By TOM SULLIVAN, Barrons
Financial Hedgefunds have been unfairly targeted for losses
THE REPUTATION OF HEDGE-FUND MANAGERS HIT a new low when President Barack Obama referred to them as “speculators”who helped prompt the Chrysler bankruptcy filing last month.
Never mind,as our sister publication The Wall Street Journal pointed out in a May 21 editorial,that these “speculators”included the Indiana State Police Pension Trust,Indiana Major Moves Construction Fund and the Indiana State Teachers Retirement Fund. The managers of these funds had a fiduciary duty to seek maximum returns.
Bondholders,who in this case included a number of hedge funds,are high in a company’s capital structure and forgo the opportunity for big equity gains in return for fixed-income security. Chrysler’s secured creditors were offered only 29 cents on the dollar while the United Auto Workers,though unsecured creditors,ended up with more cash and a big stake in the company. That isn’t a haircut,as such reductions are called on Wall Street. It is a scalping. Hedgies had a right to get themselves in a huff.
“They must represent the best interest of the investors —and that’s what they did,”says Robert Castro,managing director of financial services at the accounting firm of BDO Seidman,which provides accounting and other services to hedge funds.