Microsoft Corp. (NASDAQ: MSFT) co-founder, former CEO, recent “Chief Software Architect,” and world’s richest person for 13 years Bill Gates is not known for his investing so much as his business leadership – he didn’t invest in Microsoft, he built it. Nonetheless, Bill Gates is a pretty savvy guy, and he presumably has very savvy guys managing his investments (with a best friend like Warren Buffett, one would hope at least).

Obviously Gates’ wealth comes from Microsoft, but he has made a significant effort over the years to diversify his holdings through his private fund Cascade Investment LLC. In a recent The Motley Fool piece, some of Cascade’s holdings were examined:

•    Berkshire Hathaway (NYSE: BRK.A)
•    Canadian National Railway (NYSE: CNI)
•    Otter Trail (NASDAQ: OTTR)
•    Republic Services (NYSE: RSG)
•    Six Flags (NYSE: SIX)

Berkshire Hathaway is not surprising, given Gates’ relationship with Buffett, and the good sense for anyone, regardless of whether you personally know the Oracle, of investing in the company.

Cascade also seems to have a penchant for unglamorous businesses like railroads, Canadian National Railway, and trash disposal, Republic Services – both of which have done well for Cascade over the last 12 months, returning 7% and 13% respectively.

To investigate Cascade yourself, look for its 13-F filing with the SEC.

Barron's recently ran an interesting story on an activist hedge fund we follow called The Chilren's Investment Fund. The article interviewed founder Christopher Hohn, who unveiled some very interesting points and gave unparalleled insight into one of the most profound activist hedge funds in today's markets.

Hohn acts very similar to Warren Buffett in that he purchases hard-asset companies that are well-positioned and enjoy a near-monopoly, where there is a high barrier to entry, and which are under-researched and undervalued. The difference is that this investor likes to look for situations where poor management is undervaluing the firm.

The Children's Fund is well known for pushing management to pursue shareholder-friendly activities like share buybacks and special dividends designed to unlock value. Indeed, he has also seen great success by saving companies like Deutsche Borse from bad takeover attempts that undervalue the company.

Another important question answered in the interview was how such an innocent name - The Children's Fund - was assigned to such an aggressive hedge fund. It turns out that Hohn's wife wanted a fund that could help the poor, so this fund donates a portion of its profits to a non-profit organization that helps children in developing nations.

The rest of the interview can be read here.

But the big question is then: What stocks does the Chilren's Investment Fund own now? A quick look at their recent Schedule 13F-HR filing with the SEC shows a portfolio of just nine stocks - some popular and some unknown. The hedge fund's largest holding - not surprisingly - is in Union Pacific Corp., while CSX Corporation comes in second place. However, there are also many unknown names like Martin Marietta Matls on the list.

Here is the complete list:
1. Transalta Corporation (TAC)
2. Sterlite Inds India Ltd (SLT)
3. CSX Corporation (CSX)
4. CME Group, Inc. (CME)
5. Martin Marietta Matls Inc. (MLM)
6. Mastercard Inc. (MA)
7. Nymex Holdings Inc. (NMX)
8. Union Pacific Corp. (UNP)
9. Vulcan Materials Co. (VMC)

Yahoo Inc. (NDAQ: YHOO) has bigger problems than Microsoft Corporation (NDAQ: MSFT) these days. The search giant is now trying to fend off activist investor Carl Icahn who has began his own campaign to force the Microsoft deal. So, what does Yahoo plan to do? Delay the inevitable of course! The company decided to put off its annual shareholders meeting until the end of July to give it more time to think.

Yahoo CEO Jerry Yang will now have to work to prove that he can win back investors after rejecting an offer from Microsoft. If not, Carl Icahn has promised a proxy battle to takeover the board and force an acquisition by Microsoft in order to unlock shareholder value. Currently, Yahoo shares are trading 17% below Microsoft's latest $33 per share takeover offer. However, Microsoft did say that it was pursuing a new transaction with Yahoo that didn't involve a takeover, but that it would reconsider a Yahoo bid at some point.

Icahn also has widespread support for his plans to force a Microsoft bid. He owns 10 million shares himself and has an option to purchase an additional 49 million. Furthermore, he has won support from investors including New York hedge fund Paulson & Co., BP Capital LLC Chairman T. Boone Pickens and Third Point LLC's Daniel Loeb. This represents a substantial amount of outstanding shares that would nearly guarantee a successful acquisition.

Meanwhile, Google is continuing is smear campaign against the merger. Larry Page came out saying that the combination would harm innovation by giving the combined company too much control over web communications. All of this complaining may pique the interest of anti-trust judges that are already on shaky grounds with Microsoft after their battle back in the late 90s and early new millennium.

In the end, the Microsoft buyout represents a huge premium for Yahoo shareholders that could take years to realize as an independent company. As a result, Carl Icahn and many others are pushing towards a sale. Whether or not Jerry Yang can successfully convince the rest that independence is the best route remains to be seen. But this stock is definitely one worth watching over the next few months!

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