Unstructured Finance
Deconstructing Wall Street, one deal at a time
Welcome to Paulson-mart
By Matthew Goldstein
It’s been an ugly summer for hedge fund king John Paulson with two of his biggest funds down more than 25 percent. But what makes that poor performance all the more painful is how widespread it is being felt by wealthy individual investors around the globe.
Paulson’s flagship Advantage funds would appear to be exclusive terrain with a $10 million investment requirement. But that hefty entrance fee is something of a veneer because many of Paulson’s investors have gained entrance to his kingdom by plunking down as little as $100,000. That’s because Paulson’s Advantage funds are some of the most widely sold hedge fund portfolios on distribution platforms maintained by Wall Street firms, European banks and small investment advisory firms around the globe.
Paulson has built a powerful internal marketing force to make sure there is a steady stream of money from wealthy individual investors trying to get into his funds. This was one of the more surprising things my colleagues Jennifer Ablan, Svea Herbst-Bayliss and I found when we began taking a close look at Paulson’s problems this year.
Et tu, S&P
By Matthew Goldstein
A few weeks ago S&P telegraphed that it would soon strip the U.S. of its vaunted Triple A rating and downgrade the government’s debt by a slight notch to AA+. And Friday night, the major credit rating did just as it telegraphed.
For the moment, let’s not debate whether S&P is engaging in politics, or should even be in the business of rating the debt of countries. The latter issue, however, is something that our nation’s political leaders and regulators may want to consider at some point.
But for right now, it’s worth noting that over the past decade or so, S&P has moved on downgrading corporate debt and esoteric securities as if it was still operating in the days of the telegraph.
This is absolute nonsense. At least S and P have learned from their earlier mistakes and are now doing the right thing. It would be great if the politicians, bankers and other assorted “experts” would do the same thing
John Paulson’s lost advantage
By Matthew Goldstein
Hedge fund titan John Paulson has a shrinkage problem.
The billionaire manager’s flagship Paulson Advantage funds are quickly losing altitude after peaking with $19.1 billion in assets under management in March. As of the other day, the combined AUM of the Paulson Advantage and Advantage Plus funds had fallen to $15.7 billion, according to investor sources.
The Advantage funds account for roughly 44 percent of the $35. 2 billon in assets under management at Paulson. The two so-called event driven funds long have been the manager’s largest.
Investors lost more on Paulson’s “Salary” than they lost on the recent downgrade. He should give it back – and do something for the benefit of his country, his neighbors and his fellow man.
Steve Cohen’s forbidden transcript
By Matthew Goldstein
Hedge fund titan Steve Cohen is taking steps to appear more open these days. Over the past year or so, he’s been showing up at industry conferences, charity events–even allowing himself to be photographed with his wife for a glossy spread in Vanity Fair magazine.
But there are some things the SAC Capital founder is drawing a line in the sand over when it comes to greater transparency, including some of his own words.
Cohen and his legal team are fighting hard to keep hours worth of deposition testimony that he recently gave in a civil lawsuit under wraps. Last year, the billionaire trader sat for a deposition in the long-running stock manipulation lawsuit filed by Canadian insurer Fairfax Financial against SAC Capital and other hedge funds, including Dan Loeb’s Third Point and Jim Chanos’ Kynikos Associates.
Hedge fund leaders duck for cover
By Matthew Goldstein
Top hedge fund managers are great at enriching themselves through savvy trades that presumably come from a keen insight into the markets and economic trends. But all too often these titans of Wall Street come up small when asked for their opinions on the pressing economic questions of the day.
That’s what happened when three Reuters reporters recently asked 30 of the top U.S. hedge fund managers to respond to a quick email survey about the political morass in Washington and the potential for a double dip recession. Less than a handful of managers offered any thoughts on the subject. The overwhelming majority either didn’t respond, or had a representative reply that the manager was either too busy to comment, or didn’t want to participate.
I’m not going to embarrass any one by calling them out for not responding but it’s hard to fathom how some of the wealthiest people on the planet couldn’t find the time to have someone on their staff take 5 to 10 minutes out to respond to a three question survey. (We were trying to make it real easy to get some responses).
A bank account free from political posturing?
By Matthew Goldstein
A measure aimed at protecting companies from community bank failures may be finding new life as a way to guard against the fallout from the political squabbling in Washington, D.C. over raising the debt ceiling.
Even though much of Wall Street believes that sanity will prevail in the end and the nation’s politicians will not allow a U.S. debt default to occur next week, the level of anxiety in the financial world has risen in the past few days. And that unease has led some money managers to begin looking at a post-financial crisis measure aimed at protecting non-interest bearing bank accounts as a potential safe haven.
One trader says he is aware of at least one manager who has moved some cash into a non-interest bearing checking account that that FDIC is providing unlimited insurance on in the event of a bank failure. The unlimited guarantee by the Federal Deposit Insurance Corp. runs through Dec. 2012 and was authorized under last year’s Dodd-Frank financial reform law.
S&P as the decider?
By Matthew Goldstein
Derivatives guru Janet Tavakoli is a long-time critic of the rating agencies and in particular the role the raters played in the subprime debt crisis. And she says given the shabby job the rating agencies did in giving the green light to the subprime debt boom, it’s odd to think of firms like Standards & Poor’s playing such a big role in the ongoing US debt ceiling negotiations.
“Standard & Poor’s lost its credibility due to a long history of misrating financial products,” says Tavakoli.
The Chicago-based consultant, for now, isn’t taking position on how the on-again/off-again political wrangling in Washington over raising the debt ceiling should be resolved. But she said investors would be better off ignoring what the raters–in particular S&P–have to say on the matter.
Kinnucan v. Ainslie
By Matthew Goldstein and Svea Herbst-Bayliss
John Kinnucan, a research consultant who’s been linked to an ongoing insider trading probe, claims Maverick Capital founder Lee Ainslie has stiffed him by not paying all of the hedge fund’s bill from last year.
The Portland, Oregon-based Kinnucan tells Reuters/ Unstructured Finance that Maverick owes him $15,000 for research information he provided on technology companies in the second-half of 2010. The consultant says it was anger over Maverick’s outstanding tab that prompted him to send a brief and alarming email this week to Ainslie warning him that his $11 billion fund may “soon be charged with insider trading.”
Kinnucan, who concedes he has no inside scoop on what federal prosecutors are planning, says he was just having some fun at Ainslie’s expense because Maverick is the only one of his former customers that still owes him money. Kinnucan says Maverick won’t pay because the hedge fund contends he “caused a lot of disruption to their business.”
Lightsquared loans suffer from interference
By Matthew Goldstein
It looks like the problems that Phil Falcone’s upstart wireless network may cause with some airline navigation systems may be impacting the price of the more than $1 billion in high-yield debt LightSquared has sold to hedge funds and mutual funds.
Over the past two weeks, the prevailing market price of LightSquared”s four-year term “junk” loans has slumped to about 95 cents on the dollar. That’s still a solid price for the high-yield offering that carries a 12 percent coupon. But it’s down considerably from late May, when the loans were fetching as much as 102 cents on the dollar.
LightSquared’s loans soared in the spring amid optimism that the prospects were looking good for the planned high-speed wireless network backed by Falcone and his Harbinger Capital Partners hedge fund. The optimism was fed by talk of a LightSquared initial public offering later this year, an infrastructure sharing agreement with telecom giant Sprint and a perceived increase in the value of its spectrum holdings.
Deutsche’s he said/she said derivatives mystery
By Matthew Goldstein
Valuing derivatives–especially complex ones tied to esoteric assets–is always a tough proposition. And maybe that’s what a previously unknown whistleblower action involving Deutsche Bank is all about.
The other day I wrote about a big settlement Deutsche reached in that matter with a former trader, who claims some of the bank’s most esoteric derivatives were improperly valued to hide trading losses. Deutsche denies the allegation and says an internal investigation found no substance to the trader’s charge.
Then again, the bank did find some substance to Matt Simpson’s allegation that another former top trader based in London, Alex Bernand, may have done some improper trading in one of his personal accounts. As I reported, the bank in October 2009 quickly dismissed Bernand–its former global head of credit correlation–after a quick internal investigation substantiated much of what Simpson alleged on that point.
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