Investing.com — The Federal National Mortgage Association (OTC:), also known as Fannie Mae , has seen a 227% increase in its share value since the US election two months ago. This surge is largely attributed to Bill Ackman, founder of Pershing Square Capital Management, who has been actively promoting the shares.
Ackman has described the current situation as an “extraordinarily compelling” opportunity to buy shares of Fannie Mae and its rival Freddie Mac (OTC:) at a low cost. This is in anticipation of the US government reducing its significant stakes in these companies, which were acquired for around $190 billion as part of a bailout during the financial crisis.
Following a social media post by Ackman in late December, outlining his case for the trade, the stocks of both firms surged by 45% in less than an hour, and have continued to rise.
Ackman has previously attempted this strategy, buying hundreds of millions of dollars worth of Fannie and Freddie shares over a decade ago. His bet was that the firms would increase in value once they were restructured and released from US government control, a process known as conservatorship.
However, efforts to privatize these companies have been slow due to the complexity of the government’s large stakes and the risk associated with what could be one of the world’s largest-ever initial public offerings. There’s also the concern of potentially higher mortgage rates for homebuyers and no assurance that the incoming administration will prioritize this issue.
Despite these challenges, Ackman remains optimistic. He believes that the Trump administration’s commitment to reducing government’s role will help in releasing Fannie and Freddie from conservatorship. Adding to his optimism, Biden officials released a roadmap last week for ending federal supervision of these firms, which some interpret as a sign that a resolution may be near.
Ackman expects to make significant profits from this venture. He anticipates that Fannie and Freddie will go public late next year at around $31 per share, a rise of nearly 1,200% from his average purchase price of roughly $2.40. As of Tuesday, Fannie’s shares closed at $4.55, while Freddie’s ended the session at $4.40. Ackman expressed confidence in his post saying, “Trump and his team will get the job done. Trump likes big deals and this would be the biggest deal in history.”
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