is known for his activist investing. Thanks to Zerohedge who made a copy of Icahn 4Q09 Letter to Icahn Partners LP Investors available at www.scribd.com. One can get a glimpse of what’s happened with his investments and what goes on in his mind. GuruFocus tracks Icahn Capital Management’s long equity position. As of December 31, 2009, we record 2.87 $billion allocated among 18 stocks. We know Icahn manages far more money than this amount. As disclosed in his letter (Page 3), long equity position is only 15.4% of the total portfolio. The rest is long credit (34.6%), short equity and short credit. His investment performance has been good: since inception of 2004, the partnership returned a total of 41.3%, beating S&P500’s 5.9%. In 2009, the partnership returned 31.9%, also beating S&P 500.
As for the future, Icahn seems to be very reserved. He is definitely not forecasting a “V”-shaped economic recovery, rather, he sees possibility of a double-dip recession, and the equity and credit market simply went ahead of the fundamental in 2009. As he stated in the letter (Page 6):
The contrast between the investment environments of 2008 and 2009 could hardly be more stark. 2008 was defined by an utter lack of liquidity, while 2009 came to be a year of excess liquidity. With cash yielding close to nothing last year, yield-hungry investors felt that they could no longer sit on the sidelines. They plunged head first into both equity and credit, aggressively driving up the markets. Yet where and what were the signs suggesting that the fundamentals had changed and that the economy was on the mend? While some economic indicators showed signs of improvement towards year end, a key indicator, unemployment, still remains high.
Icahn will not declare no victory unless employment picks up and corporate balance sheets cleaned up:
We belive that until employment picks up, both the housing market and the overall economy will remain weak as debt-laden consumers will be unwilling (and unable) to open their wallets. Many consumers seem down-right scared to spend money. In short, we believe that a true economic recovery will require a healthier and more confident consumer. In addition, many corporate balance sheets are still impaired with too much leverage. I believe that this combination of obstacles will not be bypassed as quickly and easily as many seem to think.
One has to question whether Icahn is talking down the economy as a gloom and doom economy is actually good for a distressed investor like himself – a point he is very frank about in the letter:
an environment in which good companies with bad balance sheets are forced to file and reorganize is an environment in which we have the ability to earn outsized returns. Our team of investment and legal professionals is certainly one of the best in terms of its understanding of distressed debt, distressed of control situation, as well as the bankruptcy process.
The current environment is ripe for some M&A activities, another area activist Icahn knows how to create value for his investors. Particularly, he sees marriages between cash-rich big pharma and tech-savvy biotech companies:
One benefit of the increase in liquidity is a potential uptick in M&A activity due to the fact that some companies may begin to feel cash-rich while others may find themselves on the auction block. This paradigm is tailor made for the activist investor. While we don’t believe that the stars have aligned quit yet in many sectors, a notable exception is biotech. Big pharma is notoriously cash-rich, which means they are not dependent on financing, and we believe their appetite for biotech is as big as ever.
Icahn also commented on the individual investments in his portfolio: Continue Reading »