Hedge fund executive Bill Ackman is predicting the government-sponsored enterprises (GSEs) Freddie Mac (OTCQB; FMCC) and Fannie Mae (OTCQB: FNMA) will be privatized during the upcoming Trump administration.
The GSEs have been in federal conservatorship since September 2008. In a posting on X, Ackman – the founder and CEO of Pershing Square Management – recommended that investors pay more attention to the GSEs, which now trade on the over-the-counter markets.
“We have owned Fannie Mae and Freddie Mac common stock for more than a decade,” Ackman posted. “Today, they trade at or around our average cost. As such, they have not been great investments to date. What makes them particularly interesting today versus any other time in history is that there is a credible path for their removal from conservatorship in the relative short term, that is, in the next two years.”
Ackman asserted that efforts to end the conservatorships began under former Treasury Secretary Steve Mnuchin during Trump’s first term, but were halted when the Trump presidency ended. Ackman added that he expected “Trump and his team will get the job done” during this second term.
“Trump likes big deals and this would be the biggest deal in history. I am confident he will get it done,” Ackman wrote, predicting that the privatized GSE would be a win-win for the government and investors.
“A successful emergence of Fannie and Freddie from conservatorship should generate more than $300 billion of additional profits to the Federal government (this is on top of the $301 billion of cash distributions already paid to the Treasury) while removing ~$8 trillion of liabilities from our government’s balance sheet,” Ackman continued. “The GSEs have built $168 billion of capital since Mnuchin ended the net worth sweeps in 2019. This is already a fortress-level of capital for guarantors of fixed-rate, first mortgages to creditworthy, middle class borrowers.”
As for potential future tumult in the housing market, Ackman predicted the GSEs “also have enormous ongoing earnings power, particularly during challenging periods in the housing market where they tend to take significant additional market share. This enables them to quickly recapitalize after a period of housing market stress.”
Trump made no mention of the GSEs during his presidential campaign. However, the Wall Street Journal reported that his economic advisers have been planning a strategy to end the federal conservatorship of the GSEs.
Photo courtesy of Pershing Square Foundation
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