Fannie Mae

Pershing Square Holdings, Ltd. 16 Fannie Mae (“Fannie”) and Freddie Mac (“Freddie”) Fannie and Freddie common share prices increased significantly in 2025 as the Trump administration reiterated its commitment to an eventual privatization of the companies. Statements by President Trump, Treasury Secretary Bessent, Commerce Secretary Lutnick, and FHFA Director Pulte have emphasized three key objectives: (1) enhance home affordability by compressing the spread of mortgages over Treasuries, (2) demonstrate a near-term mark to market for the taxpayers’ ownership in the GSEs, and (3) maximize the long-term value of the taxpayers’ investment. On November 18, 2025, we published a simple and straightforward plan that would achieve all three objectives, which we shared in a public presentation on X. This plan includes the following steps: (1) account for the repayment of Treasury’s Senior Preferred Stock, (2) exercise Treasury’s 79.9% common stock warrants in Fannie and Freddie, and (3) relist Fannie and Freddie on the New York Stock Exchange. All three steps can be taken immediately by Treasury and FHFA at President Trump’s direction. This plan would keep the GSEs in conservatorship until the administration can carefully execute an exit, which eliminates timing pressure, maximizes optionality, and avoids any risk of disruption to the mortgage or MBS markets.

Forbes' 2009 retrospective on Lynch's Magellan tenure catalogued more than a hundred 'ten-baggers' — stocks that had multiplied ten-fold from initial purchase — across his thirteen-year record. The list included Fannie Mae, Ford, Philip Morris, General Electric, and a long roster of consumer and industrial names whose underlying businesses compounded earnings at double-digit rates for years while their multiples expanded. Lynch's point in the article was that the ten-bagger is not a lottery ticket; it is the predictable result of owning a business whose earnings grow at twenty percent a year for fifteen years while the market slowly re-rates the multiple upward. The arithmetic of the ten-bagger is unromantic. A company that grows earnings at twenty percent a year for thirteen years has grown earnings by a factor of eleven. If the market eventually assigns a similar multiple to eleven-times-the-original earnings, the share price has gone up ten-fold. Lynch's edge was not in forecasting which company would be the next ten-bagger; it was in identifying companies with the durable growth runway to compound earnings at twenty percent for over a decade. The multiple expansion is the bonus; the earnings compounding is the engine. Lynch's honesty in the article about the misses alongside the hits is the part most retellings omit. For every ten-bagger in the Magellan record there were several zero-baggers — stocks that went to zero or close to it. The portfolio outperformed not because Lynch was right more often than the index, but because his winners were much larger than his losers. The asymmetric structure of equity returns — losses capped at one times the cost, gains uncapped — is what makes the ten-bagger discipline work. The investor who lets the winners run and cuts the losers short will, over a portfolio of fifty picks, produce a Magellan-like record even with a hit rate below fifty percent.

The Forbes article dwelt on the Fannie Mae position as Lynch's single largest contributor to Magellan's outperformance. Lynch began buying the mortgage agency in the early 1980s when its government-sponsored-enterprise status was widely assumed to be a liability rather than an asset. The market worried that Congress would tighten the agency's mortgage-purchase mandate, cap its retained-portfolio growth, or impose affordability requirements that would compress margins. Lynch read the actual legislation and concluded that the political risk was overstated; the agency's role in intermediating conforming mortgages was, in practice, indispensable to the U.S. housing finance system. The operational thesis was that Fannie Mae's spread between the yield on its retained mortgage portfolio and its cost of debt funding was structurally wider than the market credited. As the agency scaled its retained portfolio, the dollar amount of that spread grew faster than the share count, producing book-value-per-share growth at mid-to-high teens rates for years. Lynch added to the position through the 1980s as the thesis confirmed, and held through the 1987 crash and the 1990 recession. The position eventually became the single largest contributor to Magellan's total return over Lynch's tenure. Lynch's retrospective on Fannie Mae emphasised the importance of reading primary documents rather than analyst summaries. The political risk that the sell-side cited as a reason to avoid the stock was visible, on close reading of the actual statute, to be more limited than the headlines suggested. The investor who read the legislation and the agency's annual report could form an independent view of the regulatory perimeter, and that view was materially different from the consensus view reflected in the share price. The gap between those two views was the source of the ten-bagger return.

The Commodity Futures Trading Commission allowed the trading and valuation of derivatives to proceed opaquely, without transparency, without demanding the sunlight of full disclosure, and without concern for the ability of the counterparties to meet their financial obligations if their bets went sour. And let’s not forget Congress, which passed responsibility for regulation of the derivatives market to the CFTC almost as an afterthought. Congress allowed—indeed encouraged—risk-taking by our government-sponsored (now essentially government-owned) enterprises—Fannie Mae and Freddie Mac—allowing them to expand far beyond the capacity of their capital, and pushing them to lower their lending standards. Congress also gutted the Glass- Steagall Act of 1933, which had separated traditional banking and investment banking, a separation that for more than 60 years well-served our national interest. Our professional security analysts also have much to answer for, especially in their almost universal failure to recognize the huge credit risks assumed by the new breed of bankers and investment bankers who were far more interested in earnings growth for their institutions than in the sanctity of their balance sheets.AAA

[9:10] Thank you very much it’s a pleasure to be here, I love this town {Washington, DC} and it’s a thrill to be here with Jim Johnson who did so much for Fannie Mae and that was the greatest single stock of my life. It’s still my largest position and anybody who wants to talk after about how to make money; I’ll tell them how to buy more Fanne Mae and now I’ve added Freddie Mac to the list too. And Congressman Ed Markey, who went to Boston College and Boston College Law School and has done a great job in Congress for everybody in this country, but especially the people in his districts in Massachusetts. But the great honor is my wife Caroline right here, my sweetheart, and my great stock picker who found Leggs and a bunch of other good stocks. What I am going to try to do today (I don’t know what I’m supposed to do with this gavel, I never had one of these things before)

[16:05] Now, I have to be fair. I’m talking about economics in the broad scale, predicting the downturn for next year, or the upturn, or M1 and M2, 3B, all of these Ms. {economic terms} Economics to me are when you talk about scrap prices. When I own auto stocks, I want to know what’s happening to used car prices. When used car prices rise, it’s a good indicator. When I own hotel stocks, I want to know hotel occupancies. When I own chemical stocks, I want to know what’s happening to the price of ethylene. These are facts. If aluminum inventories go down five straight months, that’s relevant. I can deal with that. Home affordability. I want to know about when I own Fannie Mae, or I own a housing stock. These are the facts. There are economic facts and there are economic predictions, and economic predictions are a total waste.