5 ms·

Paul Singer, Doomsday Investor

88 points by pm24601 8y ago

chollida1 8y ago
I've been on both sides of the table here. I worked for a company called Corel early in my career and we were taken private by a private equity firm. We had about $95 million in the bank and they bought us for around $130, so they used our own money to buy them. When the takeover was done the money was taken to pay back the banks for the short term loans. The company changed and I left. I thought Vector was the worst PE firm ever. Now to be fair they don't have a great reputation at all due to their buy, strip, merge and flip tactics have caught up to them. On the other side of the coin we've published short reports on companies and had that set off a wave of harassing phone calls about how we were the worst people on earth and why did we want to ruin everyone's life. And this was a case where we were right, the company finally did admit that the items we highlighted in our short report were correct. If you come out on the "I don't like these types of funds and their tactics" side, then ask your self what is the appropriate measure when you find a company that is under performing, or is down right corrupt with its books, or is just coasting. What should the correct response be? 1) Build up a position in the firm so the fund has skin in the game? 2) Then ask for changes to be made? 3) Then ask for the management who was responsible for the under performance to leave so this doesn't happen again? To me that all seems very reasonable and is the typical playbook of a firm like Elliot. The very reason passive investing works is that there are firms out there in the market buying the good stocks and shorting the bad ones. It seems a bit much to on one hand claim people should be passive investors which requires active investors to price the market and on the other hand get mad when an active investor points out flaws in a company and correspondingly asks a company to fix those flaws. TL/DR It's shitty when someone comes along and points out your flaws. It's often the low level employees, who aren't really at fault, who pay the highest price. On the other hand you can't just expect to become CEO and be able to run a company into the ground without someone complaining.
- creaghpatr 8y ago
  I think the basic premise of the hostile takeover strategy is totally fair, but contracting with Mossad guys a la Black Cube to stalk the personal lives should be disclosed to the board. CEOs should expect the board to not retain firms that investigate their personal lives *to that extent. If he was secretly a heroin addict maybe that's a different situation. That said, they didn't need ex-spies to put together the stock chart timeline superimposed with Bush's instagram party pics. That's just savage and clever.
- brazzledazzle 8y ago
  On the other hand the way they handled Argentena and Peru was pretty monstrous. Even taking both sides into account this isn’t like forcing employees to find a new job because you tanked their company. Innocent people were hurt by something they had very little control over. You don’t get to choose where you’re born. It really drives home the point that while these people might be acting as checks on the system they are fundamentally vultures. No matter what they tell themselves and others their performance of that role is incidental at best—a coincidence used as cover for being a bastard.
  - deleted 8y ago
    [deleted]
  - aglavine 8y ago
    I'm from Argentina. Our government was the monster at that time.
- corerius 8y ago
  Hey, at least it wasn't Pixelon.
- lordnacho 8y ago
  Problem is there's no knowing, in any case, what resolution would have been reached had the activists not intervened. Maybe a turnaround would have been around the corner, but having the activist there scared off someone? Or no activist -> management/government continues being profligate. Main downside to a world of activists is you get guys who, like at poker, can see that they can intimidate others, perhaps from previous reputation. You could easily make a game theoretical scenario where once you've won a few rounds, it makes sense to do a few extortions as well. Main downside of not having them is more obvious. Nobody points out the flaws of the current leadership.
olivermarks 8y ago
Surprisingly mild NY piece given Singer's reputation as a lowest of the low vulture capitalist. https://www.newyorker.com/business/currency/argentinas-rational-default https://www.newyorker.com/business/currency/argentinas-ratio...
- aglavine 8y ago
  I'm from Argentina and I'm glad Singer helped to put a stop to our disastrous government at that time. That said, probably to act in this situations should be a UN prerogative, but UN is outdated in its institutions design. A country like Venezuela is an example of this.
  - olivermarks 8y ago
    Have you read 'confessions of an economic hitman'? https://en.wikipedia.org/wiki/Confessions_of_an_Economic_Hit_Man https://en.wikipedia.org/wiki/Confessions_of_an_Economic_Hit... I became a lot more cynical after reading that
    - aglavine 8y ago
      Not read, but it doesn't look a serious piece of work. I'm not naive. Of course Singer's people probably wants to win a lot of money and of course you have lobbyists trying to make fast money everywhere. But that's not the main problem we face. The main problem is the lack of control to dictatorships. You can have a disastrous government like the one we had here or Trump's. But it is damage-controlled by a democratic system. Dictatorships on the other hand are unhinged, lasts forever, and flood the democratic World with their migrants. UN institutions were designed for a PostWar scenario that doesn't exists anymore.
bawana 8y ago
All this bs happens because we are allowed to used capital derived from financial profit to reinvest in financial transactions - leading to a vicious inflationary cycle of increased valuations without increased value. The solution is to have two currencies. Financial currency (money derived from financial transactions (option redemptions, stock sales, hedge fund investment, etc) that can only be invested in the REAL world of products, services. OTOH, REAL currency (money derived from the sale of products[NOT FINANCIAL PRODUCTS] and services[NOT FINANCIAL SERVICES]) can be invested in anything. This simple gate will restore the synchronization between the financial and the real world. How did it come to pass that markets like the FOREX have an order of magnitude more 'value' that the non-financial product and non-financial service output of the entire world?
- bawana 8y ago
  who downvoted? some short seller? some day trader? somebody who doesn't work for a living but lives off the work of others?
  - dang 8y ago
    This breaks the site guidelines. Please review them and follow them when posting here. https://news.ycombinator.com/newsguidelines.html https://news.ycombinator.com/newsguidelines.html
- toss1 8y ago
  Interesting idea, although it seems that it would more likely wind up forcing the creation of money-laundering schemes than doing real good. While it wouldn't really solve the activist investor issue, I favor a strongly time-based capital gains tax system, designed to favor long-term investment, over short-term financial extraction. The rate table might resemble: <1 minute = 95% cap gains tax rate <1 hour = 80% <1 day = 70% <1 week = 60% <1 mth = 50% <1 qtr = 40% <1 year = 30% <2 yrs = 20% <5 yrs = 10% <10 yrs = 5% >10yrs = 0 Obviously a mere first-draft, subject to tuning. But the general concept should be clear - the short end would eliminate the volatility, unfairness and flash-crashes created by submillisecond trading. The encouragement to the longer end would get everyone to think longer-term. The 0% for decade+ holdings would prevent a lot of silliness around inheritance (e.g., you inherit a few shares from your grandfather, and have no records or reasonable way to figure the cost basis, but are required to assert one). Of course, I doubt it would happen because it isn't in the short-term interest of the bankers.
cascom 8y ago
Do activist investors serve a valuable function to the market, and their investors? Yes Do activist investors sometimes pursue strategies that are less than scrupulous, and perhaps values a quick buck over the long term success of a company? Yes Are management teams sometimes really looking to execute on a long-term strategy that can’t be measured over a couple of quarters? Yes Are management teams sometimes incompetent, corrupt, and absentee? Yes If you want to read some scathing activist letters check out Dan Loeb’s, sample below: https://www.sec.gov/Archives/edgar/data/1040273/000089914004000756/i2555408d.txt https://www.sec.gov/Archives/edgar/data/1040273/000089914004...
pitt1980 8y ago
so what makes a company a target for activist investors? what are various steps a company can do to avoid being a target? Are shares still held by the founder an important factor? Is it realistic for the founder to hold shares looking that far down the road for the day an activist investor starts evaluating their company as a target? When activist investor look at Amazon, is the number of shares personally held by Bezos a relevant factor to their analysis?
throwaway5752 8y ago
From the outside, it can seem as if Elliott is causing the drama, but the firm argues that it simply identifies preëxisting problems and acts as a check on the system. It's safe to ignore this. Their only goal, I assure you, is to beat their benchmarks and maximize their fee income.
- whatok 8y ago
  What are Elliott's benchmarks?
  - throwaway5752 8y ago
    No idea, this is general comment about all hedge funds. I'm not an investor in the fund, but based on a quick search they're a 2/20 fee structure so they better outperform the SPX.
    - whatok 8y ago
      Hedge funds generally do not track benchmarks as the point of them is to provide diversified return streams. Over a specific time window, any hedge fund worth its salt should outperform vs SPX but really shouldn't be month to month.
      - throwaway5752 8y ago
        Yes, and their long term returns support this. My phrasing was regrettable, but my feeling is that they are doing a post hoc rationalization for what maximizes their profit (or are describing themselves as an amoral agent in a complex system, at best).
        whatok 8y ago
        Obviously their entire reason for existence is to make money and no one believes anything different. I think that they also provide a valuable service to the markets and that Paul Singer (at least at this stage in his life) sees himself as an activist beyond the investment world. I don't agree with all of their methods but think that they're a necessary boogieman in order to prevent shareholders from getting ripped off. Definitely the most aggressive in their space and they attract a lot of attention for it but no one ever seems to ask about why these companies were run in such a poor fashion to begin with.
dash2 8y ago
Stepping back a bit. My impression (from afar in the UK) is that US capitalism, which used to be dynamic and innovative, has slowly become like a shark tank in which the sharks have eaten everything else and are now trying to eat each other. I know that's very vague and high level... but is it fair? What's up with you guys... are you OK?
- svachalek 8y ago
  I have to agree, but I thought the UK was pretty clearly sharing the same tank.
- ant6n 8y ago
  ...no :(
- bawana 8y ago
  Instead of sharks, I would generalize it to the entire food chain. Early in the history of capitalism, corporations grew organically. They were essentially 'herbivores' . But they have since realized that there are many more calories (dollars) to be gained by moving up the food chain and consuming organisms which are doing that work. Ultimately, too many predators and not enough workers.
  - epx 8y ago
    Agar.io :)

88 points by pm24601 8y ago

I've been on both sides of the table here. I worked for a company called Corel early in my career and we were taken private by a private equity firm. We had about $95 million in the bank and they bought us for around $130, so they used our own money to buy them. When the takeover was done the money was taken to pay back the banks for the short term loans. The company changed and I left. I thought Vector was the worst PE firm ever. Now to be fair they don't have a great reputation at all due to their buy, strip, merge and flip tactics have caught up to them. On the other side of the coin we've published short reports on companies and had that set off a wave of harassing phone calls about how we were the worst people on earth and why did we want to ruin everyone's life. And this was a case where we were right, the company finally did admit that the items we highlighted in our short report were correct. If you come out on the "I don't like these types of funds and their tactics" side, then ask your self what is the appropriate measure when you find a company that is under performing, or is down right corrupt with its books, or is just coasting. What should the correct response be? 1) Build up a position in the firm so the fund has skin in the game? 2) Then ask for changes to be made? 3) Then ask for the management who was responsible for the under performance to leave so this doesn't happen again? To me that all seems very reasonable and is the typical playbook of a firm like Elliot. The very reason passive investing works is that there are firms out there in the market buying the good stocks and shorting the bad ones. It seems a bit much to on one hand claim people should be passive investors which requires active investors to price the market and on the other hand get mad when an active investor points out flaws in a company and correspondingly asks a company to fix those flaws. TL/DR It's shitty when someone comes along and points out your flaws. It's often the low level employees, who aren't really at fault, who pay the highest price. On the other hand you can't just expect to become CEO and be able to run a company into the ground without someone complaining.

creaghpatr 8y ago
I think the basic premise of the hostile takeover strategy is totally fair, but contracting with Mossad guys a la Black Cube to stalk the personal lives should be disclosed to the board. CEOs should expect the board to not retain firms that investigate their personal lives *to that extent. If he was secretly a heroin addict maybe that's a different situation. That said, they didn't need ex-spies to put together the stock chart timeline superimposed with Bush's instagram party pics. That's just savage and clever.
brazzledazzle 8y ago
On the other hand the way they handled Argentena and Peru was pretty monstrous. Even taking both sides into account this isn’t like forcing employees to find a new job because you tanked their company. Innocent people were hurt by something they had very little control over. You don’t get to choose where you’re born. It really drives home the point that while these people might be acting as checks on the system they are fundamentally vultures. No matter what they tell themselves and others their performance of that role is incidental at best—a coincidence used as cover for being a bastard.
- deleted 8y ago
  [deleted]
- aglavine 8y ago
  I'm from Argentina. Our government was the monster at that time.
corerius 8y ago
Hey, at least it wasn't Pixelon.
lordnacho 8y ago
Problem is there's no knowing, in any case, what resolution would have been reached had the activists not intervened. Maybe a turnaround would have been around the corner, but having the activist there scared off someone? Or no activist -> management/government continues being profligate. Main downside to a world of activists is you get guys who, like at poker, can see that they can intimidate others, perhaps from previous reputation. You could easily make a game theoretical scenario where once you've won a few rounds, it makes sense to do a few extortions as well. Main downside of not having them is more obvious. Nobody points out the flaws of the current leadership.

olivermarks 8y ago

Surprisingly mild NY piece given Singer's reputation as a lowest of the low vulture capitalist. https://www.newyorker.com/business/currency/argentinas-rational-default https://www.newyorker.com/business/currency/argentinas-ratio...

aglavine 8y ago
I'm from Argentina and I'm glad Singer helped to put a stop to our disastrous government at that time. That said, probably to act in this situations should be a UN prerogative, but UN is outdated in its institutions design. A country like Venezuela is an example of this.
- olivermarks 8y ago
  Have you read 'confessions of an economic hitman'? https://en.wikipedia.org/wiki/Confessions_of_an_Economic_Hit_Man https://en.wikipedia.org/wiki/Confessions_of_an_Economic_Hit... I became a lot more cynical after reading that
  - aglavine 8y ago
    Not read, but it doesn't look a serious piece of work. I'm not naive. Of course Singer's people probably wants to win a lot of money and of course you have lobbyists trying to make fast money everywhere. But that's not the main problem we face. The main problem is the lack of control to dictatorships. You can have a disastrous government like the one we had here or Trump's. But it is damage-controlled by a democratic system. Dictatorships on the other hand are unhinged, lasts forever, and flood the democratic World with their migrants. UN institutions were designed for a PostWar scenario that doesn't exists anymore.

bawana 8y ago

All this bs happens because we are allowed to used capital derived from financial profit to reinvest in financial transactions - leading to a vicious inflationary cycle of increased valuations without increased value. The solution is to have two currencies. Financial currency (money derived from financial transactions (option redemptions, stock sales, hedge fund investment, etc) that can only be invested in the REAL world of products, services. OTOH, REAL currency (money derived from the sale of products[NOT FINANCIAL PRODUCTS] and services[NOT FINANCIAL SERVICES]) can be invested in anything. This simple gate will restore the synchronization between the financial and the real world. How did it come to pass that markets like the FOREX have an order of magnitude more 'value' that the non-financial product and non-financial service output of the entire world?

bawana 8y ago
who downvoted? some short seller? some day trader? somebody who doesn't work for a living but lives off the work of others?
- dang 8y ago
  This breaks the site guidelines. Please review them and follow them when posting here. https://news.ycombinator.com/newsguidelines.html https://news.ycombinator.com/newsguidelines.html
toss1 8y ago
Interesting idea, although it seems that it would more likely wind up forcing the creation of money-laundering schemes than doing real good. While it wouldn't really solve the activist investor issue, I favor a strongly time-based capital gains tax system, designed to favor long-term investment, over short-term financial extraction. The rate table might resemble: <1 minute = 95% cap gains tax rate <1 hour = 80% <1 day = 70% <1 week = 60% <1 mth = 50% <1 qtr = 40% <1 year = 30% <2 yrs = 20% <5 yrs = 10% <10 yrs = 5% >10yrs = 0 Obviously a mere first-draft, subject to tuning. But the general concept should be clear - the short end would eliminate the volatility, unfairness and flash-crashes created by submillisecond trading. The encouragement to the longer end would get everyone to think longer-term. The 0% for decade+ holdings would prevent a lot of silliness around inheritance (e.g., you inherit a few shares from your grandfather, and have no records or reasonable way to figure the cost basis, but are required to assert one). Of course, I doubt it would happen because it isn't in the short-term interest of the bankers.

cascom 8y ago

Do activist investors serve a valuable function to the market, and their investors? Yes Do activist investors sometimes pursue strategies that are less than scrupulous, and perhaps values a quick buck over the long term success of a company? Yes Are management teams sometimes really looking to execute on a long-term strategy that can’t be measured over a couple of quarters? Yes Are management teams sometimes incompetent, corrupt, and absentee? Yes If you want to read some scathing activist letters check out Dan Loeb’s, sample below: https://www.sec.gov/Archives/edgar/data/1040273/000089914004000756/i2555408d.txt https://www.sec.gov/Archives/edgar/data/1040273/000089914004...

pitt1980 8y ago

so what makes a company a target for activist investors? what are various steps a company can do to avoid being a target? Are shares still held by the founder an important factor? Is it realistic for the founder to hold shares looking that far down the road for the day an activist investor starts evaluating their company as a target? When activist investor look at Amazon, is the number of shares personally held by Bezos a relevant factor to their analysis?

throwaway5752 8y ago

From the outside, it can seem as if Elliott is causing the drama, but the firm argues that it simply identifies preëxisting problems and acts as a check on the system. It's safe to ignore this. Their only goal, I assure you, is to beat their benchmarks and maximize their fee income.

whatok 8y ago
What are Elliott's benchmarks?
- throwaway5752 8y ago
  No idea, this is general comment about all hedge funds. I'm not an investor in the fund, but based on a quick search they're a 2/20 fee structure so they better outperform the SPX.
  - whatok 8y ago
    Hedge funds generally do not track benchmarks as the point of them is to provide diversified return streams. Over a specific time window, any hedge fund worth its salt should outperform vs SPX but really shouldn't be month to month.
    - throwaway5752 8y ago
      Yes, and their long term returns support this. My phrasing was regrettable, but my feeling is that they are doing a post hoc rationalization for what maximizes their profit (or are describing themselves as an amoral agent in a complex system, at best).
      - whatok 8y ago
        Obviously their entire reason for existence is to make money and no one believes anything different. I think that they also provide a valuable service to the markets and that Paul Singer (at least at this stage in his life) sees himself as an activist beyond the investment world. I don't agree with all of their methods but think that they're a necessary boogieman in order to prevent shareholders from getting ripped off. Definitely the most aggressive in their space and they attract a lot of attention for it but no one ever seems to ask about why these companies were run in such a poor fashion to begin with.

dash2 8y ago

Stepping back a bit. My impression (from afar in the UK) is that US capitalism, which used to be dynamic and innovative, has slowly become like a shark tank in which the sharks have eaten everything else and are now trying to eat each other. I know that's very vague and high level... but is it fair? What's up with you guys... are you OK?

svachalek 8y ago
I have to agree, but I thought the UK was pretty clearly sharing the same tank.
ant6n 8y ago
...no :(
bawana 8y ago
Instead of sharks, I would generalize it to the entire food chain. Early in the history of capitalism, corporations grew organically. They were essentially 'herbivores' . But they have since realized that there are many more calories (dollars) to be gained by moving up the food chain and consuming organisms which are doing that work. Ultimately, too many predators and not enough workers.
- epx 8y ago
  Agar.io :)