Pershing Square Capital Management: “FNMA Remains a Valuable Perpetual Option”

Pershing Square Capital Management, an investment management firm, published its fourth-quarter 2021 investor letter – a copy of which can be downloaded here. An annual portfolio net return of 26.9% was recorded by the fund for the whole year of 2021, versus the S&P 500 Index, the FTSE 100, and MSCI World Index that delivered a 28.7%, 17.4%, and 22.3% return respectively for the same period. Spare some time to check the fund’s top 5 holdings to have a clue about their top bets for 2022.

Pershing Square Capital Management, in its Q4 2021 investor letter, mentioned Federal National Mortgage Association (NYSE: FNMA) and discussed its stance on the firm. Federal National Mortgage Association is a Washington, D.C.-based mortgage loan company with a $946.2 million market capitalization. FNMA delivered a -0.37% return since the beginning of the year, while its 12-month returns are down by -56.54%. The stock closed at $0.81 per share on February 19, 2022.

Here is what Pershing Square Capital Management has to say about Federal National Mortgage Association in its Q4 2021 investor letter:

“Despite an adverse Supreme Court ruling in June, we believe Fannie and Freddie remain valuable perpetual options.

Supreme Court largely sided with the government against shareholders.

-Found the Third Amendment to the PSPAs(1) to be authorized under the HERA statute.
-Declined to intervene to second-guess FHFA’s exercise of its discretion.
-Found unconstitutional HERA’s provision that the FHFA director may be removed only for cause.
-Sent case back to Fifth Circuit for further proceedings and potential damages.

We remain confident in the long-term value of Fannie and Freddie.

-Ongoing proceedings in the Court of Federal Claims, where denial of the government’s motion to dismiss is on appeal.
-Both entities continue to build capital through retained earnings from the current base of $67 billion.
-We believe re-privatization is an eventuality regardless of court outcomes.

FNMA and FMCC share prices declined 66% and 64%, respectively, in 2021 and both increased 5% year-to-date in 2022.”

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Our calculations show that Federal National Mortgage Association (NYSE: FNMA) failed to obtain a mark on our list of the 30 Most Popular Stocks Among Hedge Funds. FNMA was in 2 hedge fund portfolios at the end of the third quarter of 2021, compared to 3 funds in the previous quarter. Federal National Mortgage Association (NYSE: FNMA) delivered a -11.20% return in the past 3 months.

In July 2021, we also shared another hedge fund’s views on FNMA in another article. You can find other letters from hedge funds and prominent investors on our hedge fund investor letters 2021 Q4 page.

Disclosure: None. This article is originally published at Insider Monkey.