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Hedge funds have lost hundreds of millions on PG&E stock bets


A number of big-name hedge funds have lost hundreds of millions on investments in PG&E stock.

On Tuesday, PG&E (PCG), the California-based energy and utility giant, filed for chapter 11 bankruptcy following the massive liabilities the power provider faces in the wake of the wildfires. Shares of PG&E were about 5% in early trading.

Famed value investor Seth Klarman, the founder of Boston-based Baupost Group, is the largest hedge fund shareholder of PG&E and has seen his position decline 74% in the last few months.

In a letter to investors sent last week, Klarman explained that the fund purchased PG&E right before the stock "slumped badly" on "tragic developments that led to financial distress." He added that the fund remained a holder.

The Camp Fire that broke out on November 8, 2018 in Northern California was the deadliest in the state’s history.

During the third quarter, Baupost snapped up 14.48 million shares to hold a total 18.98 million shares of the power provider. At the end of the third quarter, the position was valued at $873.26 million. The current market value is $227.95 million, a decline of $645.31 million, a nearly 74% decline.

Other possible hedge fund losers on the stock include Hound Partners and Viking Global Investors, so-called "Tiger Cub" hedge funds that started with seed capital from Julian Robertson, the legendary hedge fund manager. Hound and Viking have seen their positions — assuming they haven't changed — drop from $307 million at the end of the third quarter to $80.16 million and from $263.5 million at the quarter end to $68.79 million, respectively. Both of those funds initiated new positions in PG&E during the third quarter of 2018.

PG&E's stock chart for one year.

David Tepper's Appaloosa Management added nearly 2.2 million more shares during the third quarter, bringing its stake to 3.99 million shares. The value of that position has dropped from $183.63 million to $47.93 million.

Elsewhere, BlueMountain Capital has seen its position drop massively. The fund added 4.14 million shares during the third quarter, bringing its total position to 4.3 million shares. The value of that position has declined from $198.2 million at the end of the third quarter to $51.74 million.

BlueMountain has issued a series of open letters and is pushing for a new board of directors. On Tuesday, the fund sent another letter in response to the bankruptcy filing, expressing that it's "deeply disappointed."

"[The PG&E board] has ignored calls from multiple parties to abandon its reckless and irresponsible plan to file for bankruptcy — a move that will harm all stakeholders," the fund wrote. "Today’s filing is the latest example of how the Board continues to fail the Company, wildfire victims, customers, employees, creditors, shareholders and the people of California. We urge all stakeholders to support change at PG&E and will be proposing a 'New Slate' of highly-qualified and impartial directors.

BlueMountain added that bankruptcy doesn't eliminate their shareholder rights to nominate and elect new board members.

To be sure, hedge funds of a certain size only have to report their long equity filings in quarterly filings known as 13-Fs. These regulatory filings come out 45 days after the end of each quarter, so it's possible the positions could have changed. The most recent available data is for the third quarter ended September 30. The next batch of filings for the fourth quarter come out mid-February.

Julia La Roche is a finance reporter at Yahoo Finance. Follow her on Twitter.