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Education from Stanford and Yale, work experience from Morgan Stanley and Goldman Sachs, the founder of Farallon Capital Management in 1986, Thomas Steyer, had everything he needed to start a hedge fund. Now, Farallon is the 14th largest hedge fund in the world, managing $21 Billion and operating in eight offices worldwide. Steyer is also a managing director at Hellman & Friedman, a private equity firm based in San Francisco. We admire Steyer. He participated actively in philanthropy. In 2010, Steyer joined Warren Buffett and Bill Gates and agreed to donate half of his wealth to charity.

Below are the top 20 positions in Farallon’s 13F portfolio at the end of September:

Company Name

Ticker

Value

Activity

MOTOROLA MOB

(NYSE:MMI)

399146

New

NALCO HOLDING COMPANY

(NLC

165246

New

OWENS ILL INC

(NYSE:OI)

153679

New

STATE STREET CORP

(NYSE:STT)

151393

53%

GOODRICH CORP

(NYSE:GR)

147833

New

COMCAST CORP NEW

(NASDAQ:CMCSA)

143897

64%

VISA INC

(NYSE:V)

142110

340%

TARGET CORP

(NYSE:TGT)

135105

-25%

ORACLE CORP

(NYSE:ORCL)

129043

0%

GOOGLE INC

(NASDAQ:GOOG)

127309

New

GENERAL DYNAMICS

(NYSE:GD)

119753

54%

HUDSON PACIFIC PROPERTIES

(NYSE:HPP)

119020

0%

MICROSOFT CORP

(NASDAQ:MSFT)

112378

42%

NEWS CORP

(NASDAQ:NWSA)

99936

New

UNION PACIFIC CORP

(NYSE:UNP)

91634

69%

MEDCO HEALTH SOLNS

(NYSE:MHS)

84402

576%

VIACOM INC NEW

(VIA-B)

72483

-35%

WELLS FARGO & CO

(NYSE:WFC)

72239

-11%

VARIAN SEMICONDUCTOR

(NASDAQ:VSEA)

70934

New

HOME DEPOT INC

(NYSE:HD)

69356

59%

The total value of the Farallon’s 13F portfolio was increased from $3.6 billion at the end of June to $3.9 billion at the end of September. The number of positions was also slightly higher. At the end of June, Farallon had 68 positions in its 13F portfolio, and it owned 71 positions at the end of the third quarter. Steyer sold out a few positions in the third quarter. For instance, his fund had had $90 million invested in BMC Software Inc (NASDAQ:BMC) at the end of the second quarter. But according to the latest 13F filing, the fund did not report owning any shares of BMC, which lost 10.01% since the end of September. Steyer successfully minimized his loss by selling out all the BMC stakes. Steyer is also no longer bullish about Liberty Global Inc (LBYTA), Fedex Corp (NYSE:FDX), and Youku.com Inc (NYSE:YOKU).

On the other hand, Steyer also opened some new positions in the third quarter. He initiated a brand new $399 million of Motorola Mobility Holdings (MMI), which returned 2.89% so far in the fourth quarter. He also bought $165 million worth of Nalco Holdings Company (NYSE:NLC) and $154 million of Owens Ill Inc (OI). Until December 1, NLC returned 10.92% since the end of September, versus 10.45% for SPY. And OI returned a stunning 33.66% so far in the fourth quarter, beating the 11.40% for SPY in the same period. Charles Clough’s Clough Capital Partners also had $18 million invested in OI.

Steyer also increased his stakes in State Street Corp (STT) by 53% in the third quarter. At the end of September, Farallon disclosed to own $151 million of STT stocks. STT returned 27.27% since the end of the third quarter, beating the market by nearly 16 percentage points.

Steyer was also bullish about some technology stocks. His fund invested over $100 million each in Oracle Corp (ORCL), Google Inc (GOOG), and Microsoft Corp (MSFT). Since the end of September, these three stocks generated a weighted average return of 12.44%, compared with 11.40% for SPY. Stephen Mandel’s Lone Pine Capital also had $483 million invested in GOOG stocks at the end of the third quarter.

“Farallon places a priority on the preservation of capital. While we value and employ risk management analytics, we primarily manage risk through rigorous research and analysis”, according to Farallon’s website. Three out of its four largest positions outperformed the market so far in the fourth quarter. We like Thomas Steyer and his Farallon Capital. Our research has shown that by focusing on the top stock picks of hedge funds like Farallon Capital, investors are more likely to beat the market in the long term.

Source: Farallon's Top Stock Picks