6 ms·

Some hedge fund managers walk onto an Argentinian navy ship

49 points by proemeth 14y ago

molmalo 14y ago
A vulture fund doing its things. ARA Libertad is a school vessel and is used for diplomacy. I doubt they can do something useful with this
- antr 14y ago
  This ain't no vulture fund; and we all know about Argentinian "diplomacy". This fund invested in Argentina, because it believed in its economy - it went long. Like many other funds who invest in US treasuries, German bunds, JGBs, etc. We all know the Argentinian government is no example for a well-run government, and this fund is taking a stance (i) against the mal-practice/mis-management of the Argentinian finances, and (ii) not accepting a smash-and-grab of 30 cents on the dollar settlement. All this fund is doing is collecting its debt. It just happens that one of the assets it is after is pretty unique. Clarifications: If a country/company defaults != investors do not automatically agree to settle at e.g. 30c/$ (investors need to agree to a settlement price, and in a large syndicate a minority group of investors will never settle or will settle at a higher price). If an investor doesn't settle, it has every right to claim 100c/$ + interest. Some comments imply otherwise. Going long is no different when buying at 101 cents on the dollar or 1 cent on the dollar - e.g. Greek 10Y bonds are currently being sold/bought at 20c/$, that is no "vulture activity" but providing liquidity to the market. If there are no buyers the Greek bond (or any other bond for that matter) would technically collapse to zero. Some comments imply otherwise.
  - christensen_emc 14y ago
    What they are doing is legal, yeah, but it is pretty much textbook "vulture fund" behavior.
  - arbuge 14y ago
    No. Elliott capital does not work this way. Google them. They don't go long on anything. They buy debt from funds that did for pennies on the dollar when it doesn't look like that debt will be repaid. They then try to collect on it aggressively and turn a handsome profit in most cases. It's been a very successful strategy for them - that's how their founder is now a billionaire.
    - gadders 14y ago
      The message being: Governments, pay your debts.
      - wslh 14y ago
        Argentina reestructured its debts and it was a successful early 2000s campaign. These funds make money buying debt for pennies. They are similar in some way to patent trolls. Not read this message as a support to the Argentinian government. What Argentina did with its debt is a case study.
        icebraining 14y ago
        Argentina reestructured its debts Apparently, not all of it.
      - cantankerous 14y ago
        Maybe. I'm sure it's a calculated risk, but you might want to be careful who you cross when you deal with sovereign nations and seizing their assets. Private lenders don't have standing armies, after all.
    - jonnii 14y ago
      Unless you work for Elliott Management you know nothing about their investment strategy, other than it makes profit.
      - arbuge 14y ago
        Eh?
  - molmalo 14y ago
    No, they bought defaulted bonds for cents, and then try to get paid full price. But of course its highly doubtful it will ever happen, and this only makes them bad press, cuz its also doubtful that they can get away with this. Ps: sorry for the typos, writing from my phone
  - sethg 14y ago
    For private borrowers who can’t make their payments and probably never will, there is bankruptcy law, which lays out a orderly procedure where the borrower asks for relief, the lenders make their claims, and a judge decides who ends up with how much. It’s not a perfect system by any means, but anyone who loans money understands the risk that the borrower will declare bankruptcy, and the credit markets still function. For sovereign countries, unfortunately, there is no such procedure. If a government borrows money on the international credit market, its taxpayers can be on the hook for perpetuity. I would like to see those taxpayers have at least as much protection as private-sector borrowers—especially when the taxpayers of a democratic government are on the hook for the debts of its authoritarian or corrupt predecessors.
    - spindritf 14y ago
      > For sovereign countries, unfortunately, there is no such procedure. Poor sovereign countries... Instead of having their assets wiped out and possibly facing years of payments (even if reduced), they have to deal with unbearable consequences, like a lot of finger waving and maybe a boat detained on request of someone not willing to finance political careers half way around the world. Dreadful. It may even come to the point that creditors will find some of those countries not trustworthy in the future and won't lend their governments more money.
      - sethg 14y ago
        All countries—especially small and/or underdeveloped countries—need foreign trade in order to develop their economies, and it’s really really hard to engage in foreign trade without credit. And “if you stiff your current borrowers it may be harder to borrow in the future” is a risk that civilians have right now; creating a sovereign bankruptcy code won’t change that. I forgot to mention that such a code would actually help borrowers, in the following way: For countries in a debt crisis, the lenders holding 90% of the debt may realize that they aren’t going to get paid back in full, and therefore would agree to a settlement where at least they get something back. But the ones holding the remaining 10% can pound the table and say “no, we want payment in full, and we’re legally entitled to it”... which leads the 90% bloc to say “well, if they’re still entitled to payment in full, we’re not going to be suckers and settle for less”... which leads the indebted country to say “we can’t possibly pay you all in full, so screw you all, we’re defaulting”.
  - dguaraglia 14y ago
    Yeah, I'm really sorry the Argentinian government didn't let the country go to the vultures in detriment of a few rich people... we should just let the FMI take over and run the country so a few funds don't lose money. Seriously? You are telling me that a government protecting it's citizens interests is wrong? I'd like to see you repeat that argument when the Chinese start kidnapping American citizens to get their money back.
- johnrgrace 14y ago
  It's not a matter of doing something useful with the ship, it's all about making enough pain for the lender until they payup.
- andyjohnson0 14y ago
  For those not familiar with the term "Vulture Fund", there is some background at the following links: Cashing in on the crash http://www.economist.com/node/9687782 http://www.economist.com/node/9687782 Vulture funds – how do they work? http://www.guardian.co.uk/global-development/2011/nov/15/vulture-funds-how-they-work http://www.guardian.co.uk/global-development/2011/nov/15/vul...
  - Dylan16807 14y ago
    I'm having a bit of trouble understating the problem with vulture firms. Is it the fact that they bought a lot of risky debt at low prices? That is how risk works; I feel like objections along these lines are focusing on specific cases where the vultures got lucky and are ignoring the big picture. Is it the fact that they are demanding money out of bankrupt countries? This seems odd to me; wouldn't the original debtors want repayment too? The second article there mentions vultures discouraging real investment in the countries. This seems like a serious issue but I don't understand how vultures specifically would have that effect.
    - andyjohnson0 14y ago
      As I understand it, the problem is that the debtor states are often unable to repay the debt, at least not without taking money away from areas like public health and education. The loans are often quite old. Presumably the original lenders often decide that the loans are never going to be repayed, and the debtor states budget on that assumption. Years later they find themselves pursued for debts they believed were lapsed.
      - Dylan16807 14y ago
        I have to think that in that case it's the original lender that resurrects the loan, it just took a reminder. A vulture wouldn't buy a loan that was truly dead. I guess you can blame vultures for incentivizing old lenders to resurrect loans but that's a pretty indirect thing to be upset about.
cmdkeen 14y ago
"I used to think that if there was reincarnation, I wanted to come back as the president or the pope or as a .400 baseball hitter. But now I would like to come back as the bond market. You can intimidate everybody" -James Carville
vm 14y ago
Link bait title - the ship was seized in Ghana by a court-ordered injunction. Highly unlikely that the investors walked on the boat. Nevertheless, really interesting. In general, we expect a debt holder to try to seize assets after the loan defaults. But I've never heard of a private investment group going after a government. Here is the response from the Argentine government: The vulture funds have crossed a new limit in their attacks on the Argentine Republic. The Frigate Libertad has been held in the Republic of Ghana over a recourse presented by NML Group before the courts of that country. The Argentine Foreign Ministry has already taken steps with the African nation’s government to clear up the deception that the unscrupulous financiers have mounted. That measure is in violation of the Vienna Convention on diplomatic immunity. The vulture fund NML has its headquarters in the Cayman Island, a fiscal lair that it’s worth recalling is a colony of Great Britain, from which those who don’t submit themselves to the laws of any jurisdiction operate and they’ve been denounced both by the G-20 and the United Nations. The NML Group belongs to international speculator Paul Singer and he is the main financier of the lobby that operates in the courts and the Congress of the United States with the name “ATFA” (Task Force Argentina) to damage our country. Also, they disseminate false information for the use of some Argentine monopolistic press media, with the goal of extorting Argentina in order to obtain usurious profits from buying Argentine bonds for pennies during the 2001 crisis and refusing to join the 93% of the investors that agreed to the debt restructuring. That group of lobbyists are the same that tried to harass the President during her recent trip to the United States passing out aggressive fliers against the presidential investiture. Another of its actions was to place a gigantic rat in the doorway of the Argentine embassy in Washington when the anniversary of our independence was being celebrated. The Foreign Ministry reiterates that it is the decision of President Cristina Fernández de Kirchner to not bow before the international and local attempts at extortion that have been brought forth by the vulture funds and will continue to denounce them in various forums such as the G-20, the United Nations, CELAC, UNASUR and MERCOSUR, FATF and the other multilateral organizations.
- gadders 14y ago
  The Argentine government is getting desperate at the moment. They've started fiddling their inflation figures, [1] and they've had to take steps to stop people converting all their savings into dollars. On top of that, they've added in some populist sabre rattling over the Falklands to try and distract everyone. [1] http://www.rssenews.org.uk/2012/02/economist-magazine-drops-official-argentine-inflation-figures/ http://www.rssenews.org.uk/2012/02/economist-magazine-drops-...
arbuge 14y ago
Aside: There seems to be a strange (one-way) attraction between creditors and sailing ships these days. Another example: http://en.wikipedia.org/wiki/Sedov http://en.wikipedia.org/wiki/Sedov "Sedov has regularly been targeted by unpaid creditors of the Russian Federation such as Nissim Gaon (of now defunct Swiss group NOGA, an anagram of Gaon) and also by French holders of defaulted Russian bonds; in 2002 Sedov was forced to precipitously and unexpectedly leave Marseilles in the dead of night[1] to avoid being served a writ by AFPER (French association of holders of Russian Empire bonds) the following morning. For over a year French holders of defaulted Russian bonds have been warning they were going to reorganize and export their claim to Anglo-Saxon jurisdictions, more friendly to private citizens than the French."
- 100k 14y ago
  I was curious AFBER because of the Russian Empire thing. It is indeed the association of holders of Tsarist Russian bonds. They are trying to get paid back two successor governments and 100 years later.
  - arbuge 14y ago
    Fascinating. Maybe they figured the Sedov was around back then so their claim would look a bit more legit...
    - 100k 14y ago
      No clue! According to Wikipedia, Sedov was taken from Germany after World War 2.
moron 14y ago
I don't really have a problem with them collecting on their debts, but what bothers me about this is that if the situation had turned violent or otherwise required diplomacy, the US gov't would have been responsible for stepping in. i.e., taxpayers would have been on the hook for getting these goofballs out of hot water for their fanciful repo operation.
chollida1 14y ago
I've got some experience with this, from being in the industry. Not surprising most of these distressed debt funds are managed by lawyers and bond traders. They started in earnest in the early 80s when "junk" bonds became the latest trading fad. The traders saw that they could buy up this debt cheap as most banks wanted it off their books and the lawyers figured that they could negotiate better terms than the previous owners would. These types of funds can provide valuable services in a number of ways: - getting toxic debt off the balance sheet of other firms - creating some liquidity for existing holders - getting the most money possible for existing holders. The downside is that if you are a target of one or more of these funds you'd better have better negotiators and lawyers than they do :) Not surprisingly the returns on these types of funds tend to fluctuate a lot causing the industry to move to a few large funds and many small funds. The smaller funds tend to have out sized returns for a couple of years and then blow up spectacularly.

49 points by proemeth 14y ago

A vulture fund doing its things. ARA Libertad is a school vessel and is used for diplomacy. I doubt they can do something useful with this

antr 14y ago
This ain't no vulture fund; and we all know about Argentinian "diplomacy". This fund invested in Argentina, because it believed in its economy - it went long. Like many other funds who invest in US treasuries, German bunds, JGBs, etc. We all know the Argentinian government is no example for a well-run government, and this fund is taking a stance (i) against the mal-practice/mis-management of the Argentinian finances, and (ii) not accepting a smash-and-grab of 30 cents on the dollar settlement. All this fund is doing is collecting its debt. It just happens that one of the assets it is after is pretty unique. Clarifications: If a country/company defaults != investors do not automatically agree to settle at e.g. 30c/$ (investors need to agree to a settlement price, and in a large syndicate a minority group of investors will never settle or will settle at a higher price). If an investor doesn't settle, it has every right to claim 100c/$ + interest. Some comments imply otherwise. Going long is no different when buying at 101 cents on the dollar or 1 cent on the dollar - e.g. Greek 10Y bonds are currently being sold/bought at 20c/$, that is no "vulture activity" but providing liquidity to the market. If there are no buyers the Greek bond (or any other bond for that matter) would technically collapse to zero. Some comments imply otherwise.
- christensen_emc 14y ago
  What they are doing is legal, yeah, but it is pretty much textbook "vulture fund" behavior.
- arbuge 14y ago
  No. Elliott capital does not work this way. Google them. They don't go long on anything. They buy debt from funds that did for pennies on the dollar when it doesn't look like that debt will be repaid. They then try to collect on it aggressively and turn a handsome profit in most cases. It's been a very successful strategy for them - that's how their founder is now a billionaire.
  - gadders 14y ago
    The message being: Governments, pay your debts.
    - wslh 14y ago
      Argentina reestructured its debts and it was a successful early 2000s campaign. These funds make money buying debt for pennies. They are similar in some way to patent trolls. Not read this message as a support to the Argentinian government. What Argentina did with its debt is a case study.
      - icebraining 14y ago
        Argentina reestructured its debts Apparently, not all of it.
    - cantankerous 14y ago
      Maybe. I'm sure it's a calculated risk, but you might want to be careful who you cross when you deal with sovereign nations and seizing their assets. Private lenders don't have standing armies, after all.
  - jonnii 14y ago
    Unless you work for Elliott Management you know nothing about their investment strategy, other than it makes profit.
    - arbuge 14y ago
      Eh?
- molmalo 14y ago
  No, they bought defaulted bonds for cents, and then try to get paid full price. But of course its highly doubtful it will ever happen, and this only makes them bad press, cuz its also doubtful that they can get away with this. Ps: sorry for the typos, writing from my phone
- sethg 14y ago
  For private borrowers who can’t make their payments and probably never will, there is bankruptcy law, which lays out a orderly procedure where the borrower asks for relief, the lenders make their claims, and a judge decides who ends up with how much. It’s not a perfect system by any means, but anyone who loans money understands the risk that the borrower will declare bankruptcy, and the credit markets still function. For sovereign countries, unfortunately, there is no such procedure. If a government borrows money on the international credit market, its taxpayers can be on the hook for perpetuity. I would like to see those taxpayers have at least as much protection as private-sector borrowers—especially when the taxpayers of a democratic government are on the hook for the debts of its authoritarian or corrupt predecessors.
  - spindritf 14y ago
    > For sovereign countries, unfortunately, there is no such procedure. Poor sovereign countries... Instead of having their assets wiped out and possibly facing years of payments (even if reduced), they have to deal with unbearable consequences, like a lot of finger waving and maybe a boat detained on request of someone not willing to finance political careers half way around the world. Dreadful. It may even come to the point that creditors will find some of those countries not trustworthy in the future and won't lend their governments more money.
    - sethg 14y ago
      All countries—especially small and/or underdeveloped countries—need foreign trade in order to develop their economies, and it’s really really hard to engage in foreign trade without credit. And “if you stiff your current borrowers it may be harder to borrow in the future” is a risk that civilians have right now; creating a sovereign bankruptcy code won’t change that. I forgot to mention that such a code would actually help borrowers, in the following way: For countries in a debt crisis, the lenders holding 90% of the debt may realize that they aren’t going to get paid back in full, and therefore would agree to a settlement where at least they get something back. But the ones holding the remaining 10% can pound the table and say “no, we want payment in full, and we’re legally entitled to it”... which leads the 90% bloc to say “well, if they’re still entitled to payment in full, we’re not going to be suckers and settle for less”... which leads the indebted country to say “we can’t possibly pay you all in full, so screw you all, we’re defaulting”.
- dguaraglia 14y ago
  Yeah, I'm really sorry the Argentinian government didn't let the country go to the vultures in detriment of a few rich people... we should just let the FMI take over and run the country so a few funds don't lose money. Seriously? You are telling me that a government protecting it's citizens interests is wrong? I'd like to see you repeat that argument when the Chinese start kidnapping American citizens to get their money back.
johnrgrace 14y ago
It's not a matter of doing something useful with the ship, it's all about making enough pain for the lender until they payup.
andyjohnson0 14y ago
For those not familiar with the term "Vulture Fund", there is some background at the following links: Cashing in on the crash http://www.economist.com/node/9687782 http://www.economist.com/node/9687782 Vulture funds – how do they work? http://www.guardian.co.uk/global-development/2011/nov/15/vulture-funds-how-they-work http://www.guardian.co.uk/global-development/2011/nov/15/vul...
- Dylan16807 14y ago
  I'm having a bit of trouble understating the problem with vulture firms. Is it the fact that they bought a lot of risky debt at low prices? That is how risk works; I feel like objections along these lines are focusing on specific cases where the vultures got lucky and are ignoring the big picture. Is it the fact that they are demanding money out of bankrupt countries? This seems odd to me; wouldn't the original debtors want repayment too? The second article there mentions vultures discouraging real investment in the countries. This seems like a serious issue but I don't understand how vultures specifically would have that effect.
  - andyjohnson0 14y ago
    As I understand it, the problem is that the debtor states are often unable to repay the debt, at least not without taking money away from areas like public health and education. The loans are often quite old. Presumably the original lenders often decide that the loans are never going to be repayed, and the debtor states budget on that assumption. Years later they find themselves pursued for debts they believed were lapsed.
    - Dylan16807 14y ago
      I have to think that in that case it's the original lender that resurrects the loan, it just took a reminder. A vulture wouldn't buy a loan that was truly dead. I guess you can blame vultures for incentivizing old lenders to resurrect loans but that's a pretty indirect thing to be upset about.

cmdkeen 14y ago

"I used to think that if there was reincarnation, I wanted to come back as the president or the pope or as a .400 baseball hitter. But now I would like to come back as the bond market. You can intimidate everybody" -James Carville

vm 14y ago

Link bait title - the ship was seized in Ghana by a court-ordered injunction. Highly unlikely that the investors walked on the boat. Nevertheless, really interesting. In general, we expect a debt holder to try to seize assets after the loan defaults. But I've never heard of a private investment group going after a government. Here is the response from the Argentine government: The vulture funds have crossed a new limit in their attacks on the Argentine Republic. The Frigate Libertad has been held in the Republic of Ghana over a recourse presented by NML Group before the courts of that country. The Argentine Foreign Ministry has already taken steps with the African nation’s government to clear up the deception that the unscrupulous financiers have mounted. That measure is in violation of the Vienna Convention on diplomatic immunity. The vulture fund NML has its headquarters in the Cayman Island, a fiscal lair that it’s worth recalling is a colony of Great Britain, from which those who don’t submit themselves to the laws of any jurisdiction operate and they’ve been denounced both by the G-20 and the United Nations. The NML Group belongs to international speculator Paul Singer and he is the main financier of the lobby that operates in the courts and the Congress of the United States with the name “ATFA” (Task Force Argentina) to damage our country. Also, they disseminate false information for the use of some Argentine monopolistic press media, with the goal of extorting Argentina in order to obtain usurious profits from buying Argentine bonds for pennies during the 2001 crisis and refusing to join the 93% of the investors that agreed to the debt restructuring. That group of lobbyists are the same that tried to harass the President during her recent trip to the United States passing out aggressive fliers against the presidential investiture. Another of its actions was to place a gigantic rat in the doorway of the Argentine embassy in Washington when the anniversary of our independence was being celebrated. The Foreign Ministry reiterates that it is the decision of President Cristina Fernández de Kirchner to not bow before the international and local attempts at extortion that have been brought forth by the vulture funds and will continue to denounce them in various forums such as the G-20, the United Nations, CELAC, UNASUR and MERCOSUR, FATF and the other multilateral organizations.

gadders 14y ago
The Argentine government is getting desperate at the moment. They've started fiddling their inflation figures, [1] and they've had to take steps to stop people converting all their savings into dollars. On top of that, they've added in some populist sabre rattling over the Falklands to try and distract everyone. [1] http://www.rssenews.org.uk/2012/02/economist-magazine-drops-official-argentine-inflation-figures/ http://www.rssenews.org.uk/2012/02/economist-magazine-drops-...

arbuge 14y ago

Aside: There seems to be a strange (one-way) attraction between creditors and sailing ships these days. Another example: http://en.wikipedia.org/wiki/Sedov http://en.wikipedia.org/wiki/Sedov "Sedov has regularly been targeted by unpaid creditors of the Russian Federation such as Nissim Gaon (of now defunct Swiss group NOGA, an anagram of Gaon) and also by French holders of defaulted Russian bonds; in 2002 Sedov was forced to precipitously and unexpectedly leave Marseilles in the dead of night[1] to avoid being served a writ by AFPER (French association of holders of Russian Empire bonds) the following morning. For over a year French holders of defaulted Russian bonds have been warning they were going to reorganize and export their claim to Anglo-Saxon jurisdictions, more friendly to private citizens than the French."

100k 14y ago
I was curious AFBER because of the Russian Empire thing. It is indeed the association of holders of Tsarist Russian bonds. They are trying to get paid back two successor governments and 100 years later.
- arbuge 14y ago
  Fascinating. Maybe they figured the Sedov was around back then so their claim would look a bit more legit...
  - 100k 14y ago
    No clue! According to Wikipedia, Sedov was taken from Germany after World War 2.

moron 14y ago

I don't really have a problem with them collecting on their debts, but what bothers me about this is that if the situation had turned violent or otherwise required diplomacy, the US gov't would have been responsible for stepping in. i.e., taxpayers would have been on the hook for getting these goofballs out of hot water for their fanciful repo operation.

chollida1 14y ago

I've got some experience with this, from being in the industry. Not surprising most of these distressed debt funds are managed by lawyers and bond traders. They started in earnest in the early 80s when "junk" bonds became the latest trading fad. The traders saw that they could buy up this debt cheap as most banks wanted it off their books and the lawyers figured that they could negotiate better terms than the previous owners would. These types of funds can provide valuable services in a number of ways: - getting toxic debt off the balance sheet of other firms - creating some liquidity for existing holders - getting the most money possible for existing holders. The downside is that if you are a target of one or more of these funds you'd better have better negotiators and lawyers than they do :) Not surprisingly the returns on these types of funds tend to fluctuate a lot causing the industry to move to a few large funds and many small funds. The smaller funds tend to have out sized returns for a couple of years and then blow up spectacularly.