We have just read Bruce Berkowitz's semi annual letter and was more than glad to see him discussing about the long-dated warrants that we have mentioned in previous posts.
Here is the snapshot of the returns that he is projecting for the different warrants:
Both AIG and BAC warrants are high up on the list, offering returns of 752% and 592% respectively.
We have used even more conservative growth rate than his suggested 10% growth in book value through the years. What is interesting here is that Hartford warrants have almost the similar returns as AIG warrants. We will probably do some work on it.
On investing in the warrants, we always have people asking us how come then with such returns, well known value managers are not putting their money in the warrants but instead in the common stocks?
The reason is they can't. There is simply not enough volume of warrants out there in the market for them to buy. Bruce himself already holds close to 25mil of the 75 mil outstanding AIG warrants. That is almost 1/3 of the entire float!
But for retail investors, that is a different case altogether. We can instead buy in to these warrants and hold on till expiry and chances are, you will be getting a huge paycheck at the end!