Paul Singer, Doomsday Investor Notes

Paul Singer
Paul Singer from Elliot Management. Source: Wikipedia and World Economic Forum

Sheelah Kolhatkar from The New-Yorker wrote a long-form piece on Paul Singer and Elliot Managment. Like most pieces from the New-Yorker, it’s long and very detailed. Sheelah wrote a great article on one of the most feared and successful investor. Below are some of the notes:

    • Paul Singer, the head of Elliott Management has developed a uniquely adversarial, and immensely profitable, way of doing business.
    • Singer grew up in the Bronx and in Teaneck, New Jersey, one of three children of a pharmacist father and a homemaker mother. Paul is now 73 years old. Elliot is his middle name.
    • Singer is deeply involved in everything Elliott does.
    • The firm has many kinds of investments, but Singer is best known as an “activist” investor, using his fund’s resources—about $35 billion in AUM—to buy stock in companies in which it detects weaknesses.
    • Elliott then pressures the company to make changes to its business, with the goal of improving the stock price.

 

  • Elliott’s executives say that most of their investment campaigns proceed without significant conflict, but a noticeable number seem to end up mired in drama.
  • A signature Elliott tactic is the release of a letter harshly criticizing the target company’s C.E.O., which is often followed by the executive’s resignation or the sale of the company.
  • 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.
  • Bloomberg has called Singer “aggressive, tenacious and litigious to a fault,” anointing him “The World’s Most Feared Investor.”
  • Singer’s ventures have been consistently successful, with average annual returns of almost fourteen per cent, making him and his employees enormously wealthy.
  • An entire industry of crisis-communication firms, investment banks, corporate-law firms, and management consultants had sprung up to defend companies against investors like Singer.
  • He began his career trading with his father, but lost most of their money. Singer still cites those losses as a reason for his preoccupation with managing risk.
  • He started Elliott Management in 1977, after a brief stint in corporate law, with $1.3 million. Singer’s educational background—in psychology and law—has served him well in his unique, and immensely profitable, brand of adversarial investing.
  • Elliott has lost money in only two of its forty-one years of existence, and one dollar invested in the fund at its inception would now be worth a hundred and seventy-nine dollars.
  • Singer never had much interest in being just a “trader,” buying stock and waiting for it to go up. He wanted to be far more interventionist.
  • In the nineteen-eighties, several years into the junk-bond buyout boom, Elliott began focussing on “distressed” investing: purchasing the debt of companies in financial crisis, and unable to make their debt payments, for low rates. To be profitable, this strategy requires patience and significant capital. It also requires negotiation and, often, a methodical use of the legal system, filing suits to obtain payments, or a long journey through bankruptcy court, where creditors fight over who gets paid back first.
  • Singer described his approach as “buying a bond in a company and being in a multi-year struggle where we say, ‘Our bonds are senior to yours.’ And they say, ‘No, you’re not.’ And we go back and forth yelling about that for a few years.”
  • Singer has excelled in this field in part because of a canny ability to discern his opponents’ weaknesses and a seeming imperviousness to public disapproval. He chooses his words with care and precision, and speaks in a mild, even voice.
  • “What I came to feel relatively early on in my career is that manual effort—making something happen, getting on the committee, becoming part of the process, try to control your own destiny, not just riding up and down with the waves of the financial markets—was actually not only a driver, an important driver, of value and profitability but an important way to control risk, dig yourself out of holes when you slip into a ravine,” he has said.
  • Singer sees himself as more than a skillful player in the markets; he conducts himself like a public intellectual whose ideas on policy—on everything from taxation to regulation, education, and foreign affairs—should be heeded by politicians and other decision-makers on both a national and a local level. He is more than happy to pick a fight.
  • In 1995, Singer started working with a trader named Jay Newman, who specialized in the government—or sovereign—debt of developing countries. The collaboration led to the legal battle that would publicly define Singer: his fourteen-year fight with the government of Argentina.
  • Newman saw an opportunity in these financial crises: purchase the defaulted debt at a very low price and then try to negotiate for, or sue the country for, full repayment on the original terms. An investor who pursued this strategy came to be known as a “rogue creditor.”
  • The tactic could prove extremely profitable—as long as you had the stomach for it. Newman said that he never sued a country that couldn’t afford to pay, but critics argue that rogue creditors interfere with a country’s ability to return to the financial markets, exacerbating the poverty and suffering of its citizens.
  • Singer purchased eleven million dollars of defaulted Peruvian bonds, and then began a protracted legal battle to force the government to pay back the full value. Peru finally paid Elliott the original value of the bonds plus interest, almost sixty million dollars. The victory set a precedent that had global implications: one wealthy foreign investor could potentially determine whether or not a troubled country would be able to borrow money.
  • Singer decided to make a much bigger bet, buying, according to one analysis, six hundred million dollars’ worth of Argentine bonds for about a hundred million dollars. A year after Elliott won its final judgment on the Peruvian bonds, Argentina defaulted.
  • Elliott’s strategy was a form of the prisoner’s dilemma: if the company could be patient, and wait as the other bondholders lost their resolve and traded in, the holdout pool would become smaller, increasing the likelihood that Argentina could actually afford to pay them in full.
  • One person involved in the litigation told me that Singer “did something that nobody had done quite as well, which was to say, ‘I’m going to buy this debt really cheap, and I’m willing to hold it forever and spend a lot of money litigating to get a possible recovery.’ ”
  • Singer was “unbelievably creative”: his attempts to seize Argentinean government assets. Elliott tried to seize Argentina’s central bank reserves, its pension-fund assets, and a satellite launch slot in California. The seizures gradually began to look like stunts, but they had the effect of consuming resources and infuriating the Argentines.
  • The most dramatic moment in the dispute came in 2012, when Elliott made international headlines by attempting to take possession of an Argentine Navy vessel. Argentina’s lawyers rushed to hire the best Ghanaian lawyer, Ace Ankomah, only to discover that he had already been retained by Elliott.
  • Elliott had spent fourteen years on the legal fight, but in the end it was worth it. Argentina agreed to pay the company $2.4 billion, a 1,270-per-cent return on its initial investment, according to one analysis. The result sent a strong message: Singer always wins.
  • Elliott pursued a similar investment strategy in other countries, including the Republic of the Congo.  As part of the campaign to get repayment on its defaulted bonds, Elliott and other hedge funds became crusaders against government corruption; their litigation helped expose malfeasance by Congolese leaders, including the European shopping sprees and the extravagant New York hotel bills of the President and his family. At the same time, human-rights groups accused the hedge funds of siphoning money out of the country that could have gone to hospitals and schools.
  • Elliott has made activist investments in around a hundred companies, and, according to Cohn, the majority of the campaigns have proceeded smoothly. Elliott generally researches these businesses—interviewing customers, competitors, and dozens of former employees—for months, or even years, before launching an investment. “Our process is very similar each time,” Cohn told me. “We show up, we make operational suggestions, and, in an overwhelming majority of cases, the company says, ‘O.K., that’s thoughtful, we’ll look into that.’ We work collaboratively.
  • Some of Singer’s tactics at Elliott have also cropped up in his political life. Singer supports numerous media outlets and research institutes that disseminate his ideas. He is the chairman of the think tank Manhattan Institute for Policy Research, which encourages free-market policies as a means of addressing domestic-policy issues.
  • Singer is one of the largest financial donors to Republican political causes. During the 2016 election cycle, he contributed twenty-four million dollars. He is described as a “donor activist,” a reference to his deep involvement with candidates and campaigns.
  • “He’s somebody who believes that bad things are going to happen, and that the people in charge don’t know anything,” a political operative who has worked closely with Singer told me.
  • Mike Lofgren, a longtime Republican congressional staffer who’s now a critic of the Party, told me that Singer’s conservative politics can be simplified to two issues. “Taxes and regulations, on the one hand,” he said. “And Israel on the other.” People who work with Singer say that his views are more nuanced.
  • Singer approaches campaigns much the way he does investments: “He wants it to be a successful business that makes money. He wants a pathway to victory.”
  • Singer even wrote a rare defense, published in the Wall Street Journal, titled “Efficient Markets Need Guys Like Me,” in which he argued that his firm played a valuable role by pressing corporations to “maximize value” for their shareholders, which he said benefitted everyone.
  • German industrial conglomerate Thyssenkrupp characterized the company’s actions against it as “psycho-terror.”
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