Hedge Fund Cowards

Posted by: Matthew Goldstein on April 30

Let’s be clear: There’s nothing wrong with a group of hedge funds joining forces to push Chrysler into bankrupty because they didn’t like the terms the federal government was trying to get them to agree to. But it is a problem when the hedge funds lack the courage to publicly stand behind their vote.

Hours before Chrysler filed for bankruptcy, some of the hedge funds that voted against the deal to reduce Chrysler’s crushing debt burden issued a press release explaining their position. The release was signed by The Committee of Chrysler Non-Tarp Lenders. But it didn’t identify any of the 20 or so hedge funds that sit on this ad-hoc committee, or voted against the proposed debt-reduction package put together by the Treasury Department.

Talk about being unwilling to stand up for your convictions. If the hedge funds that voted against the deal believe they are in the right, then let them stand-up and be accounted for. Right now, the hedge funds hiding behind this committee look no better than the fan of a losing team who shows up to a game wearing a paper bag over his head.

President Obama, in a burst of anger, denounced the hedge funds that vetoed the Chrysler deal as a “small group of speculators.”

Now, the hedge funds may be wary of stirring up any more of Obama’s wrath. But it’s not as if the names of the 20 or so hedge funds that own Chrysler’s bank debt won’t eventually come out.

Indeed, some already are making their way into the headlines. The New York Times’ Dealbook blog reports: “Members of the committee include units of Oppenheimer Funds, Perella Weinberg Partners’ Xerion Capital Fund and Stairway Capital Management. JPMorgan Chase, which was keeping tabs on the votes from Chrysler’s secured lenders, obviously knows which hedge funds voted no.

BTW, I’m told that one of the biggest distressed investing hedge funds, Elliott Management, voted for the debt-reduction deal.

Meanwhile, the committee did find a press contact at the noted public relations firm Sard Verbinnen to field press calls. For the moment, the Sard flack isn’t commenting.

But some hedge fund defenders are willing to speak out. Ron Geffner, who specializes in working with hedge funds, isn’t representing any of the committee members. But he understands why they voted down the deal. “Fund managers are obligated to act in the best interests of their investors,” says Geffner. “Those fund managers probably feel that a bankruptcy filing would result in a higher return for their investors,” says Geffner.

That may all be true. But if the hedge fund managers really believe they are doing the right thing by their investors, then stand up and be counted. Until they do, this is the name we’re going to call this band of hedge funds: “The Paper Bag Crowd.”

Updated 5:14 PM (EDT)

OppenheimerFunds, to its credit, has now issued a statement explaining its decision to reject the Chrysler debt-reduction package. First, the money management firm points out that it represents the “interests of the thousands of small investors and their retirement plans that make up the majority of our mutual funds shareholders. The firm then goes on to say it “rejected the Government’s offers because they unfairly asked our fund shareholders to make financial sacrifices greater than the sacrifices being made by unsecured creditors.”

Updated 5:39 P.M.(EDT)

And now Perella Weinberg Partners’ Xerion Fund is weighing in too saying it no longer would vote “no” on the deal. In a statement, the investment firm says: “We believe that this is in the best interests of all Chrysler stakeholders, and our own investors and partners.”

Fair enough. Anyone else on the committee care to share their views with us?

Reader Comments

wtobias

April 30, 2009 08:34 PM

yes and they would get the same treatment that the aig executives got from the obama media after the government approved the money for bonuses. they have a rite to not want to be named there safety and there family's safety

williambanzai7

April 30, 2009 08:45 PM

LITTLE BAILOUT GTO
(Ronnie and the Daytonas, Little GTO)
WilliamBanzai7

Sing along link: http://www.youtube.com/watch?v=44kg0IENTPU

Little GTO, you’re really lookin mighty fine.
Three billion deuces, a four speed haircut–its Section 363 Bankruptcy time
Listen to her tachin’ up now, listen to her why-ee-eye-ine
C’mon and turn it on, wind it up, blow them bondholders out GTO

You oughta see her on a cash burn course for a quarter mile
This little bailout Pon-Pon has got plenty of high finance style
She beats the union gassers and them greedy hedge hoggers, really drives ‘em why-ee-eye-ild
C’mon and turn it on, wind it up, blow them bondholders out GTO

President Obama sings:
Gonna save some TARP money (turnin’ it on, blowin’ it out) and buy a GTO (turnin’ it on, blowin’ it out)
Get a bailout helmet, an Italian roll bar (turnin’ it on, blowin’ it out) and I’ll be ready to go (turnin’ it on, blowin’ it out)
Take it out to Pomona (turnin’ it on, blowin’ it out) and let ‘em know (turnin’ it on, blowin’ it out), yeah, yeah
That expedited Chapter 11’s the coolest thing around
Greedy little bondholders, gonna shut you down
When we turn it on, wind it up, blow them bonds out GTO

Ralph Witherell

April 30, 2009 09:46 PM

Why "Stand up to be counted" and make yourself a more visible target of a law breaking crime syndicate, i.e. the Obama Administration. They have demonstrated a desire to crush anyone who stands in their way, regardless of the law. Your argument is weak.

BTW, you failed to mention that Perella Weinberg only changed their view after Obama's attack.

ken

April 30, 2009 10:01 PM

This administration is bought and paid for by the unions. For Obama to lash out at the lenders, who in good faith, made loans to this company based on the belief(of all things) that they would actually be repaid is disingenious. The culprits in this mess are the unions who milked this company bloodless and the executives who were gutless in not saying no to the union demands for the last 40 years.I praise these few individuals who actually stand up for their investors and are willing to take their chances in court where the game has far less chance of being politised.

MatthewSucks

April 30, 2009 10:11 PM

Matthew,

I wasn't aware that running a business required pandering to populists or bad BusinessWeek writers. Now that everyone has been enlightened, I'm sure the lenders will be more forthcoming in the future. Those cowardly hedgefunds are interested in making money for their shareholders, who are just as American, and perhaps just as hardworking as any autoworker. Without the money from those cowards, Chrysler wouldn't have been able to meet its obligations a long time ago, but who cares about facts when you're writing a terrible blog after all. The funds don't need to, and frankly shouldn't have to, publicly stand behind anything...They don't represent public interests; they aren't in Congress (and I know with all this Obama-mania this fact may come as a shock). They do have to stand behind their votes in bankruptcy court though, and I hope as duped lenders they get as much money back as possible.

Baron95

April 30, 2009 10:18 PM

Obama is about to be schooled by the Bankruptcy process. Unless this case gets assigned to a puppet judge, Obama just lost control of the course of things at Chrysler.

The creditors can very well persuade the court that an auction of assets and liquidation are the best course of action and/or drag this thing out for months.

I'm glad to see that at least some creditors had the balls to stand up to Obama's plan to reward the UAW VEBA with 55% of the company (even though they are an unsecured creditor with no standing), when the UAW was a main culprit of Chrysler loss in the market.

Alan Adler

May 1, 2009 12:17 AM

So first everyone bashes Ken Lewis for pandering to the Feds and putting his and the boards interests in front of shareholders, and now when the funds put the investors first they are the bad guys. This is a lose lose situation for everyone but the unions. Since when did senior secured debt become subordinate to all other debt? If that is the case then I as a common shareholder want all my losses back at the expense of the bondholders at all the companies that went BK.

Ken Sears

May 1, 2009 02:06 AM

As soon as I heard Obama dragging the "holdouts" through the mud, I thought, "Something stinks here." It couldn't be that simple. We all saw a very, very dark side of Barack Obama yesterday, as he cynically scapegoated these fund managers to score cheap political points. I'm afraid this is only the beginning of Barack Obama's third-world style populist totalitarianism with a brash smile.

nyongesa

May 1, 2009 05:42 AM

The facts are simple, the comments here, in a venue for discussion, are unfortunately childish as usual.

As Baron95 points out, the president is about to get schooled by the bankruptcy process, whereby secured Creditors will get a fairer shake than what the administration is offering them. the government should have not gotten itself involved in this in the first place. This is darwinian capitalism, and it is more efficent at allocating rescources to all our bennefit, than government agents are.

That said, Obama is a politician, and sitting around watching stuff crash and burn is not what he gets paid for, meddling in what appears to be constructive ways keeps him in his job, whether it works or not. The moment you stop debating high school sophmores, you discover there is no such thing as an Obama media, there is though plenty of pissed of citizens who saw the AIG bonus shenanigans blatently executed before there eyes.

And nothing is more fascinating than the outrage at the outrage crowd, shocked that Americans would be enraged by the AIG bonuses. This is not land of the meek and cowardly!!!

As to Chrysler, bankrutpcy court is the place for this mess. Let the debtholders present their alternative plan, or, demand liquidation and sale of Jeep and the minivan division etc. if they get more out of it, let it be so.

Tyler

May 1, 2009 08:04 AM

these comments are amusing. an echo chamber of greed and self-pitying businessmen.

jon

May 1, 2009 08:11 AM

Quit crying. If name calling is the only 'argument' you have, this is a non-story. Negotiations 101, don't accept their first offer. Are you naive enough to think the 1st offer by the Administration is best for bond-holders?

The Mad Hedge Fund Trader, San Francisco, CA

May 1, 2009 02:20 PM

If you are looking for a great leading barometer of risk taking by hedge funds, take a look at the euro/yen cross rate. After trading as high as ¥170 in 2007, it plummeted to a low of ¥114 earlier this year. It then took off like a scalded chip three weeks before the S&P 500 made its prophetic 666 low on March 9. This is a valuable cross rate to track because traders can finance their positions for free by borrowing in yen and investing in other currency denominations. Although the chart below looks remarkably like that of the Dow, my bet is that hedge fund money is pouring into commodities and emerging markets and their corresponding stocks in the US. Think commodity producers and technology. Watch the euro/yen. www.madhedgefundtrader.com

NewEnglandDevil

May 1, 2009 02:41 PM

"there is no such thing as an Obama media, there is though plenty of pissed of citizens who saw the AIG bonus shenanigans blatently (sic) executed before there eyes."

I take it you didn't see the CNN reporter engage a protester in debate, trying to convince him that Obama's policies were in his best interest? LMAO. Yes, Obama media does exist.

Speaking of AIG bonus shenanigans... the Shenanigans all took place in congress - NOT AT AIG. Congress (none other than Senator Dodd) inserted the language guaranteeing AIG bonuses. The people who caused the problems at AIG were long gone, and the people receiving bonuses were being paid to clean up the mess as best they could.

With congress directing the rent-a-crowds, fully financed with ACORN (aka Taxpayer) dollars, it is indeed ironic that the protesters went to the homes of AIG execs and not to capital hill - isn't it?

-- @Tyler --
As opposed to the echo chamber of greedy and self-pitying [interest group] found elsewhere? The poor, the unions, illegal immigrants, minorities by race, sex, sexual orientation, or belief? The difference being that the businesspeople worked hard to build up their assets, and they accomplished that by providing services to others. Whereas unions, for example, use extortion and even brute force to achieve their ends, and in so doing, end up destroying the companies (or local and state governments) they are paid to work for.

jojo

May 1, 2009 05:58 PM

I can not believe that you actually have a job writing for a magazine that has the name "Business" in it. I'm not sure whats the bigger joke.

LCV

May 4, 2009 10:13 AM

Ken: "This administration is bought and paid for by the unions."

As opposed to the last administration...bought and paid for by the investment community?

The very same investment community whose actions destroyed companies, destroyed pension funds, created massive unemployment and the biggest recession since the Great Depression?

That said, never fear, there are still more than enough Wall Street cronies peppered throughout the current administration to control the ultimate outcome of all of the various wheeling and dealings being conducted to offset the massive failure on the part of Wall Street conduct business without destroying the economy in the process.

Some things will never change.

Joe

May 7, 2009 07:24 PM

It's because of articles like this that I canceled my BizWeek subscription--the magazine oddly enough seems anit-business.

lolo

May 7, 2009 10:07 PM

"OppenheimerFunds, to its credit...."

Goldstein,

Why don't you, to your credit, admit you're just an Obama schill and that you're lying about the "hedge" funds.

I'm pretty sure you don't even know who Oppenheimer is; pretty telling for someone writing for a business magazine.

I wonder if the American public realizes that their own pensions are being sold down the river so that Obama can repay the political favor to the UAW.

Thank you for your interest. This blog is no longer active.

 

About

BusinessWeek's Adrienne Carter, Jessica Silver-Greenberg, and David Henry deconstruct the mysteries of high finance, Wall Street, and hedge funds for pros and ordinary investors. E-mail them directly if you've got tips about big deals, a hedge fund, or even securities industry gossip.

BW Mall - Sponsored Links

Buy a link now!