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Hedge fund manager Richard Perry co-founded Perry Capital way back in 1988. The fund has a history of generating positive returns in all the years since inception except for one year, 2008. Perry is known for taking an event-driven approach to investing and looks for companies that offer restructuring opportunities such as mergers and acquisitions, or spinoffs.

During the quarter ended June 30, the fund made aggressive bullish bets on the overall market and also in financials. The fund initiated fresh purchases in call options of S&P 500 index (SPY) during the quarter. The call options were worth $544M at the end of June and accounted for 18% of the fund’s $3B 13F portfolio. The index has returned a loss of 10% since the start of July. Other hedge funds that have taken bullish calls on the overall market via S&P calls include Bridgewater Associates.

Perry also made big bets on financials during the quarter and bought options of Financial Select Sector SPDR ETF (XLF). This is also a brand new position and the options were worth $307M at June 30 and accounted for 10% of the portfolio. This is also the fund’s second largest holding at June end. The financial sector index has underperformed the S&P and has lost 17% since the start of the third quarter.

Another interesting addition is Citigroup (C). Here again, Perry has used options to amass his ownership. The Citi options were worth $171M at the end of June and represent the sixth largest holding in the fund’s portfolio. Citigroup options account for 5.6% of the overall portfolio. Activist investor Bill Ackman’s Pershing Square owns a large stake in the bank.

Below is a list of Perry Capital’s top holdings at June 30, 2011:

Company

Ticker

Value (x1000)

Activity

Return Since June

SPDR S&P 500 ETF TR Call

SPY

543584

NEW

-10%

Select Sector SPDR TR Call

XLF

307000

NEW

-17%

Iron Mountain Inc

IRM

216051

151%

-9%

Yahoo! Inc

YHOO

188000

279%

-10%

General Motors Corp

GM

170847

73%

-15%

Citigroup Inc Call

C

170724

NEW

-28%

SPDR SERIES TRUST Put

XRT

128646

NEW

-12%

BMC Software Inc

BMC

120340

9%

-25%

Mosaic Co New

MOS

94551

NEW

-4%

Williams Cos Inc

WMB

89994

11%

-8%

NYSE Euronext

NYX

87590

482%

-18%

Yahoo! Inc Call

YHOO

86480

NEW

-10%

Sunoco Inc

SUN

84463

2%

-17%

Universal American Spin Corp

UAM

84251

NEW

-7%

Citigroup Inc

C

82031

NEW

-28%

RBS Pref M

RBS

77168

0%

-21%

RBS Pref S

RBS

68967

0%

-21%

Anadarko Petroleum Corp

APC

61408

NEW

-7%

Cephalon Inc

CEPH

60484

8%

0%

Southern Union Co New

SUG

58926

NEW

2%

RBS Pref T

RBS

57440

0%

-21%

Sunoco Inc Call

SUN

56309

NEW

-17%

ITT Corp New

ITT

50494

-17%

-21%

SPDR S&P Midcap 400 ETF TR Put

MDY

48355

-79%

-14%

Royal Bank of Scotland Group

RBS

46129

0%

-21%

Iron Mountain Inc is the fund’s third largest holding at June 30. The company offers services such as records management, information destruction and data backup over 120,000 customers. Perry Capital increased its position in Iron Mountain by 150% during the quarter. The company has a market cap of $6.32B and accounts for 7% of the fund’s portfolio. Hedge fund Breeden Capital Management is another big holder of IRM. Since the end of June, the stock has lost 9% roughly in-line with the S&P’s 10% loss. You can see the list of stocks owned by Breeden Capital.

The other two investments that round up the company’s top five holdings at June 30 include internet company Yahoo! Inc and carmaker General Motors Corp. The fund has investments worth $188M in Yahoo and $170M in GM. Yahoo accounts for 6.2%, and General Motors 5.6% of the fund’s portfolio at June 30.

During the quarter, Perry upped its Yahoo holdings by a whopping 279%, and its GM holdings by 73%. While Yahoo has lost 10% in line with the overall market, General Motors has underperformed with a 15% loss in market value since the start of July. Hedge fund Owl Creek Asset Management and Philippe Laffont’s Coatue Management own large stakes in Yahoo. Hedge funds holding large ownership in GM include Fir Tree, and Oaktree Capital Management.

The relative underperformance of financials has had a net negative impact on the funds’ performance since the second half of the year and has resulted in the fund returning a loss of 14% versus a 10% loss for the S&P since July.

Source: Perry Capital's Top Stock Picks