Bloomberg News

Freddie Mac, the nation's No. 2 buyer of mortgages, is already troubled by lagging shares and congressional opposition. Now it may be losing some of its most loyal stockholders, including an affiliate of billionaire Warren Buffett.

Wesco Financial Corp., a company controlled by Mr. Buffett's Berkshire Hathaway Inc., filed documents with the Securities and Exchange Commission suggesting that it sold 33% of its stake in Freddie Mac during the second quarter. Similarly, Ruane, Cunniff & Co. reported that its Freddie Mac holdings fell by more than half in the same period.

Ruane Cunniff, investment adviser to the Sequoia Fund Inc., has been a Freddie Mac shareholder since 1989, the year that the McLean, Va., company held its initial public offering. Wesco, of Pasadena, Calif., received stock in Freddie Mac prior to the 1989 IPO. The Sequoia Fund is heavily invested in Berkshire Hathaway.

Neither Freddie Mac nor Ruane Cunniff officials would confirm that the money manager definitely sold some 14 million shares, with a current market value of $623 million, during the second quarter. It is possible, though investment experts say unlikely, that Ruane Cunniff might have reported part of its stake on a confidential basis as permitted under federal disclosure rules.

Wesco officials could not be reached.

The SEC requires money managers who have $100 million or more of equities to publicly report their stock holdings at the end of each quarter in a Form 13F. But money managers can report some of their holdings on a confidential basis - in a second nonpublic Form 13F - by showing the SEC that disclosure would disrupt their trading strategies.

Mr. Buffett's approach to investing - taking big stakes in a limited number of companies and then holding the shares for many years - is similar to that of Ruane Cunniff's founders, William Ruane and Richard Cunniff. All three investors studied together at Columbia Business School under Benjamin Graham, the father of modern value investing.

Their reported cuts come at a turbulent time for Freddie Mac and Fannie Mae, both of whom have government charters to promote home ownership by expanding the pool of money available for mortgages. Their woes have ranged from rising interest rates to congressional efforts to remove their implicit government backing.

Wesco reported in a quarterly filing that it owned the equivalent of 15.5 million Freddie Mac shares when the second quarter ended, down from 23.3 million at the close of the first quarter. Similarly, New York-based Ruane Cunniff reported in an SEC filing that it held 5.9 million Freddie Mac shares as of June 30, down from 19.9 million shares as of March 31.

Ruane Cunniff has owned at least 20 million Freddie Mac shares, adjusted for stock splits, since the end of 1995, the latest date for which information was immediately available. At the end of 1999, about 12.6 million of the Freddie Mac shares controlled by Ruane Cunniff were held in the Sequoia Fund, which has stumbled recently after turning in stellar returns for investors.

Freddie Mac ranked as Sequoia's second-largest holding as of Dec. 31, behind the fund's $1.1 billion stake in Berkshire Hathaway, the Omaha insurance holding company controlled by Mr. Buffett.

Sequoia purchased its Freddie Mac shares at an average price of $4.14 each, adjusted to account for stock splits, according to the company's most recent report with the SEC.

With Freddie Mac shares rising 1.1% today to $44.5625, the fund would generate big profits by selling Freddie Mac shares.

Nevertheless, this might not be the best time to sell Freddie Mac shares, given that the stock traded as high as $66.375 at the beginning of 1999. And it is possible that Ruane Cunniff didn't sell, notwithstanding the regulatory filing.

Ruane Cunniff is one of the companies that files both a public and a confidential Form 13F at the end of each quarter. It is conceivable that Ruane Cunniff shifted part of the Freddie Mac stake from the public filing to the confidential one; that would account for the decrease in shares.

Still, most money managers report entire stakes, rather than just some of the shares, on a confidential basis. Consequently, said Fred Hult, an analyst at Carson Group Inc., a New York firm that tracks institutional holdings, the reduction reported by Ruane Cunniff most likely represents actual sales.

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