New York (HedgeCo.Net) Hedge Funds Paulson & Co., Perry Capital and Claren Road are said to hold preferred shares in Fannie Mae, and while the shares are up considerably, they see the government involvement holding back their investors potential profits. They are lobbying Capital Hill to provide an exit for Fannie and Freddie and recapitalize the firms.
The preferred shares of Fannie Mae, which before the bailout were considered worthless, have grown considerably in the housing rebound. Despite the growth, due the terms of the 2008 government Fannie and Freddie are not able to build capital because the Treasury takes quarterly profits. Since the bailout, Fannie and Freddie have given the Treasury $65 billion back in dividends for the $188 billion
There is momentum within the Senate Banking Committee to reform the U.S. housing finance, with strong internal pressure to reduce the role the government plays. If the government holds on to their shares analysts are projecting a $50 billion taxpayer profit in the next 10 years, Hedge Funds are lobbying that by selling the preferred shares now and recapitalizing the companies, the taxpayers could make a larger profit.
Paulson & Co has taken a key role in the real-estate over the last 5 years, his correct bets on the real-estate crash earned him over $15 billion. Despite having their assets reduced from a high of 38 billion to the current $18 billion, Paulson & Co remains one of the primary players in the industry. This week the firm announced a new risk-arbitrage fund named Paulson Partners Premium LP Fund. In a letter to investors Paulson describes this as a fund for investors “looking to mitigate income taxes.”
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