By Nick Baker and Rhonda Schaffler
Oct. 31 (Bloomberg) -- Ron Baron, the investor whose stakes in casinos helped make his Baron Partners Fund the top performer among his peers, said U.S. spending on bridges and roads are creating some of the best investment opportunities in the world.
``For years America has underinvested by trillions of dollars in infrastructure,'' Baron, manager of $22 billion at Baron Capital Management Inc. in New York, said during an interview today. ``There is a tremendous amount of spending that has to be done.''
The 64-year-old investor said New Orleans flooding caused by broken levees in 2005 and Minnesota's bridge collapse in August will lead to more spending on public projects. That trend has already helped Baron holdings including Fastenal Co., the largest U.S. retailer of nuts and bolts, and MSC Industrial Direct Co., a marketer of repair supplies.
The $3.2 billion Baron Partners Fund has returned 21 percent this year, more than double the gain of the Standard & Poor's 500 Index. It's the No. 1 performer among 40 U.S. market- neutral funds, which aim to profit whether stocks rise or fall, according to data tracked by Bloomberg. Baron converted Partners from a hedge fund into a mutual fund four years ago.
The American Society of Civil Engineers said in 2005 that $1.6 trillion should be spent over five years to shore up the nation's infrastructure. Rehabilitation or replacement of the Tappan Zee Bridge north of New York City may cost as much as $14.5 billion, according to a report released in May by the Urban Land Institute and Ernst & Young LLP.
AIG Fund
American International Group Inc., the world's biggest insurer, said this week it raised $3.5 billion to take stakes in power plants, waste-treatment facilities and shipping terminals. Most of the firm's holdings are in North American infrastructure companies, including Ports America, the terminal operator Dubai- owned DP World sold under pressure from U.S. lawmakers in March.
Baron, whose office overlooks New York's Central Park, holds this bullish view of America even though he expects the U.S. to be surpassed. ``I'm sure China will be largest economy in 50 years,'' he said. ``As long as they don't screw up.''
U.S. economic growth unexpectedly accelerated last quarter, expanding at a 3.9 percent annual rate, the Commerce Department reported today. China, which contributes a tenth of global growth, has expanded more than 11 percent for three quarters. The Asian nation is the fastest growing among the world's major economies.
Fastenal, MSC
Shares of Fastenal, based in Winona, Minnesota, and MSC of Melville, New York, have each gained 24 percent so far this year. The S&P 500 has advanced 8.7 percent. The Morgan Stanley Capital International World Index of developed markets gained 13 percent, and MSCI's gauge of emerging markets surged 47 percent.
``America is a land of opportunity,'' Baron said. ``People come here to escape religious persecution, to own a home, for freedom. There's no other place in the world like it. In China, you say something bad about the government and they beat you up. In Russia, they put you in jail.''
That hasn't dissuaded Baron from investing in China. His biggest holding is Wynn Resorts Ltd., which runs a casino in Macau. The Las Vegas-based company yesterday reported a 94 percent plunge in third-quarter earnings even as revenue doubled from the Chinese resort opened last year. The company had a gain in the year-earlier period that inflated profit.
Wynn Investment
Wynn shares lost as much as 7.7 percent to $155 today in Nasdaq Stock Market composite trading. That trimmed the stock's increase this year to 65 percent.
Baron's firm has a 5.6 percent stake valued at more than $950 million, according to Bloomberg data. Baron paid about $15 a share on average, including stock acquired before Wynn's 2002 initial public offering, to accumulate that position. He anticipates Wynn shares will reach $300.
Wynn's chief executive officer, billionaire Steve Wynn, ``builds properties that attract people,'' Baron said. ``We are less focused on short-term earnings because we do not believe that matters. We believe that creating a sustainable competitive advantage is more important.''
Baron's $6.9 billion Growth Fund hasn't fared as well as the Partners Fund this year. Its 11.7 percent return was enough to beat only half of its peers.
WellCare Health Plans Inc. was among the fund's laggards. The Tampa, Florida-based health insurer's shares have tumbled more than 80 percent since Oct. 23 after Federal Bureau of Investigation agents and investigators from a Florida Medicaid fraud unit searched WellCare's headquarters.
Baron was the eighth-largest WellCare shareholder, regulatory filings show. The money manager said he sold his stake after the stock started dropping.
``Our faith in management was apparently misplaced,'' he said. ``We did not make any money, although we think the idea of being able to provide health care, provide access to older people who do not have access to health care is a good idea.''
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