Sowood Manager Can't Stop Apologizing

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Bucking the trend that Harvard (Management Company) produces people with little use for air freshener and that love means never having to say you’re sorry, a “contrite” Jeff Larson spoke to clients yesterday during a ten minute conference call in which he tried to explain how their $3 billion investment shriveled up (but more so down) to about $1.4 in several weeks. (A few investors, new to the concept of the conference call, overzealously jumped in with their own answer: Shrinkage! A lack of masturbation! The Puerto Rican Day Parade! Coincidentally, these were all also incorrect but not unreasonable responses to the prompt “name three classic Seinfeld plots”).
Taking the “can’t argue with that” tactic, Larson began by offering, "You entrusted us with the management of your money, and we lost a lot of it, to say the least." He said Sowood borrowed heavily to make investments that the fund believed at the time were low risk and, as hedge funds are wont to do, backed them up with a hedging strategy the firm trusted to act as a lifeboat, in case anything went wrong. If you’ve been keeping up with all the episodes, you know that things did in fact go “wrong,” namely that the markets didn’t do what Sowood told them to do, rendering its hedges “ineffective.” Potted plants at best and even that’s reaching.
The ‘wood then tried to sell some securities, but that didn’t work out so well, either, because demand dried up and no one wanted to purchase sinking assets bought with mostly borrowed money. Spoiler alert: that wasn’t good. Larson said that he spent all of the weekend—yes, he gave up his weekend—negotiating a deal that would displace a complete and total disaster with just "a disaster."
"We did this in order to avoid what we believed was the very real possibility of counterparties seizing our collateral and liquidating or auctioning our positions," Larson said. He told investors that Sowood wanted to avoid the “high likelihood” of moving into a “little to no net asset value remains”-type situations, or as it’s called on the golf course, the James Cayne Surprise (everyone at home: this requires Saran Wrap and Silly Putty, and should only be performed by professionals).
If you want to talk numbers, Sowood lost 5% when its corporate debt portfolios got saggy in June, though no one with the firm thought it was a big deal. This would explain why July’s performance—in Larson’s words: “not just a repeat of June, [but] radically worse”—came as a shock.
"Each day brought greater and greater losses," Larson said. "A loss of this magnitude is as devastating to us as it is to you." The utter contrition almost makes you feel more sorry for the guy than the investors. (Is it real or exactly what the master of manipulation wants? You decide).
Earlier: Sowood Is So Sowwy
Sowood founder apologizes [Boston Globe]

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