Bruce Berkowitz Liquidates Hedge Fund

Investor Bruce Berkowitz is shutting his hedge fund and distributing its holdings to investors, including a stake in Sears Holdings Corp. Berkowitz’s Fairholme Capital Management reported the fund’s unwinding, without naming it, in a U.S. Securities and Exchange Commission filing on Oct. 13. The fund is Fairholme Partnership, which Berkowitz created roughly five years ago, according to a person familiar with the situation. Berkowitz, a contrarian and the second-largest Sears investor, is known mostly for his mutual funds and has struggled this year as some of his biggest investments have declined. He made the move in his private fund before stepping down from the ailing retailer’s board Monday. When money managers shut down a hedge fund, they often distribute the securities in the fund rather than selling and parceling out the cash to investors to avoid flooding the market with shares. It’s also done for tax purposes.

bruce berkowitz

As part of the shut down, the fund distributed 3.14 million Sears shares and warrants. Berkowitz, a Partnership investor, personally received 727,816 Sears shares and warrants on 810,345 shares, according to the filing. The remaining holdings went to Fairholme clients who were previously investors in the hedge fund. Berkowitz joined the Sears board in February 2016 and has been bullish on the department store chain even as it has bled money. The Fairholme Partnership had $409.3 million of gross assets as of April, according to a regulatory filing. In statement released Monday, Fairholme said Berkowitz joined the Sears board to better communicate his views about the retailer. “Mr. Berkowitz believes that he has achieved that objective,” according to the statement. The investor’s $2.1 billion Fairholme Fund, a registered mutual fund, has lost 6.6 percent year-to-date. It has lagged 99 percent of rivals over five years, according to data compiled by Bloomberg. In his 2017 semi-annual report to investors, Berkowitz reiterated his view that Sears has potential. “Investors may disagree on the exact path forward for Sears, but the company owns many valuable assets and there is huge value in optimizing all of them,” he wrote. Those assets include real estate that the company controls and its competitive position as an appliance seller, he said. The liquidation involves both the domestic and offshore versions of the hedge funds. Berkowitz’s Fairholme Fund holds stakes in mortgage-finance giants Fannie Mae and Freddie Mac.

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Sears Holdings Chairman Eddie Lampert’s Thoughts on Strategy & Profitability

Following our year-end financial results announcement this morning, I wanted to reflect on the progress we made over the past year and emphasize key elements of our strategy going forward. As many of you know, 2016 proved to be another challenging year for most “bricks and mortar” retailers. Our company was not immune to these headwinds. Regardless, as a result of the strategic actions we have taken, we delivered Adjusted EBITDA1 improvements in the fourth quarter, increased our financial flexibility, and are moving forward with positive momentum.

sears holdings

Before I discuss the key drivers of our performance in more detail, I would like to re-emphasize an important point I made during our recent Town Hall meeting, so that, as a team, we can focus on driving our future success with a clear understanding on where our company stands today and the opportunity ahead of us. Sears Holdings is built on a strong foundation that will continue to provide us competitive advantages, as we drive our strategic transformation to become a more innovative and agile retailer.

We have very valuable brands among our assets, including some of the most iconic American brands. We have a large store footprint, dedicated associates and tens of millions of Shop Your Way members actively shopping with us. We saw the disruption of retail coming more than a decade ago and built a differentiated online shopping and membership platform – Shop Your Way – to ensure our participation in the next wave of retail. All of these assets – whether inherited, acquired or built – are our core strengths. They’re what makes us a competitive retailer today and will continue to do so.

Importantly, we also have what it takes to move us forward. We are in a financial position to continue to fund our operating needs and meet our financial obligations. We also have untapped opportunities to maximize the value of our existing assets, create additional financial flexibility and expand our Shop Your Way ecosystem to drive our future growth.

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