Hedge Fund Valinor Management Buys More Gymboree (GYMB)

David Gallo's hedge fund Valinor Management has updated its position in Gymboree (GYMB). Per a 13G filed with the SEC, Valinor now shows a 5.6% ownership stake in GYMB with 1,529,368 shares. This is due to portfolio activity on August 25th and reflects a 53.5% increase in their position size. Back on June 30th, Gallo's hedge fund owned 996,069 shares of Gymboree. This is the first SEC-disclosed position from Valinor in a few months. Back in May, we saw that they increased their position in Cardtronics (CATM) as well.

Prior to founding Valinor, Gallo worked at Roberto Mignone's Bridger Management. Gallo received an MBA from Harvard Business School. His hedge fund, Valinor, is named after the lands often inhabited by immortal souls in the books authored by J.R.R. Tolkien.

Taken from Google Finance, Gymboree is "a specialty retailer operating stores selling apparel and accessories for children under the Gymboree, Gymboree Outlet, Janie and Jack, and Crazy 8 brands, as well as play programs for children under the Gymboree Play & Music brand."

To see what other hedge funds have been investing in lately, scroll through our latest coverage of SEC filings.

Dan Loeb's Third Point Reduces Equity Exposure in Q2: Investor Letter

Dan Loeb's hedge fund Third Point LLC is out with their second quarter investor letter. In it, we learn that their Offshore Fund was -4.5% for the second quarter but still remains up 10.1% for the year. Why do we follow Third Point, you ask? Well, how about their Offshore Fund's 17.7% annualized return since inception.

Loeb starts his letter with a tirade on the economy, government and other associated topics. He writes, "(This) leads us to conclude that America faces not only a crisis of confidence among consumers unwilling to spend and businesspeople unwilling to invest, but also a crisis of leadership." He then goes on to talk about the impact public policy has on investing. After all, Third Point sold their stakes in US financials back in January due to regulatory uncertainty, among other reasons.

Additionally, Third Point has vacated a position in the healthcare sector, largely due to regulatory risk as well. He writes, "We have also sold other regulated industries and eliminated our position in an HMO that is a statistically cheap stock owned by several hedge funds, but which we saw as being overly exposed to unpredictable government regulation." If you subscribe to our brand new quarterly newsletter, Hedge Fund Wisdom by Market Folly, you would already know that Loeb is referring to Wellpoint (WLP), a name he exited completely in the second quarter.

The most notable change in Third Point's portfolio as of late has been their reduction of gross and net equities exposure. They started trimming exposure in May and continued to do so throughout the rest of the quarter. This is a theme we've covered previously when we looked at Third Point's portfolio. They exited positions lacking a solid catalyst and are avoiding sectors with the potential for US government intervention. In terms of positions they are fond of, Third Point retains high conviction in their post-reorganization equity plays as well as their mortgage exposure. As of late, they've also been adding to their risk arbitrage plays. While they expect growth in the US to remain 'anemic' for the rest of the year, they think M&A volume has the potential to pick-up.

One other interesting takeaway from Loeb's market commentary is the fact that his hedge fund has put on numerous "Asymmetrical trades using derivatives, options and debt securities to hedge against extraordinary global events." This is essentially an insurance policy as they are only dedicating 1% of fund assets per annum to this protection. We highlight this because it is a rampant trend in the hedge fund industry as of late. We first (and most notably) heard about this when we learned that Baupost Group's Seth Klarman purchased out of the money puts on bonds as a hedge against a potential scenario whereby interest rates rise sharply.

Embedded below is Third Point's second quarter letter to investors:



You can download a .pdf copy here.

For an in-depth look at Third Point's portfolio, head to our inaugural issue of Hedge Fund Wisdom by Market Folly. And to learn to invest like a successful manager, head to Dan Loeb's recommended reading list.

Hedge Fund Lone Pine Boosts VanceInfo Technologies (VIT) Stake

Stephen Mandel's hedge fund Lone Pine Capital has updated its stake in VanceInfo Technologies (VIT). Per a 13G filed with the SEC, Lone Pine has disclosed a 6.6% ownership stake in VIT with 2,616,404 shares. This disclosure was made due to portfolio activity on August 24th and marks a 127% increase in their position size. Back on June 30th, Lone Pine owned only 1,149,089 shares of VIT. You can view the rest of Lone Pine's updated portfolio in our brand new publication, hedge fund wisdom by market folly.

Mandel's position in VanceInfo Technologies sticks with the information technology theme he seems to be playing. Cognizant Technology (CTSH), one of his fund's largest holdings, is also in the IT business. The majority of Lone Pine's VIT position is held in its Lone Dragon Pine fund, an investment vehicle focused primarily on emerging markets. In other recent activity, we've also detailed Lone Pine's new position in Dick's Sporting Goods (DKS) and raised stake in Equinix (EQIX).

Taken from Google Finance, VanceInfo Technologies is "an information technology (IT) service provider and an offshore software development company in China. The Company’s range of IT services includes research and development services, enterprise solutions, application development and maintenance (ADM), testing, as well as globalization and localization. The Company offers its services, through its network of onsite and offsite delivery locations, primarily in China".

For more of the latest moves from Lone Pine Capital, head to our post on their addition to Lincare Holdings (LNCR) as well.

Phil Falcone's Harbinger Capital Reduces Tate & Lyle Position (TATE)

Philip Falcone's hedge fund Harbinger Capital Partners have reduced their UK position in Tate & Lyle (LON: TATE). Per UK regulatory disclosures, Harbinger now own less than 3% of the company's shares outstanding due to portfolio activity on the 27th of August. Falcone's hedge fund actually disclosed two sales with the most recent leaving Harbinger in possession of 14,161,182 shares of TATE. Back in July, we detailed how Harbinger owned 8.95% of Tate & Lyle previously. As such, this is a pretty sizable reduction in position size. This portfolio news comes right after we saw hedge fund Harbinger Capital add to Crosstex Energy (XTXI).

Since their position in Tate & Lyle is below the 3% threshold, the UK regulatory body does not require further disclosure of the position from Harbinger. So, we don't know if they're slowly selling completely out of the name or merely reducing position size. And unfortunately, we won't get any other regulatory updates unless they for some reason raised their stake back above the 3% threshold, which would trigger another filing.

Harbinger's thesis on Tate & Lyle was to supposedly push for a link with Bunge (BG), the US food group which Harbinger also previously owned. Back in 2008, Tate & Lyle's then CEO Iain Ferguson said that Harbinger's investment in the company stemmed from Falcone's habit of focusing on scarce assets that are hard to replicate. In the case of TATE, he was focusing on their US plants, including the first corn wet mill built in twelve years, Fort Dodge. But, given Falcone's vast reduction in his position sizing, it appears that his interest in this name has waned.

Taken from Google Finance, Tate & Lyle is "a manufacturer of renewable food and industrial ingredients. The Company, through its subsidiaries, is engaged in developing, manufacturing and marketing food and industrial ingredients made from renewable resources. The Company operates through four divisions: Food and Industrial Ingredients, Americas; Food and Industrial Ingredients, Europe; Sugars, and Sucralose. Tate & Lyle participates mainly in four markets: food and beverage; industrial ingredients; pharmaceutical and personal care, and animal feed. The Company holds a 16.6% interest in Tapioca Development Corporation."

View our previous coverage of Harbinger's portfolio for more.

Warren Buffett on Holding Cash ~ Quote of the Week

Warren Buffett is one of the best sources for financial market quotations and rightly so. In fact, we've even compiled Buffett's top 25 quotes. For Market Folly's quote of the week, we turn this week to the Oracle of Omaha's stance on holding cash:

"The one thing I will tell you is the worst investment you can have is cash. Everybody is talking about cash being king and all that sort of thing. Cash is going to become worth less over time. But good businesses are going to become worth more over time. And you don’t want to pay too much for them so you have to have some discipline about what you pay. But the thing to do is find a good business and stick with it. We always keep enough cash around so I feel very comfortable and don’t worry about sleeping at night. But it’s not because I like cash as an investment. Cash is a bad investment over time. But you always want to have enough so that nobody else can determine your future essentially."

~ Warren Buffett

To view a complete summary of Buffett's latest investments as well as the portfolios of prominent hedge fund managers, head to our brand new publication: hedge fund wisdom by market folly.

Carlson Capital Starts New Activist Position in Hot Topic (HOTT)

Clint Carlson's hedge fund firm Carlson Capital just filed a 13D with the SEC regarding shares of Hot Topic (HOTT). Due to portfolio activity on August 23rd, 2010, Carlson has disclosed a 3.96% ownership stake in HOTT with 1,764,800 shares. This is a brand new position as they did not show ownership back on June 30th in their last portfolio disclosure.

This stake cost them $8,858,729 as the hedge fund purchased shares in the $4.80 to $5.45 range. Their filing becomes interesting when you read in the fine print that Carlson has entered into a "group" agreement with Becker Drapkin Management for the purpose of this investment. Collectively between both parties, they own 9.042% of Hot Topic, or 4,030,749 shares. Both Carlson and Becker Drapkin operate in Dallas, Texas.

Carlson has filed a 13D signifying activist intent in their investment. The filing states that the hedge fund believes the company is undervalued and plans to engage with HOTT regarding "the assets, business, strategy, capitalization, financial condition and/or operations." Carlson manages six hedge funds with over $4 billion in assets under management (AUM). They primarily pursue risk arbitrage, relative value arbitrage (long/short equity pairs), and credit arbitrage. This is the first time the firm has appeared on Market Folly and we'll continue to cover their movements in the future.

Taken from Google Finance, Hot Topic is "is a mall and Web-based specialty retailer operating the Hot Topic and Torrid concepts, as well as the e-space music concept, ShockHound. It sells a selection of music/pop culture-licensed and music/pop culture-influenced apparel, accessories, music and gift items for young men and women principally between the ages of 12 and 22. At Torrid, the Company sells apparel, lingerie, shoes and accessories for plus-size females principally between the ages of 15 and 29."

For other recent hedge fund maneuvers, head to our coverage of the latest SEC filings.

David Einhorn Reduces F&C Asset Management Position (FCAM)

David Einhorn's hedge fund Greenlight Capital have just reduced their holdings in Foreign & Colonial Asset Management (FCAM). We originally covered when Greenlight initiated this position back in December of 2009 where they held 16,450,119 shares. After their recent sales, they now own only 2,201,293 shares of FCAM. This marks an 86.6% reduction in their position size, selling 14,248,826 shares. While they haven't completely exited the position, it somewhat looks like they're headed that way. Einhorn's sizable reduction is even more intriguing when you consider that a large activist, Sherborne Investors, has taken a large stake in FCAM.

Greenlight was required to file with the UK regulatory body because their position has now receded below a 3% ownership stake in the company. Hedge funds and institutional managers are required to disclose their position when they either go above or below that 3% threshold in the UK. To view the rest of Einhorn's positions (as well as a ton of other hedge fund portfolios), head to our brand new in-depth newsletter: hedge fund wisdom by market folly.

Taken from Google Finance, F&C Asset Management plc (F&C) is "principally engaged in the business of asset management. F&C is an active international investor but with a client focus on the United Kingdom and Continental Europe. As of December 31, 2008, the Company had £98.6 billion of assets under management."

Hedge Fund Axial Capital Acquires More QLT Inc (QLTI)

Hedge fund Axial Capital Management seems to have an insatiable appetite for shares of QLT Inc (QLTI) at current levels. Eliav Assouline and Marc Andersen's hedge fund firm have made the following acquisitions according to multiple SEC Form 4 filings:

August 26th: 50,000 shares @ $5.67
August 27th: 50,000 shares @ $5.78
August 30th: 7,400 shares @ $5.70
August 31st: 60,506 shares @ $5.75
September 1st: 5,318 shares @ $5.75

After all of their recent purchases, Axial Capital now owns a collective 6,615,036 shares of QLTI. We've detailed Axial's numerous buys in the past, and it seems they are always scooping up shares around the $5.7x range. Assouline and Andersen's hedge fund was seeded by Julian Robertson back in 2005 and offices a the same address as Tiger Management. Axial was named one of Institutional Investor's 'Hedge Fund Rising Stars' recently as well. We'll have to see when they eventually stop purchasing shares.

Taken from Google Finance, QLT is "a biotechnology company. The Company is engaged in the development and commercialization of therapies for the eye. The Company focuses on its commercial product, Visudyne, for the treatment of wet age-related macular degeneration (wet AMD), and developing its ophthalmic product candidates."

What We're Reading ~ 9/3/10

Investing in preferred stocks [Benzinga]

On Microsoft's (MSFT) softness [Abnormal Returns]

Tudor returns to its roots [Absolute Return+Alpha]

We are honored to be included in the top 50 stock market blogs [OnlineMBA]

MarketFolly was recently interviewed by TheKirkReport [Interview]

The best investment advice you'll ever get [Blog Maverick]

Exclusive interview with Jon Moulton [DistressedDebtInvesting]

Dividend stocks for a tough investing environment [Pragmatic Capitalism]

On Benjamin Graham's core principles [ValuePlays]

Microsoft's stock price attracts flock of value investors [Rational Walk]

Fairfax financial bets deflation [Street Capitalist]

Looking at the investment case for BP (BP) [FT Alphaville]

More on the for-profit education space [CNBC]

Case study on Eagle Rock Energy Partners (EROC) [Kerrisdale Capital]

Enhancing value for the equity, a case study of Energy Partners (EPL) [Kerrisdale Capital]

Free issues from the famous Grants Interest Rate Observer [GRO]

Apple's (AAPL) stock actually looks cheap [Peridot Capitalist]

Profitable lessons from Michael Price [ValueHuntr]

Furiex Pharma (FURX): A spinoff trading at net cash [Oozing Alpha]

How companies can exploit the spread between bonds and stocks [Money Game]

Why private equity is chasing the next satellite dream [Forbes]

The decline of the P/E ratio [WSJ]

Latest letter from Francis Chou [Chou Funds]

Jeff Gundlach begins selling treasuries [zero hedge]

Hedge funds are bigger, safer but duller [Economist]

Hedge Fund Harbinger Capital Adds to Crosstex Energy (XTXI)

Per a 13G filed with the SEC, Philip Falcone's hedge fund Harbinger Capital Partners has updated its stake in Crosstex Energy (XTXI). Due to portfolio activity on August 17th, 2010, Harbinger has disclosed an 8.1% ownership stake in XTXI with 3,804,916 shares. This is a massive increase in their position because back on June 30th, they only owned 213,600 shares. As such, Harbinger has boosted its stake by over 1,681% in the past two months, adding 3,591,316 more shares.

Taken from Google Finance, Crosstex Energy is "engaged, through its subsidiary, Crosstex Energy, L.P. (Partnership), the gathering, transmission, processing and marketing of natural gas and natural gas liquids (NGL). The Partnership operates two segments: Midstream and Treating. Its combined midstream assets consist of over 3,300 miles of natural gas gathering and transmission pipelines, nine natural gas processing plants and three fractionators located in two primary regions: north Texas and Louisiana."

You can view all of our previous coverage of Harbinger's portfolio here.

John Paulson Files Activist 13D on NovaGold Resources (NG)

As we've detailed in the past, John Paulson's hedge fund has owned NovaGold Resources (NG). But per a recent SEC filing, we get an update on his stake. Paulson & Co has disclosed a 9.1% ownership stake in NovaGold Resources (NG) with 20,181,818 shares. The filing was made due to activity on August 31st, 2010 and keep in mind that a 13D signifies activist intent. In the past, this had merely been a passive stake for Paulson.

His hedge fund originally acquired NG shares in an offering at $5.50 per share. However, his most recent position size is the same as it was back on June 30th, so he has not added to the stake recently. This NG position is undoubtedly part of Paulson's strategy to take equity stakes in gold miners via his new gold fund. Other recent gold related portfolio activity from Paulson includes a reduction in his Centamin Egypt position. We'll have to monitor as to what kind of activist agenda Paulson potentially has with his NovaGold stake, seeing how there were no intentions outlined in the filing itself.

Taken from Google Finance, Novagold Resources is "a precious metals company, which is engaged in the exploration and development of mineral properties in Alaska, the United States and British Columbia, Canada. The Company conducts its operations through wholly owned subsidiaries, partnerships and joint ventures. The Company is primarily focused on gold properties, some of which also have copper, silver and zinc resources."

Make sure to check out all of Paulson & Co's recent portfolio changes in our new quarterly newsletter: Hedge Fund Wisdom by Market Folly.

Paolo Pellegrini & PSQR Capital's Last Insight Before Returning Capital

As many of you are already aware, Paolo Pellegrini's hedge fund PSQR Capital is returning outside investor capital. He is winding down because he believes that "substantial additional work" will be needed to profit from his global macro strategy. The investment vehicle will continue to manage Pellegrini's own money in the mean time. Through the end of July, PSQR was down over 10% for the year.

Pellegrini of course gained his claim to fame by calling the housing bubble while working with John Paulson at hedge fund firm Paulson & Co. Their collective story is chronicled in Gregory Zuckerman's enticing book, The Greatest Trade Ever. Afterward, Pellegrini struck out on his own, founding PSQR Capital. While he's currently closing to outside investors, he may re-open at some point in the future.

Given PSQR's abrupt closure to outside investors, we thought it would be prudent to examine Pellegrini's most recent thoughts via his last market commentary and analysis. Since we may not see his thoughts for an extended period of time, global macro enthusiasts are encouraged to soak this all in. Pellegrini's second quarter letter focuses on his brief notion that "equities will retrace further". On the policy side of things, he feels the government is digging the hole deeper and that using sovereign debt instead of private debt is the wrong move.

In terms of scanning the economy, Pellegrini highlights that workers' pay still lags and since consumer spending makes up such a large part of our economy, we're in for continued rough waters. This ties into his past concern that so few people are saving money these days. He goes on to write, "While some feel that the economy has stabilized and can only go up - and all the faster because it is rebounding from such a low level - the reality is that the exceptional amount of government borrowing has failed to add up to final demand sufficient to spur economic activity to anything approaching the cyclical upswings typical of post-war recoveries."

Embedded below is PSQR Capital's second quarter letter to (now former) investors:



You can download a .pdf copy here.

You can view the rest of Pellegrini's past commentary here. To see what other prominent hedge funds have been buying and selling, check out our brand new quarterly newsletter: hedge fund wisdom.