Highlander - Dealbreaker

Highlander

Author:: Bess Levin
Updated:: Jan 14, 2019
Original:: Oct 16, 2008

We never really like to see hedge funds close. Ok, that's a total lie. Some hedge funds (Global Alpha, we're looking at you) send us into giddy heights when they stagger. This is directly in proportion to the cocky swagger with which their snotty professionals stalk the streets. So, we don't particularly have a reason to enjoy the unfolding demise of Highland Capital Management, once a giant with nearly $40 billion in assets under management, except maybe the way they flout the general rule that making your firm logo an impenetrable shield and posting your many awards from Credit Flux and Absolute Return on your website is a little suggestive of taunting the gods of risk. It seems to have cost them To wit:

Highland, which had $37 billion in assets under management as of June 30, will wind down its Highland Credit Strategies Fund and the Highland Crusader Fund, said the person, who declined to be named because the decision isn't public.

Officials privately admitted to Dealbreaker that "Ok, maybe headquartering the Highland Crusader Fund in Dubai wasn't the best idea after all."*
Highland to Close Hedge Funds Amid `Unprecedented' Disruption [Bloomberg]
*Ok, ok... they didn't say anything like that.

By Jonund (Own work) [CC0], via Wikimedia Commons

Jimmy Dondero's got a host of pet names for his clients.

As some of you may recall, back in March, Highland Capital Management founder and CEO James Dondero testified that he is "insolvent under Texas family law, if not according to normal accounting rules," despite a 2010 tax return showing his adjusted gross income that year to be in excess of $36 million. The reason his finances were in question was because Dondero filed for divorce in September, and how much he owes his wife Becky is currently in dispute. Becky is "seeking enforcement of a prenuptial agreement guaranteeing her half of the couple’s community property, capped at $5 million," plus "spousal support and interim attorney fees." James, perhaps you can glean, is hoping it will be less than that and perhaps even nothing. One thing that really didn't help? Patrick Daugherty, a former senior portfolio manager at Highland who quit in October, testified that he met with James Dondero for drinks last month. “He told me his plan was to get his net worth down and pay her as little as possible,” said Daugherty, who was called to the stand by Becky Dondero. That testimony was given on March 28th. On April 11, this happened: Highland Capital Management, the $20 billion hedge fund and private equity firm based in Dallas, has launched a lawsuit that calls its former private equity investing chief a “megalomaniacal” manager who engaged in “abusive tirades” that “dehumanized employees.” Patrick Daugherty is the former head of stressed special situations and private equity at Highland Capital Management, where he was responsible for $8 billion of assets until he resigned in September 2011. Known as a blunt-speaking Texan, Daugherty has served on the board of Metro-Goldwyn-Mayer and as chairman of companies like Cornerstone Health Group. According to a 14-page complaint Highland filed in Texas state court in Dallas earlier in April, Daugherty has been paid in excess of $26 million while at the firm, but voluntarily resigned after “Highland refused to accede to his unacceptable ultimatums and megalomaniacal demands regarding compensation.” The lawsuit claims that Daugherty was “belligerent to peers” and that Highland employees complained and even quit after Daugherty publicly berated them as “‘f—ing idiots’” and disparaged them using other vulgarities. Highland, which has a reputation in the investment community for using hard-hitting tactics, pulls no punches in a lawsuit that at times can appear cruel. It claims that Daugherty’s tenure at Highland was characterized by extreme behavior and his performance diminished over the years as he “became increasingly unmanageable, erratic, and insubordinate.” It didn't have to be this way, Patrick! $20 Billion Highland Capital Calls Former Private Equity Chief "Megalomaniacal" [Forbes]