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By Jason Stipp | 03-09-2011 04:47 PM

Berkowitz's Plans for St. Joe

The Fairholme manager recently spoke to our analysts about his intentions for St. Joe, the fund's distinctive research-outsourcing model, and the new Allocation Fund.

Jason Stipp: I'm Jason Stipp for Morningstar. Morningstar fund analysts Ryan Leggio and Kevin McDevitt recently visited with Bruce Berkowitz of the Fairholme Fund in his Florida offices. They brought back some interesting insights about the St. Joe holding, which has been in the news a lot, as well as the operations of the Fairholme Fund, in addition some insights on the new Allocation Fund. Ryan Leggio is here to share those with me today.

Thanks for joining me, Ryan.

Ryan Leggio: Thanks for having me, Jason.

Stipp: So first question for you: St. Joe has been, obviously, the biggest newsmaking holding of the Fairholme Fund. A few readers have asked us, the way that Bruce Berkowitz and the Fairholme Fund has been involved with this company, it reminds them a little bit of maybe Warren Buffett and Berkshire Hathaway way back in the day, and maybe St. Joe will be Bruce Berkowitz's Berkshire Hathaway. Does he have plans to transform this into some sort of an investment vehicle down the road?

Leggio: Well, we specifically asked him that question when we were at his offices in Miami. Certainly, it is a very high-profile, activist type investment for the most part, and in Bruce Berkowitz's decade-plus at Fairholme, he's taken a passive investment approach to most of his holdings, and specifically, he said, he doesn't have an interest in taking over St. Joe and making it private, and specifically he said this:

Bruce Berkowitz: We would be happy to step off the board; that's not the business we're in. But if it's going to be valuable to our shareholders and to the shareholders of St. Joe, then we'll stay. It depends also to what extent what St. Joe becomes. I'm pretty optimistic, I know the worst case, and the worst case is going to work out reasonably well for shareholders. The question is what's the best case? And could it be something that no one has even dreamt about before?

Stipp: So Ryan, it sounds like Berkowitz's very hands-on involvement with St. Joe is really to make it the best investment that it could be for the Fairholme shareholders. But I have to ask: This is a relatively small position in the Fairholme Fund, especially compared to all the news that it's been making recently. Is it too much time that he's spending on such a small stake?

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