• 06 Jun 2014 at 11:51 AM

Hedge Fund Manager Puts Goats To Work

Mark Spitznagel, the founder of the $6 billion hedge fund Universa Investments, on Thursday brought 20 billy goats to graze among abandoned homes and general detritus in Brightmoor, one of Detroit’s most blighted neighborhoods. Not to be outdone by JPMorgan Chase, the country’s biggest bank, which recently pledged to invest $100 million to help Detroit over the next five years, Mr. Spitznagel says he is contributing directly to the community. “It’s an urban farming experiment,” he said of his plan to leave his goats to roam and munch on overgrown grass. “Goats are an effective way to do landscaping,” he added…Mr. Spitznagel will enlist the help of the community — paying previously unemployed adults and enlisting the help of local youths to herd the baby goats — and he plans to build portable housing for the goats in addition to pens and electric fencing. At the end of the summer, Mr. Spitznagel said, he will sell the goats to Detroit butchers and give the proceeds back to the community. [Dealbook]

It’s kind of old news but today’s SEC suit against MayfieldGentry Realty Advisors is still pretty amusing. Basically MayfieldGentry was a registered investment advisor with $750mm of AUM at its peak, something like $140mm of which belonged to its biggest client, the city of Detroit’s Police and Fire Retirement System. You get the sense that MayfieldGentry wasn’t a very good investment advisor; in particular it got the PFRS account through a massive bribery campaign directed at Detroit officials some of whom are now in prison for those and other massive bribery campaigns. Lotta bribery. But anyway against that backdrop what MayfieldGentry is now accused of doesn’t seem that bad:

In early 2008, [CEO Chauncey C.] Mayfield, on behalf of MGRA, secretly stole approximately $3.1 million from the PFRS to purchase two shopping malls in California. … Over the following months and years, as each of the other MGRA principals learned of the theft, they conspired with Mayfield to keep the theft a secret from the PFRS.

Ha well no of course that sounds bad. I mean, stealing. But actually “stole” and “theft” are perhaps slightly strong words for what happened. I can’t tell exactly what’s going on, and I suspect neither could anyone at MayfieldGentry, but from the complaint it sounds like they genuinely intended to invest client money in those strip malls, but were so used to being corrupt and/or inept that they couldn’t get it together to do that the right way, and so ended up (1) taking PFRS money without permission and (2) owning the California strip malls themselves. And you should have seen the look on their face etc.: Read more »

Here’s a Bloomberg article about how banks made money by doing interest rate swaps with Detroit, and now Detroit is sad, because like a lot of municipalities Detroit swapped its floating rate bonds to fixed to hedge the risk of rates going up, and rates went down, and now the PV of Detroit’s swap liabilities is like $350mm, which is big, and that’s sort of that. I’m generally unmoved by the notion that municipalities should be able to get out of swaps that move against them for free, and while I’m sure there’s some nefarious record of mis-selling and fee-inflating in here somewhere, which would justify you getting all mad at Detroit’s banks, Bloomberg has not dug it up. The evidence so far is “rates went down,” so whatever.

Still this a pretty interesting story. The normal posture of these swaps cases is:

  • City has floating-rate bonds and swaps to fixed.
  • Rates go down but city is still effectively paying high fixed rate.
  • City says “WTF, why don’t we stop doing this?”
  • City goes to bank and says “remember that swap? never mind”
  • ?

  • Bank says “we’d be happy to tear up the swap, just pay us a $400 million termination fee.”
  • City freaks out, calls press, etc., shouts about windfalls, etc.1

But Detroit is different! Detroit, to its great credit, doesn’t want to tear up its swaps. The banks do. But they’re not exactly pushing it: Read more »

  • 26 Apr 2010 at 12:00 PM

Killing Time On Capitol Hill

The following post is by Dealbreaker reader and commenter Infinite Guest.

The e-mails from Goldman Sachs that Senator Carl Levin posted on his website Saturday, ahead of Tuesday’s hearing before the Permanent Subcommittee on Investigations, demonstrate, if anything, that late in 2007, as was widely reported in contemporary media, Lloyd Blankfein and others were rightly concerned by the firm’s mortgage exposure, and the continuing performance of their hedges. The e-mails themselves are not newsworthy. They are only news in the sense that a newsmaker, the senior Senator for Michigan, has presented them along with his office’s own peculiar narrative, at what appears to be, in light of the negative PR dogging Goldman Sachs, a politically opportune time. Nor do these e-mails contribute to our understanding of the financial crisis, nor do they offer any insight into preventing another crisis. Tuesday’s hearing itself, if the statements from Senator Levin’s office are any indication, is bound to be a waste of time. That’s too bad, because Senator Levin, a powerful man, an intelligent, well-connected and highly respected man, is uniquely positioned to understand and address mortgage failures: as Washington is to politics, Detroit is to subprime. Read more »