By Eric Winter
Farallon Capital Management was founded in 1986 by Thomas Steyer and fellow investment manager Andrew J. M. Spokes. At the end of 2012, Spokes became the sole managing partner when Steyer sold his profit share in Farallon. However, Steyer has left a large bulk of his capital with the fund as an outside limited partner, indicating his confidence in Spokes' management abilities. Farallon recently filed its 13F filing for Q4 2012, outlining the portfolio moves made by the fund in that term. We have searched through many 13Fs to find the most popular small-cap stocks amongst hedge fund managers, and have come up with a market-beating strategy with promising results (see the list of these stocks and their returns since September). Continue reading to see the largest holdings in Farallon's portfolio.
Hudson Pacific Properties, Inc. (HPP) remained Farallon's top position for the second quarter in a row, although the firm's investment in the REIT did not change between the two periods. HPP's main focus lies in high quality office real estate, with a tilt towards investment in California. HPP has had the most impressive growth of names on this list since this time last year, racking up a 43% change, with the stock currently trading near 52-week highs. True to its REIT nature, HPP pays a respectable dividend of 2.3%. Billionaire Jim Simons also has an investment in HPP (see his top holdings here).
Nexen Inc. (NXY) was Farallon's second-largest position going into the end of the year, with over $200mm invested. The China National Offshore Oil Corporation announced last year its intentions to purchase the upstream oil and gas developer. The deal finally received a go-ahead from the Committee on Foreign Investment in the United States, finalizing the necessary approvals needed to complete the transaction, which is expected to close the week of February 25th. NXY has seen a large run-up in share price since July 2012 in lieu of the announcement, gaining over 60% since then. Nick Niell of Arrowgrass Capital Partners had nearly half a billion dollars invested at the end of last year.
News Corp. (NWSA) saw additional allocation from Farallon this past quarter with a position growth of 28% versus the previous quarter. The multimedia enterprise also performed very well in the past twelve months, coming in just 1% under HPP's growth. News Corp. consistently met or beat earnings estimates for each announcement in 2012. Its most recent release at the start of February showed that growth occurred across cable and television operations, with positive notes for the publishing division as well. NWSA has intentions to split into separate publishing and entertainment companies by year end. Paul Singer of Elliott Management has over 10mm shares of NWSA.
Discount retailer Dollar General Corp (DG) was both a large initiation and top five holding of Farallon for the last quarter of 2012, with an investment totaling nearly $200mm. DG mirrored NWSA's earnings performance, exceeding analyst estimates every quarter and showing positive growth in revenue and earnings year over year for this past announcement. Although DG's performance reaching back a year slightly underperformed the market's return of 10%, almost 17% of gain can be attained from current levels if the stock hits its average price target a year out. David Harding of Winton Capital Management recently picked up $5mm worth.
Google, Inc. (GOOG) moved from Farallon's sixth-largest holding to the fourth, pushing Priceline (PCLN) out of the top five. In a period when many funds were selling some of their Google positions, Farallon decided to add, moving from 171,400 shares held to 220,000, an increase of 28%. At the end of September, 143 hedge funds reported owning GOOG, to only 128 at the end of 2012. Earlier this week, Google finally broke the $800 mark and received a four-figure price target upgrade to $1000 by Bernstein - both Apple and Qualcomm received similar estimates in the past. Average consensus estimates for a year out are still shy of $850, however. Billionaire Stephen Mandel joined Farallon by adding to his GOOG position.
Disclosure: I am long GOOG.