Galleon announced today that it will wind down their portfolio in an “orderly” fashion. According to their most recent SEC filing, Galleon holds 3.7 billion of equities and options. Although the 13F is not a clear representation of their entire portfolio, it still shows a sizeable amount.
The SEC link below shows the amount of shares that were held respectively at each company. Since Galleon is a well known technology focused hedge fund, it can be assumed that a large portion of the 3.7b portfolio is concentrated in the tech sector.
Forced selling occurs when a seller who doesn’t want to sell, has to. The reasons for forced selling can range from liquidity constraints, puking (when a hedge fund is unable to withstand anymore losses), following compliance rules and regs, and so on and so forth. When you have to get rid of something in a hurry, you can expect the buyer to pick up better prices in forced selling environment.
Please note, not all stocks will be able to be purchased at meaningful bargains, ideal situations for forced selling includes:
1. The larger the percentage of total shares outstanding the more likely the stock will be impacted by forced selling (the forced selling scenario would impact the stock price more if Galleon owned 10% as opposed to only 5%)
2. The smaller the market cap, the stock will be more easily influenced by forced selling. A 200m position in INTC vs a 200m position in AMD (a far smaller rival in market capitalization and shares outstanding). AMD would be more likely to be affected if 200m worth of their shares were sold off vs 200m worth of INTC.
3. The less liquid the stock, the more susceptible the stock will be towards forced selling.
Final words on liquidity. Liquidity is not the same for everyone, a 1 million dollar fund will be able to liquidate all holdings easier than a 1 billion dollar fund. Liquidity is like the last sheet of toilet paper, everyone assumes it will be there until it’s too late.
Yahoo Finance article :
http://finance.yahoo.com/news/Galleon-Preparing-to-Unwind-cnbc-815550976.html?x=0&sec=topStories&pos=1&asset=&ccode
13F sec filing showing long equity, options positions:
http://www.sec.gov/Archives/edgar/data/1056829/000105682909000008/0001056829-09-000008-index.htm
Tags: Galleon
