Clove
04-30-2008, 10:55 AM
The Midas of Misery
Vulture investors are a changing breed. The new opportunists, with Harbinger's Phil Falcone in the vanguard, have more clout and more imagination. And they just might kick-start the economy
by Emily Thornton
http://www.businessweek.com/magazine/content/08_18/b4082034951866.htm?campaign
While Wall Street panicked over the fate of Bear Stearns (BSC) in mid-March, hedge fund manager Philip A. Falcone enjoyed a notably successful week. The founder of Harbinger Capital Partners made tens of millions of dollars on an earlier wager that Bear and other financial stocks would collapse. Then on Mar.17 he scored a coup at the financially struggling New York Times when publisher Arthur O. Sulzberger Jr. agreed to add two of Falcone's allies to the board. Days later, the Federal Communications Commission sold off a block of wireless spectrum for billions, dramatically boosting the value of spectrum that Falcone had purchased on the cheap.
Falcone is a Midas of Misery. With $19 billion—nearly 760 times the grubstake he started out with seven years ago—he is snapping up troubled assets in bankruptcy, shorting distressed bonds, and using huge stock positions to agitate for change at underperforming companies. His holdings read like a who's who of market castoffs: media companies, utilities, and steelmakers. Last year Harbinger netted $11 billion, thanks in large part to Falcone's gutsy bet against all things subprime. His personal windfall of $1.7 billion made him one of the highest-paid hedge fund managers in 2007. "He will look at anything," says one investment banker who works with Falcone. "If it's cheap, he'll buy it."
His strategies are emblematic of those employed by an increasingly muscular breed of vulture investors. Stephen Feinberg of Cerberus Capital Management, Wilbur Ross of W.L. Ross & Co., and others have higher profiles than ever before. Now Falcone has soared into the top tier of the vulture game with a suddenness that commands attention from his rivals. "There's substance to him," says veteran Ross. "He will be a long-term player."
Lately they are all feasting on the riskiest and most troubled assets, those that continue to make most investors nervous. Vultures typically emerge when mayhem in the financial markets depresses prices. The difference today is that Falcone and others have much more cash—and therefore clout—than vultures of the past. They also use a far wider array of investment tactics than the traditional vulture, whose primary modus operandi was to buy beaten-down corporate bonds in bankruptcy proceedings. Last year, managers of distressed-investment funds raised no less than $45 billion in fresh money. That compares with only $10 billion in 2002, according to Private Equity Analyst, an industry newsletter. By some estimates, more than $400 billion in total funds await opportunities to buy depressed assets when the price is right. "Distressed funds have become the prima ballerinas on Wall Street," says Maria Boyazny, a managing director at New York-based money manager Siguler Guff.
At times, vultures like Falcone can be brutal on the companies they bite into. But with so much money, they could turn out to be an essential element of a recovery after one of the worst financial disasters since the Great Depression. Already they are providing critical cash to stalled markets by swallowing up piles of unwanted mortgages and loans used to fund buyouts. Additionally, they are buying the stocks of companies hampered by huge debt loads and offering lines of credit to desperate businesses. With much of Wall Street still frozen in fear, big vulture bets are among the first signs that the markets are beginning to thaw. And that, in turn, could be good news for the economy.
DISTRESS: "EVERYBODY DOES IT"
Their motives aren't exactly altruistic. When vultures swoop in at the right time—at or near the bottom—they can snatch astonishing profits. Four years ago, Falcone bought convertible bonds worth $25 million in then-struggling Fortescue Metals Group, an Australian mining company. Today, amid a worldwide commodity boom, the stake is worth $3.7 billion.... (continued at http://www.businessweek.com/magazine/content/08_18/b4082034951866.htm?campaign)
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Vulture Investors... I love it.
Vulture investors are a changing breed. The new opportunists, with Harbinger's Phil Falcone in the vanguard, have more clout and more imagination. And they just might kick-start the economy
by Emily Thornton
http://www.businessweek.com/magazine/content/08_18/b4082034951866.htm?campaign
While Wall Street panicked over the fate of Bear Stearns (BSC) in mid-March, hedge fund manager Philip A. Falcone enjoyed a notably successful week. The founder of Harbinger Capital Partners made tens of millions of dollars on an earlier wager that Bear and other financial stocks would collapse. Then on Mar.17 he scored a coup at the financially struggling New York Times when publisher Arthur O. Sulzberger Jr. agreed to add two of Falcone's allies to the board. Days later, the Federal Communications Commission sold off a block of wireless spectrum for billions, dramatically boosting the value of spectrum that Falcone had purchased on the cheap.
Falcone is a Midas of Misery. With $19 billion—nearly 760 times the grubstake he started out with seven years ago—he is snapping up troubled assets in bankruptcy, shorting distressed bonds, and using huge stock positions to agitate for change at underperforming companies. His holdings read like a who's who of market castoffs: media companies, utilities, and steelmakers. Last year Harbinger netted $11 billion, thanks in large part to Falcone's gutsy bet against all things subprime. His personal windfall of $1.7 billion made him one of the highest-paid hedge fund managers in 2007. "He will look at anything," says one investment banker who works with Falcone. "If it's cheap, he'll buy it."
His strategies are emblematic of those employed by an increasingly muscular breed of vulture investors. Stephen Feinberg of Cerberus Capital Management, Wilbur Ross of W.L. Ross & Co., and others have higher profiles than ever before. Now Falcone has soared into the top tier of the vulture game with a suddenness that commands attention from his rivals. "There's substance to him," says veteran Ross. "He will be a long-term player."
Lately they are all feasting on the riskiest and most troubled assets, those that continue to make most investors nervous. Vultures typically emerge when mayhem in the financial markets depresses prices. The difference today is that Falcone and others have much more cash—and therefore clout—than vultures of the past. They also use a far wider array of investment tactics than the traditional vulture, whose primary modus operandi was to buy beaten-down corporate bonds in bankruptcy proceedings. Last year, managers of distressed-investment funds raised no less than $45 billion in fresh money. That compares with only $10 billion in 2002, according to Private Equity Analyst, an industry newsletter. By some estimates, more than $400 billion in total funds await opportunities to buy depressed assets when the price is right. "Distressed funds have become the prima ballerinas on Wall Street," says Maria Boyazny, a managing director at New York-based money manager Siguler Guff.
At times, vultures like Falcone can be brutal on the companies they bite into. But with so much money, they could turn out to be an essential element of a recovery after one of the worst financial disasters since the Great Depression. Already they are providing critical cash to stalled markets by swallowing up piles of unwanted mortgages and loans used to fund buyouts. Additionally, they are buying the stocks of companies hampered by huge debt loads and offering lines of credit to desperate businesses. With much of Wall Street still frozen in fear, big vulture bets are among the first signs that the markets are beginning to thaw. And that, in turn, could be good news for the economy.
DISTRESS: "EVERYBODY DOES IT"
Their motives aren't exactly altruistic. When vultures swoop in at the right time—at or near the bottom—they can snatch astonishing profits. Four years ago, Falcone bought convertible bonds worth $25 million in then-struggling Fortescue Metals Group, an Australian mining company. Today, amid a worldwide commodity boom, the stake is worth $3.7 billion.... (continued at http://www.businessweek.com/magazine/content/08_18/b4082034951866.htm?campaign)
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Vulture Investors... I love it.