We’re not saying that Wall Street is inhabited by a bunch of vultures who pray for the demise of others from which they then benefit but, well…you know! We are what we are. In the latest Halliburton-‘raq** deal of the day, the subprime mortgage meltdown has a handful of people smiling on Wall Street (because they can finally, finally afford that limited edition, Tussaud’s-inspired was likeness of Michael Douglas, and a pair of gilded Mexican loofah mitts to boot). Jenny Anderson offers a run down of the winners:
Some hedge funds have made a killing. Paulson & Company, an $11 billion hedge fund in New York, had such a strong belief that the subprime market would fall apart that it started two funds last summer concentrated solely on expecting such a collapse. Paulson’s Credit Opportunities Funds, now with more than $1 billion, were up 67 percent for February and about 82 percent for the year to date.
And then there’s Scion, the comeback kid who’d seemed doomed for failure only to be eating the carcass of subprime whilst 72 virgins fan him with the feathers of doves raised only to die for his benefit, as we speak:
Scion Capital is a long-short value hedge fund, meaning that it looks for undervalued and overvalued stocks and bets for them or shorts them, betting the price will fall. In May 2005, Mr. [Michael J.] Burry decided that the housing market was overheated. Credit had been overextended and the appreciation in home prices had the earmarks of a bubble. He placed a bet that the subprime market would collapse.
Through the first nine months of last year, Scion Value Fund and the Scion Qualified Value Fund were down 16.4 percent, with a big chunk of that loss coming from credit derivative positions, some tied to mortgages and others related to corporate bonds, according to a letter to investors. The fund ended the year down about 17 percent, most of which was attributed to the credit derivative positions.
So Scion made a radical decision: It put the poorly performing credit derivative positions in a side pocket, essentially separating them from the main fund whose performance they were hurting. Investors were required to enter into the side pocket, which locks up investor money until Scion decides to unwind it. Scion would not receive performance fees on the side pocket until it was liquidated.
Then something funny happened: The subprime market imploded, and Scion’s investment looked a whole lot better. Scion Capital’s bets, including its side pockets, started to pay off: through February, the funds are up 19 to 20 percent, according to a person close to the fund. The HFRI index, a measure of overall hedge fund performance, was up 1.81 percent through February.
Winners Amid Gloom and Doom [NYT]
**Believe us when we say it was painful to slap that analogy up there, as getting political in this space is not something we’ve never intended to do. In fact, this morning we were on the subway and saw an ad for Manhattan Storage with what was supposed to be a neck-and-below shot of Dick Cheney with the line “Your closet’s so narrow it makes Dick Cheney look liberal” and we were like, “Jesus! WTF. Seriously, we know what the right decision is; we don’t need liberal rhetoric this early in the morning from FREAKING A STORAGE COMPANY that people turn to because apartments in Manhattan are just too damn small and there’s no way we’re moving to Bushwick.” We said this aloud, possibly scaring a few small children but damn it, the sentiment holds. But we wrote what we wrote because Halliburton, like the Easter Bunny, has gotten a pass for too long. Far too long.