Hedge Fund Tracking: Moore Capital Management (Louis Bacon), Q3 2008

This is the Third Quarter 2008 edition of our ongoing hedge fund tracking series. Before reading this update, make sure you check out the preface to the series we're doing on Hedge Fund 13Fs here. We've already covered:

• Timothy Barakett's Atticus Capital
• Whitney Tilson's T2 Partners
• Peter Thiel's Clarium Capital
• Bill Ackman's Pershing Square
• Bret Barakett's Tremblant Capital
• John Paulson's Paulson & Co
• David Einhorn's Greenlight Capital
• Dan Loeb's Third Point
• Paul Tudor Jones' Tudor Investment Corp

Next up, we have Moore Capital Management, ran by Louis Bacon. Moore, named after Bacon's middle name, is a $10 billion global macro set of hedge funds. The next few funds we will be covering are global macro oriented funds, which is a switch from some of the more value oriented funds we've been covering, like the 'Tiger Cub' funds including Stephen Mandel's Lone Pine Capital, Lee Ainslie's Maverick Capital, John Griffin's Blue Ridge Capital , and Andreas Halvorsen's Viking Global. Global macro funds seek to find investments in whatever market they can gain an edge, whether it be equities, bonds, currencies, debt, commodities, and more. So, keep in mind that these equity positions only represent a portion of the fund's overall holdings. They are not required to disclose holdings outside of equities, notes, and stock options.

Louis Bacon is a famed trader and risk manager. He comes from the group of "offspring" of the legendary Commodities Corp. Bacon emerged as one of the great macro traders alongside the likes of Paul Tudor Jones (Tudor Investment Corp), and Bruce Kovner (Caxton Associates). And, interestingly enough, Bacon helped get his firm off the ground when Paul Tudor Jones stopped accepting capital from investors and instead turned them to Bacon's firm. Returning 31% annually since inception in 1990, Bacon can be very proud of his flagship fund, Moore Global Investments, but, it doesn't stop there, as his returns have shown little correlation to the stock market and low volatility. He is the definition of a risk manager.

Bacon credits his risk management skills to the futures markets, where he learned to be sensitive to market action. And, he learned such skills at an early age. While getting his MBA at Columbia, he used his student loan money to trade. And, he lost it all. Clearly, he learned a lesson he would never forget. Such a lesson stuck with him as he worked various jobs in the financial industry before eventually starting his own firm. And, in his first year managing Moore Capital Management, he returned 86%. Bacon strives to identify long running macro trends. While he has a longer-term macroeconomic view, he won't let that stop him from making money by trading around the position in the mean time.

If you want to hear some insightful thoughts from Louis Bacon himself, head over to our post on Hedge Fund manager interviews . Also, its worth pointing out that Stanley Shopkorn, formerly of Moore Capital, has started his own fund. Before beginning, you might be interested in checking out Moore's portfolio holdings from the second quarter of 2008.

The following were Moore's long equity, note, and options holdings as of September 30, 2008 as filed with the SEC.

New Positions (Brand new positions that it initiated in the last quarter):

• Energy ETF (XLE) Calls
• Energy ETF (XLE) Puts
• Energy ETF (XLE)
• ishares MSCI Emerging Markets Index (EEM)
• Ace (ACE)
• Goldman Sachs (GS)
• Homebuilders ETF (XHB)
• Sandisk (SNDK) Calls
• KLA Tencor (KLAC) Calls
• Rohm & Haas (ROH)
• Data Domain (DDUP) Calls
• Applied Materials (AMAT) Calls
• Imclone (IMCL)
• Cameco (CCJ)
• Barr Pharma (BRL)
• Activision Blizzard (ATVI)
• Lennar (LEN) Puts
• Citrix (CTXS)
• Rio Tinto (RTP)
• Informatica (INFA) Calls
• Teradata (TDC) Calls
• Wells Fargo (WFC)
• Hewlett Packard (HPQ) Puts
• Citigroup (C)
• Cemex (CX)
• Siderurgica (SID)
• Foundry (FDRY)
• Bucyrus (BUCY) Calls
• Texas Instruments (TXN) Calls
• International Rectifier (IRF)

Added to (Positions it already owned but added shares to):

• Travelers (TRV): Increased by 1920%
• SYMS (SYMS): Increased by 236%
• EnergySolutions (ES): Increased by 100%
• Chevron (CVX): Increased by 48%
• Cisco (CSCO) Puts: Increased by 14%

Some Reduced Positions(Positions it sold some shares of - note not all sales listed):

• Petroleo Brasileiro Cl A (PBRA): Reduced by 79%
• Electronic Arts (ERTS): Reduced by 95%
• Tyson Foods (TSN): Reduced by 77%
• Limelight Networks (LLNW): Reduced by 55%
• Walter Industries (WLT): Reduced by 84%
• Crown Holdings (CCK): Reduced by 43%
• Freeport McMoran (FCX): Reduced by 98%
• Alpha Natural Resources (ANR): Reduced by 83%
• Nvidia (NVDA): Reduced by 94%
• Vale (RIO): Reduced by 94%
• JP Morgan (JPM): Reduced by 38%
• Powershares Water Resource (PHO): Reduced by 35%
• Petroleo Brasileiro (PBR): Reduced by 9%
• Barclays Bank Preferred Shares (BCS.PD): Reduced by 56%
• Hewlett Packard (HPQ): Reduced by 57%
• Qualcomm (QCOM): Reduced by 83%
• Anheuser Busch (BUD): Reduced by 43%
• Informatica (INFA): Reduced by 48%
• Formfactor (FORM): Reduced by 50%

Removed Positions (Positions it sold out of completely):

• Chesapeake (CHK) Calls
• Chesapeake Energy (CHKDO) Convertible Bonds
• Petrohawk (HK)
• Powershares QQQ (QQQQ) Puts
• Lehman Brothers (LEHMQ.PK)
• Philip Morris International (PM)
• Merrill Lynch (MER) Puts
• Sandridge Energy (SD)
• Google (GOOG)
• Petroleo Brasileiro (PBR) Puts
• Marathon Oil (MRO)
• Sotheby (BID)
• Coca Cola (KO)
• Potash (POT)
• Comstock (CRK)
• ishares Transports (IYT) Puts
• Goodrich Petroleum (GDP)
• Terra Industries (TRA)
• Arch Coal (ACI)
• Agrium (AGU)
• Teva Pharma Convertible Bonds (TEVA)
• Target (TGT) Puts
• Apple (AAPL)
• Activision (converted into new shares of Activision Blizzard - (ATVI))
• Massey Energy (MEE)
• Fomento Economico (FMX)
• Goldman Sachs (GS) Puts
• Mosaic (MOS)
• Univanco (UBB)
• Grupo Televisa (TV)

Top 20 Holdings (by % of portfolio):

1. JPMorgan Chase (JPM): 9.1% of portfolio
2. Energy ETF (XLE) Puts: 7% of portfolio
3. Energy ETF (XLE) Calls: 7% of portfolio
4. ishares Emerging Markets (EEM): 6.8% of portfolio
5. Powershares Water Resource (PHO): 4.2% of portfolio
6. Max Capital (MXGL): 4% of portfolio
7. Ace (ACE): 3.7% of portfolio
8. Goldman Sachs (GS): 3.6% of portfolio
9. Homebuilders ETF (XHB): 3.4% of portfolio
10. Energy ETF (XLE): 3.4% of portfolio
11. Sandisk (SNDK) Calls: 2.9% of portfolio
12. Petroleo Brasileiro (PBR): 2.4% of portfolio
13. KLA Tencor (KLAC): 2.3% of portfolio
14. Rohm & Haas (ROH): 2% of portfolio
15. Barclays (BCS.PD) Preferred Shares: 1.8% of portfolio
16. Hewlett Packard (HPQ): 1.7% of portfolio
17. Data Domain (DDUP) Calls: 1.5% of portfolio
18. Applied Materials (AMAT) Calls: 1.5% of portfolio
19. Imclone (IMCL): 1.4% of portfolio
20. Cameco (CCJ): 1.4% of portfolio

Assets from the collective holdings were $4.45 billion last quarter and were only $1.36 billion this quarter. Much like Tudor, Moore was decreasing exposure to equities all across the board. Please note that we have not detailed every single change to every single position in this update, but we have covered all the major moves. Also, keep in mind that these filings only include long equity, notes, and options holdings and do not reflect the cash or short portions of its portfolio.

Overall, its been one of the worst years ever for hedge funds, as we noted in our recent October hedge fund performance update. Thus, the recent moves they've made in their portfolios become all the more interesting given the way the market has played out.

Comments

[PNG:]

I will make it my goal to write every member of Congress to introduce a bill to do away with "short" selling of stocks. It serves no purpose except to disrupt the market.

You have people trying to build their 401 K and IRA funds just to be knocked down by big funds and high rolling investors. Some countries have outlawed the practice and it is going to be a growing trend.

2008 Dec 10 02:45 PM

[herbert hoover:]

Have you noticed that all these guys had the same positions? No wonder these stocks dropped like a rock.

2008 Dec 10 06:11 PM

[doylegroup:]

"Naked short" sales are bad for the mkt... Possibly a buying oppertunity in all these stocks the hedge funds are dumping.

2008 Dec 11 09:39 AM

[fran:]

would you place the same restrictions on all activities involving the probability of downward movement in value? you take all actions in life the same way? if you garden, would you cover/protect young tender seedlings from wind or cold? do you carry umbrella, jumper cables or other infrequently used devices when you leave home? you never use odds in your decision process?


On Dec 10 02:45 PM PNG wrote:

> I will make it my goal to write every member of Congress to introduce
> a bill to do away with "short" selling of stocks. It serves no purpose
> except to disrupt the market.
>
> You have people trying to build their 401 K and IRA funds just to
> be knocked down by big funds and high rolling investors. Some countries
> have outlawed the practice and it is going to be a growing trend.

2008 Dec 11 01:27 PM

[Daniel Moser:]

Banning short selling is a very silly idea. Maybe during the next cycle you will read up on diversification and what expanding your selection by including short positions or short funds can do for your overall portfolio. And if the argument against me is that you can't short in IRA's, read up on the short ETF's out there. 401K and IRA investors need portfolios designed for all weather not bull markets exclusively. Heaven forbid, people actually have to pay a little bit of attention to their finances! Say it ain't so.

2008 Dec 11 07:25 PM

[gare:]

I couldn't agree more !! It makes billionaires out of multimillioaires and screws the middle income workers to the bloody wall.


On Dec 10 02:45 PM PNG wrote:

> I will make it my goal to write every member of Congress to introduce
> a bill to do away with "short" selling of stocks. It serves no purpose
> except to disrupt the market.
>
> You have people trying to build their 401 K and IRA funds just to
> be knocked down by big funds and high rolling investors. Some countries
> have outlawed the practice and it is going to be a growing trend.

2008 Dec 12 03:18 AM

[Ames Tiedeman:]

Forget Hedge Funds. Do not send any of them your money. Stick with well grounded Mutual Funds like Fidelity or 20th Century or others. Back to basics. Do not be a fool and send your millions to a one man shop. Go with firms like Fidelity who cannot steal your money!!!! The track records of the many mutual fund companies are better than that of Hedge Funds anyway. Hell, buy your kids Coca Cola, JNJ, PG, and take the stock certificates and put them in your safe deposit box if you want. Do not mess around with these Hedge Funds and 1 man shops on the street! And stop following all the advise of the ETF crowd. If you have $10 million put 500k in 20 well run, good old fashioned mutual funds! Then enjoy life and look at your returns in 10 or 20 years...

2008 Dec 13 05:46 PM