Galleon Bets Heavily on the S&P 500

This is the 1st Quarter 2009 edition of our ongoing hedge fund portfolio tracking series. Before reading this update, make sure you check out the Hedge Fund 13F filings series preface.

Next up on our series is Galleon Group. Galleon was founded by Raj Rajaratnam in 1997 and currently manages in excess of $7 billion. Raj previously worked for Needham & Company and when he left was responsible for a compounded rate of return of 37% over 4 years while overseeing $250 million. Raj received both a Bsc in Engineering and an MBA in Finance from the University of Pennsylvania. Galleon Group's Buccaneer fund was up 13.39% as of late February 2009. Additionally, its Diversified fund was up 9.87% through the same time period, as noted in our January & February hedge fund performances (March '09 numbers here). We'll be posting up more recent metrics here soon.

Taken from its website, the Galleon Group

manages a series of funds that specialize in the technology and healthcare industries. Currently The Galleon Group manages five different long/short equity funds: Technology, Healthcare, New Media (Internet), Communications and Life Sciences. Galleon’s philosophy and approach differs from that of other hedge funds in the fundamental belief that it is possible to deliver superior returns to our investors without employing leverage. Combine strong fundamental investment analysis with superior trading capability Galleon places a strong emphasis on both fundamental investment analysis and trading. This enables us to identify companies with superior long-term growth prospects while maintaining the flexibility to profit from short-term market fluctuations.

We find it ironic that Galleon's description above says it thinks it can deliver returns without leverage, yet its portfolio is littered with options positions (which is technically leverage). But, oh well, the fund has a solid track record nonetheless. Raj's success has also recently landed him on Forbes' billionaire list. His firm's solid track record is very evident as it managed to land 2 of its funds on Barron's top 100 hedge funds rankings list. Galleon was one of the few hedge fund firms who managed to do so, and it is definitely in good company as John Paulson's Paulson & Co was one of the others to have multiple funds on the list. (Barron's tracks on a rolling 3 year annualized return basis).

The following were Galleon's long equity, note, and options holdings as of March 31st, 2009 as filed with the SEC. We have not detailed the changes to every single position in this update, but we have covered all the major moves. All holdings are common stock unless otherwise denoted.

Some New Positions (Brand new positions that Galleon initiated in the last quarter):
S&P 500 (SPY) Puts, Ishares Russell 2000 (IWM) Puts, Walmart (WMT), Intel (INTC) Puts, Sun Micro (JAVA), General Electric (GE) Puts, Broadcom (BRCM) Puts, Semiconductor ETF (SMH) Puts, Netease (NTES), SPDR Gold Trust (GLD), Procter & Gamble (PG), Novellus (NVLS), Texas Instruments (TXN) Puts, Eli Lilly (LLY), Strayer Education (STRA), Microsoft (MSFT) Calls, Intel (INTC) Puts, Goldman Sachs (GS), Priceline (PCLN), Petroleo Brasileiro (PBR), Netapp (NTAP) Calls, Baidu (BIDU), HSBC (HBC), Novell (NOVL), Symantec (SYMC), Sohu (SOHU), OSI Pharma (OSIP), NVidia (NVDA),


Some Increased Positions (A few positions Galleon already owned but added shares to)
VMWare (VMW): Increased by 1,501%
Mattel (MAT): Increased by 669%
Hewlett Packard (HPQ): Increased by 680%
Apollo Group (APOL): Increased by 333%
AT&T (T): Increased by 333%
Dell (DELL): Increased by 221%
Linear Tech (LLTC): Increased by 212%
Microchip Tech (MCHP): Increased by 175%
Verigy (VRGY): Increased by 158%
Motorola (MOT): Increased by 127%
Yahoo (YHOO): Increased by 126%
Nokia (NOK): Increased by 90%
Wyeth (WYE): Increased by 83%
SPDR S&P 500 (SPY): Increased by 69%
Schering Plough (SGP): Increased by 52%
First Solar (FSLR): Increased by 51%

Some Reduced Positions (Some positions Galleon sold some shares of - note not all sales listed)
Semiconductor ETF (SMH): Reduced by 45%
Applied Materials (AMAT): Reduced by 26%
Mylan (MYL): Reduced by 19%
Ultrashort Real Estate (SRS): Reduced by 12%

Removed Positions (Positions Galleon sold out of completely)
SAP AG Walldorf (SAP) Puts, Intel (INTC) Puts (old set), Bank of America (BAC) Calls, PNC Financial (PNC), Atmel Corp (ATML), Semiconductors (SMH) Calls, AMAG Pharma (AMAG), Corning (GLW), SAP (SAP), Genentech (DNA), Western Digital (WDC), Starbucks (SBUX), FTI Consulting (FCN), America Movil (AMX), CIT Group (CIT), Amphenol (APH), NRG Energy (NRG), Navistar (NAV), Exxon Mobil (XOM), Kellogg (K), Compuware (CPWR), US Airways (LCC), Honeywell (HON), BB&T (BBT), Colgate Palmolive (CL), Cerner (CERN), Retail ETF (RTH), Walgreen (WAG), SBA Communications (SBAC)


Top 15 Holdings (by % of portfolio)

1. SPDR S&P 500 (SPY): 17.83% of portfolio

2. SPDR S&P 500 (SPY) Puts: 3.93% of portfolio

3. Ishares Russell 2000 (IWM) Puts: 3.53% of portfolio

4. Walmart (WMT): 2.96% of portfolio

5. Wyeth (WYE): 2.1% of portfolio

6. Intel (INTC) Puts: 1.93% of portfolio

7. Sun Microsystems (JAVA): 1.6% of portfolio

8. Advanced Micro Devices (AMD) Bonds: 1.6% of portfolio

9. Hewlett Packard (HPQ): 1.55% of portfolio

10. General Electric (GE) Puts: 1.47% of portfolio

11. Broadcom (BRCM) Puts: 1.4% of portfolio

12. Semiconductor ETF (SMH) Puts: 1.3% of portfolio

13. Netease (NTES): 1.25% of portfolio

14. First Solar (FSLR): 1.25% of portfolio

15. SPDR Gold Trust (GLD): 1.21% of portfolio

As we've grown accustomed to seeing in our past Galleon portfolio snapshots, the fund still employ numerous options positions in its portfolio. Even though its SPY position is hedged, it has obviously been a big contributor to Galleon's solid performance thus far this year.

We also noted Galleon's large position in Wyeth (WYE) in what seems to be a massive trend in hedge fund land. Nearly all the funds we cover have had a position in WYE as they game the merger arbitrage/event-driven trade. Additionally, Raj's firm has a gold position via GLD, just like a ton of other hedge funds out there. Even though it is a smaller stake at only 1.2% of Galleon's portfolio, it is yet another hedge fund to add to the gold trade list. The other notable activity we saw was Galleon's bearish stance on semiconductors and chips. The fund has puts on the semiconductors index, Broadcom and Intel. Lastly, while it sold out completely of various positions (listed above), they were all smaller positions relative to the overall portfolio, typically under 1% each.

Assets from the collective holdings reported to the SEC via 13F filing were $2 billion this quarter compared to $1.1 billion last quarter, so there was definitely a noticeable tick up in assets invested on the long side of the portfolio.

This is just one of the 40+ prominent funds that we'll be covering in our hedge fund Q1 2009 portfolio series. Check back each day as we cover new fund portfolios. We've already covered John Paulson's hedge fund firm Paulson & Co, Stephen Mandel's Lone Pine Capital, Eric Mindich's Eton Park Capital, John Griffin's Blue Ridge Capital, and David Einhorn's hedge fund Greenlight Capital, Seth Klarman's Baupost Group, Andreas Halvorsen's Viking Global, Timothy Barakett's Atticus Capital, and Lee Ainslie's Maverick Capital.