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Net Net: Promoting innovation and managing change

Ackman joins chorus supporting Fannie and Freddie

Bill Ackman
Adam Jeffery | CNBC

Activist investor Bill Ackman reiterated a popular hedge fund trade by recommending an investment in government-sponsored housing.

The head of Pershing Square Capital Management said investors should bet on the appreciation of Fannie Mae stock, already a position held by his hedge fund as of earlier this year.

"It's essential to preserving the housing market," Ackman said Monday afternoon at the Sohn Investment Conference in New York.

He said the stock could go to $23 or even $47 a share, up from about $4 a share now.

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Ackman said Fannie Mae had a "fabulous low-risk business" in creating low-cost mortgages and that both Fannie and Freddie have diversified assets across the country. The chances of a 2007-like drop in home prices is highly unlikely, according to Ackman.

He said the business has bounced back since the financial crisis because Fannie Mae has backed mortgages that are less likely to default.

Ackman said that Fannie stock had been hurt by the government taking profits because of its financial crisis bailout. There is now a proposal in Congress to wind down Fannie and Freddie but that plan won't work, he said, because it's unlikely that private firms will be able to effectively replace them.

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He recommended several changes for the government-sponsored entities, including exiting the fixed income arbitrage business and requiring more capital against their investments.

Several prominent hedge funds are already in the trade and are fighting for more gains through litigation. Firms invested in the preferred shares of Fannie and Freddie include Richard Perry's Perry Capital, John Paulson's Paulson & Co., Bruce Berkowitz's Fairholme and David Ford's Latigo Partners. Pershing Square has previously disclosed a position in the firms' common stock.