Just in time for Valentine’s Day comes the romantic story that the the 83 year-old hedge fund manager made a ton of money in 2013, and about 80%* it before his September 21st nuptials and can therefore keep to himself,** should this marriage should end in a similar manner to his first two. Read more »
Paulson & Co.
Baupost Group, Paulson & Co. and Cargill’s hedge fund unit think it’s awfully fishy that the corpse of Lehman Brothers is so eager to sell almost $3 billion in bankruptcy claims to Elliott Management and King Street Capital Management for a little over $1 billion. Especially since CarVal would like to pay almost $1.5 billion for the same claim.
‘Cause somebody’s recouped record losses in his Recovery fund, meaning somebody can start charging performance fees again! Read more »
- Fab’s claims that the key disputed email, in which he maybe-defrauded maybe-victim ACA, was “not accurate” but not “false,” an epistemologico-semiotic dispute that probably sounds better in French, and
- the fact that Fab got a base salary of $738,000 for his 19 months of paid leave, which is just sort of an odd base salary for a Goldman VP.1
Perhaps less perplexing is that Fab’s feelings about Abacus seem to have been less about bamboozling one client on behalf of another and more about just printing a trade, whichever direction it went in. John Carney reports that Goldman was taking too long getting ABN Amro to intermediate ACA’s guarantee of the super senior tranche of the deal, Paulson was getting antsy, and Fab, ever servicey, was trying to assuage their antsiness by just getting Goldman to do the deal naked: Read more »
If you wanted to short the housing market in 2007 you could just buy protection on mortgage-backed securities via a synthetic CDO, and that’s what John Paulson did in the Abacus deal, for which Goldman Sachs and Fab Tourre got in trouble. But the problem with that is that buying protection costs money; just for instance the super-senior protection in Abacus would run you about 50bps, or around $4.5 million a year on the $909mm notional that ACA Capital wrapped.1 And who wants to throw away millions of dollars a year waiting for the housing market to crash?
So another way to short the market is to buy a lot of protection on senior tranches of CDOs (cheap because: what are the odds that the housing market will crash?) while also selling a little protection on junior tranches (expensive because the odds that there’ll be some defaults are higher). If you do this, you can have a positive carry (you get paid as more each year on the protection you sold than you pay on the protection you bought), but you can make just about as much money if the housing market craters and there are massive defaults. (The tradeoff is that if performance is mediocre, with some defaults, then you lose money on the junior protection you sold and don’t make it back on the senior protection you bought.)
Guy Who Spent All Of 2007 Telling People He Was Short Housing Vaguely Remembers Telling Someone He Was Short HousingBy Matt Levine
In testimony Wednesday, Paolo Pellegrini, the former Paulson & Co managing director, said he made clear to ACA Capital Holdings Inc that Paulson wanted to bet against the deal.
“As I told all collateral selection agents, we were interested in shorting a CDO, shorting subprime securities in a CDO,” said Pellegrini, one of the architects of hedge fund manager John Paulson’s bet against subprime mortgages in 2006 and 2007. …
Pellegrini, one of two people who worked on Paulson’s strategy to take the stand so far, testified Wednesday he believed he told the principal employee at ACA working on Abacus, Laura Schwartz, about Paulson’s strategy over drinks during a “shindig” for people in the CDO industry.
“I think there was some discussion of the portfolio and what we were trying to accomplish by shorting the market,” he said.