Paulson’s Due Diligence Challenged
For any that thought John Paulson had a crystal ball by his bedside, the last year has proven them wrong. The seemingly untouchable hedge fund titan’s now being sued by an investor for failing to conduct proper due diligence on China’s Sino-Forest Corporation.
The investment seemed unimpeachable until an investment firm, last year, charged that Sino-Forest had more in common with a Ponzi scheme than a legitimate firm. Paulson’s fund, reportedly, lost nearly $500 million on the investment.
In calls with investors, Paulson admitted the firm could have done a better job of vetting Sino-Forest. He even admitted his traders heard some scuttlebutt about the company’s dirty deals before the report came out but, now that it’s become a legal issue, he’s putting the net losses at closer to $105 million.
The backtrack express doesn’t stop there. Paulson threw Standard & Poor’s, Moody’s and Fitch Ratings under the bus maintaining Sino-Forest had passed all their controls as well. They did so well with mortgage-backed securities, after all.
Hedgie Talk May Trump Good Sense
Hedge fund managers are social creatures but a study jointly conducted by the London School of Economics, IESE Business School and the University of Essex suggests they should curb that.
Apparently, hedge fund managers could fall into groupthink when comparing their ideas and ignore seemingly obvious red flags like, say, people who tell you not to invest in fraudulent Chinese real asset firms.
The researchers, not surprisingly, see more reliance on social networks among those managers who’ve held on to their positions for long period. So now firms have even more reason to start cutting from the top down.
Obama Targets Carried Interest
One-percenters have more reason to fund Mitt Romney’s presidential campaign since President Barack Obama’s trying to raise their taxes.
The President’s proposal to tax hedge fund and private equity gains as much as 35% has one percenters in a tizzy even as he cuts the corporate tax rate to 28% from 35%. Sure, having your tax rate go up by more than 50% is a nightmare but everyone from Warren Buffet down to the guy who gets your coffee at Starbucks will tell you the tax code’s a bit wacky.
The Occupy Wall Street crowd’s schadenfreude may be somewhat short-lived because it remains to be seen whether noise from the industry and possibly Congress will force the administration to walk that one back.