Even as the U.S. government prepares to slowly sell its stake in AIG, a star fundster is working out a deal of his own with the giant insurer. According to a filing, on Wednesday Bruce Berkowitz and Fairholme Capital Management [see profile] signed a confidentiality agreement with AIG, which also entails Fairholme agreeing not to buy or sell more of AIG until October 6 (or until a day after AIG reveals the confidential information, whichever comes first).

According to a statement Fairholme issued yesterday, it holds more than $1.8 billion of AIG securities (on behalf of Fairholme's clients and shareholders), which amounts to about 24 percent AIG's common stock and 38 percent of its mandatory convertible bonds. On the flip side, that is more than 10 percent of Fairholme's AUM.

What's Berkowitz up to? Reuters' Aaron Pressman wonders if this means that Berkowitz wants to invest more to boost AIG.

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Company Press Release

MIAMI--Fairholme Capital Management today issued the following statement:

On behalf of our approximate 440,000 shareholders and clients, Fairholme owns approximately 24% of the outstanding common stock, 38% of the mandatory convertible bonds and other debt instruments of American International Group, Inc. (AIG).

Fairholme invested over $1.8 billion in AIG securities, more than 10% of assets under management, with the knowledge that for decades AIG was the premiere insurer - a shining example of how the United States can compete around the world. We also invested in AIG with the belief that such a past is not easily destroyed.

Nevertheless, all of us at Fairholme applaud and appreciate the yeomen’s work of AIG's management and board of directors, the United States Treasury, the Federal Reserve System and its trustees and countless others involved in this most complex process.

We strongly support the proposed solution to revitalize AIG in a fair and equitable manner for all constituents, foremost our country's taxpayers, and look forward to a vibrant future for AIG and the U.S. economy.

Information about Fairholme Capital Management and Fairholme Funds, Inc.

Fairholme Capital Management, L.L.C. is registered with the SEC as an investment adviser and, as of September 30, 2010, has approximately $18 billion of assets under management. Fairholme Capital Management is the investment manager of each of The Fairholme Fund and The Fairholme Focused Income Fund. Operating and investment decisions for Fairholme Capital Management and the Funds are made by Bruce R. Berkowitz, in consultation with Charles M. Fernandez. Mr. Berkowitz is the founder and Managing Member of Fairholme Capital Management and the President and a Director of Fairholme Funds, Inc. Mr. Charles M. Fernandez is the President of Fairholme Capital Management and the Vice-President and a Director of Fairholme Funds, Inc.

The Funds’ investment objectives, risks, charges, and expenses should be considered carefully before investing. The prospectus contains this and other important information about the Funds, and may be obtained by calling shareholder services at 866-202-2263 or visiting our website at www.fairholmefunds.com. Read it carefully before investing.

Investing in The Fairholme Fund involves risk including loss of principal. The Fairholme Fund is non-diversified, which means that it invests in a smaller number of securities when compared to more diversified funds. Therefore, the Fund is exposed to greater individual stock volatility than a diversified fund. The Fairholme Fund also invests in foreign securities which involve greater volatility and political, economic and currency risks and differences in accounting methods.

The Fairholme Focused Income Fund is a non-diversified mutual fund, which means that the Fund invests in a smaller number of securities when compared to more diversified funds. This strategy exposes the Fund and its shareholders to greater risk of loss from adverse developments affecting portfolio companies. The Fund’s investments are also subject to interest rate risk, which is the risk that the value of a security will decline because of a change in general interest rates. Investments subject to interest rate risk will usually decrease in value when interest rates rise and rise in value when interest rates decline. Also, securities with long maturities typically experience a more pronounced change in value when interest rates change.

Shares of the Funds are offered through the Funds’ distributor, Fairholme Distributors, Inc. 

Edited by: Neil Anderson, Managing Editor


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