notion that if national governments default on their debt, Japan would be one of the first to do so. Keep in mind that Burbank and many other prominent hedge fund managers will be presenting investment ideas at the Value Investing Congress this October in New York (receive a special discount here).

Maybe the most intriguing aspect of Burbank's interview was the fact that he addressed the SEC 13F filing where investment managers are required to disclose their long positions to the public on a quarterly basis. Many hedgies feel that this transparency almost gives away their 'secret sauce' as it reveals the majority of their positions and strategies. Not Burbank though:

"Do you think that 13-F filings are unfair in the way they force hedge fund managers to reveal their strategies?

Yes, but I'm not actually so upset about transparency because I think it's a trend that we should all expect. We typically take positions and tell investors, and the world about them. The question is whether or not the people are going to believe our views. We don't mind if they know what we own or what were short."

We can attest to his assertion that Passport doesn't mind if people know what they own. After all, we've detailed Passport's portfolio via their investor letters. Transparency is often seen as a double-edged sword in the hedge fund industry because everyone knows more of it is needed and assume it will eventually come. But at the same time, some secretly want to hold out as long as possible. It's good to see that Burbank fully expects transparency and takes an open approach.

The Passport Capital hedge fund manager was then also asked about the topic of following other investment managers. Bruce Berkowitz of Fairholme Capital has readily advocated following other managers and checking out their holdings for idea generation and potential investments to do due diligence on. Burbank agrees with this notion and the interesting thing here is that he kind of follows like-minded investors rather than focusing on managers that have different viewpoints:

"Which traders and money managers do you follow?

Probably more the ones that have expressed tremendous skepticism about the current environment. I started 10 years ago and my belief was that the market was extremely expensive, and I have essentially been betting against the US markets since. Now I'm in the position of regarding the government as an enormous risk toward our wealth and sovereignty. Therefore, I pay particular attention to those who have views about that because I want to learn from them and follow their thinking. It's also a means of discounting the positive stories always being heard about the market."

To hear Burbank and Passport's latest investment ideas, be sure to head to the Value Investing Congress (special discount included). The Passport Capital hedge fund manager will also be presenting at the Ira Sohn San Francisco Conference in October as well where the proceeds go to a great cause.

View the rest of Burbank's interview at Benzinga with part one here and part two here.