Pershing Square Inc. on Federal Home Loan Mortgage Corporation
Thesis
Pershing Square believes Freddie Mac represents a highly asymmetric investment opportunity tied to the potential termination of US government conservatorship. Alongside Fannie Mae, Freddie Mac operates a government-sponsored mortgage guarantee franchise characterized by recurring guarantee fees, substantial capital accumulation, and historically low credit losses. The combined enterprises have accumulated more than $200 billion in shareholder equity and have average annual credit losses of approximately 0.05% over the previous decade, supporting the fund's assessment of their underlying financial strength. Nevertheless, the companies trade at approximately 1.5 times earnings because their valuations remain dominated by uncertainty over their future political and regulatory status. Pershing Square believes the current administration has compelling incentives to restore private ownership and relist the companies before a potential change in administration in 2029. The fund sees potential for Freddie Mac's share price to increase by more than ten times if conservatorship ends and investors begin valuing the company according to normalized earnings and business fundamentals.
“the potential to increase in value by more than 10-fold from current share prices.”
Key risks
- Freddie Mac may remain under government conservatorship indefinitely, preventing the anticipated valuation normalization.
- Relisting and release from conservatorship depend on political and executive decisions that are outside the company's and investors' control.
- Policy uncertainty could intensify as the 2028 presidential election approaches, particularly if future administrations adopt different housing finance priorities.
- The market may continue applying deeply discounted earnings multiples to Freddie Mac even as its capital base and operating earnings increase.