Obama unfair to hedge fund investors?
As the automobile giants of America come crashing to the turf, more interest is being paid to how the remaining assets should be redistributed. There was no small controversy recently during the Chrysler bankruptcy negotiations. Debt relief did not come in time and no short term loans could work to save the automaker, so the battle in court began.
President Obama and his administration was critical of the way hedge funds held out on a deal over the Chrysler restructuring. Now, Svea Herbst-Bayliss reports from Boston for Reuters that prominent hedge fund manager Cliff Asness has struck back. He says that the hedge funds “had the right and responsibility to hold out” on the Chrysler LLC restructuring deal.
Their job is to their clients, he says
“Managers have a fiduciary obligation to look after their clients’ money as best they can, not to support the President, nor to oppose him, nor otherwise advance their political views,” said Clifford Asness. Asness is responsible for $20 billion at AQR Capital Management. He made his name in quantitative investing, where computer models select the stocks and bonds for investment.
He wrote his response to Obama in a recent letter in which he speaks out against both Obama forcing Chrysler into bankruptcy protection and how he referred to holdout lenders as “speculators.” In a rare moment of what appeared to be anger, President Obama chided the hedge fund holdouts on the deal for not being willing to make sacrifices as others have during these difficult economic times. Essentially, he’s accusing them of holding out for their own benefit while others in the Chrysler deal are taking a greater loss.
Doing his job in good conscience
Asness’s public response, which has appeared on Wall Street and was obtained by Reuters, has proven to be uncharacteristic of the $1.3 trillion hedge fund industry, which has kept its opinions during these recession bankruptcies much more private. He takes the president to task over what he describes as a “misunderstanding” of exactly what investment managers must do to responsibly serve their clients.
“Let’s be clear, it is the job and obligation of all investment managers, including hedge fund managers, to get their clients the most return they can,” Asness wrote. However,”If they give away their clients’ money to share the ’sacrifice,’ they are stealing.”
Even though Cliff Asness’s firm AQR Capital is not directly involved in the Chrysler LLC bankruptcy negotiations, he felt he had to speak up because he is “aghast at the President’s comments.”
The courage to speak
Asness voiced his concerns about the consequences of President Obama’s actions, despite what his own clients may think about siding against the nation’s leader.
“It’s really a bad idea to speak out. Angering the President is a mistake and, my views will annoy half my clients,” he predicted. However, “One by one the managers and banks are said to be caving to the President’s wishes out of justifiable fear.”
No taxpayer-funded bailouts here
Cliff Asness’s is a voice amidst the silence in his industry. He stands up for hedge funds and fights the negative talk surrounding them during this recession. He says it is not true that hedge funds have benefited from taxpayer money. They have not sought federal debt relief or short term loans.
“The President screaming that the hedge funds are looking for an unjustified taxpayer-funded bailout is the big lie writ large,” he wrote. “Find me a hedge fund that has been bailed out.”
In closing, Cliff Asness assures that America’s economic system typically repairs itself after a fall: “Most importantly, it is not an owned lackey of the oval office to be scolded for disobedience by the President.”
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I hate to say it, but he’s right. Government shouldn’t really intervene in business unless it’s to protect the public from harm. Like the Chinese milk scandal, with the milk products laden with melamine, or the salmonella and e. coli outbreaks – those are instances in which government oversight is warranted, to guard against people being sold essentially poison for the sake of the manufacturers profit. Companies have aright to do business the way they see fit, as long as no one is harmed intentionally or through deliberate negligence. The hedge fund managers have the right to do business as they see fit, and their job IS to make returns on their clients’ investments. Granted, if it is done in an irresponsible fashion, the individuals responsible should be punished accordingly, but for a President to say that all hedge funds have to assume losses because other people have…that’s a bit shady. Encouraging cooperation, that’s one thing, but you can’t mandate charity; it ceases to be charity. Charity is only charitable when it is done by free action and decision, not by coercion.