Bloomberg News

Lansdowne Sells Goldman Sachs While Purchasing Morgan Stanley

August 01, 2011

Aug. 1 (Bloomberg) -- Lansdowne Partners Ltd., a London- based hedge fund that manages about $14 billion, sold its entire stake in Goldman Sachs Group Inc. in the first three months of the year, while buying Morgan Stanley.

Lansdowne sold 4.9 million shares of New York-based Goldman Sachs between January and March, the hedge fund disclosed in a May 16 filing with the U.S. Securities and Exchange Commission. Lansdowne, founded by Paul Ruddock and Steven Heinz in 1998, purchased 3.1 million shares of Morgan Stanley during the same period, according to the filing.

Goldman Sachs, Morgan Stanley and other financial companies face more regulation after U.S. lawmakers approved legislation last year that restricts banks from making risky bets with their own capital. As policy makers increase oversight, Morgan Stanley is pursuing a business model that relies less on trading to make money, said Douglas G. Ciocca, chief executive officer of Kavar Capital Partners LLC.

“If the world keeps deleveraging and de-risking, then Morgan Stanley is much better positioned,” said Ciocca, whose Leawood, Kansas-based company owns shares of Morgan Stanley and Goldman Sachs. Morgan Stanley is also “much more attractive than Goldman on a book-value basis,” he said.

Andrew Grant, a spokesman for Lansdowne, declined to comment on the hedge fund’s trades. The sale of the Goldman Sachs stake was reported yesterday by the U.K.’s Daily Telegraph.

Wealth Management

Morgan Stanley distanced its strategy from that of Goldman Sachs with its 2009 purchase of a controlling stake in a retail brokerage joint venture with Citigroup Inc.’s Smith Barney. The deal gave Morgan Stanley the world’s largest brokerage with 17,638 financial advisers as of June 30.

About 48 percent of Morgan Stanley’s revenue this year has come from wealth and asset management, compared with about 13 percent for Goldman Sachs, according to regulatory filings.

Morgan Stanley, which bought a stake in Lansdowne in 2006, is cheaper than Goldman Sachs relative to the firms’ book values, a measure of assets minus liabilities. New York-based Morgan Stanley shares closed at 26 percent below its book value and 16 percent below its tangible book value on July 29. Goldman Sachs shares was trading 2.7 percent above book value and 11 percent above tangible book.

Shares of Morgan Stanley have slipped 18 percent this year and Goldman Sachs has fallen 20 percent. In July, Goldman Sachs reported second-quarter profit that missed analyst estimates after the company’s fixed-income revenue fell 63 percent from three months earlier.

U.K. Equity Fund

When Lansdowne was selling Goldman Sachs in the first quarter, the company traded for an average share price of $164.46. The stock closed at $134.97 on July 29.

Lansdowne’s filing with the SEC discloses holdings for its U.K. Equity fund, its Global Financials fund and its European Equity fund.

The firm’s biggest holdings of financial companies include retail banks that are more dependent on lending than Goldman Sachs and Morgan Stanley. Lansdowne owns 32 million shares of San Francisco-based Wells Fargo & Co. and 13.9 million shares of New York-based JPMorgan Chase & Co., according to the May filing with the SEC.

The U.K. Equity fund, Lansdowne’s biggest, lost about 11 percent through July 22, according to an investor who asked not to be identified because the information isn’t public. The fund has a stake in Lloyds Banking Group Plc, the London-based bank that has fallen about 35 percent this year.

‘A Tough Year’

Lansdowne has also been betting that shares of Prudential Plc will decline. The hedge fund was shorting 1.35 percent of Prudential’s stock as of July 27, according to regulatory filings. The U.K.’s biggest insurer has risen 4 percent this year and is up 22 percent since Lansdowne first disclosed a short position in April 2010.

It’s been “a tough year,” Ruddock, who worked at Goldman Sachs and Wertheim & Co. before co-founding Lansdowne, said in a interview with Bloomberg News published July 27. Hedge funds on average rose 0.76 percent this year through June, according to Chicago-based Hedge Fund Research Inc.

Lansdowne posted its best year in 2007, when the U.K. Equity fund rose 31 percent, according to data compiled by Bloomberg. The fund declined 2.38 percent in 2008, followed by a 26.6 percent gain in 2009 and an 8.62 percent increase last year.

--With assistance from Michael Moore in New York and Farah Nayeri in London. Editors: Steven Crabill, Christian Baumgaertel

To contact the reporter responsible for this story: Jesse Westbrook in London at jwestbrook1@bloomberg.net

To contact the editor responsible for this story: Edward Evans at eevans3@bloomberg.net


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