Login / RegisterHedge funds credited for helping to save U.S. companies in distress
In the Occupy era, hedge funds have become known as the dirty villains of capitalism.
The people who run these funds, like John Paulson—who collected $3.7 billion in compensation in 2007—are routinely portrayed as money-grubbing gluttons.
And when another hedge-fund manager, George Soros, pocketed a billion British pounds in 1992 by betting against the currency, he was widely excoriated.
But a new study coathored by UBC Sauder of School business professor Kai Li suggests that hedge funds have had a beneficial influence on U.S. companies that file for protection under Chapter 11 of the U.S. Bankruptcy Code.
Li, along with professors from Columbia and Queens University, examined 474 Chapter 11 filings between 1996 and 2007 involving companies with assets of $100 million or more.
They were able to observe that hedge funds were involved in 87 percent of these cases—and these were the ones that had the greatest chance of surviving through the process.
When hedge funds got involved, it was more likely that the corporate CEO would be fired and there would be reduced pressure from other stakeholders for a payout involving the liquidation of assets.
“We find that hedge funds are more like mediators than predators,” Li said in a UBC news release. “They use the power of a controlling stake to negotiate between the desires of top executives fighting to preserve their high salaries, and the company’s lenders who may want to cut their losses by dismantling the company and selling off the pieces.”
When hedge funds were the largest unsecured creditors, this had a positive influence on the stock price and on other creditors' recovery of debts.
The study appeared in the American Journal of Finance, which is published by the American Finance Association.
Here in Canada, hedge funds played a major role in keeping many of Canada's national daily newspapers afloat, including the Vancouver Sun and Province, when they were owned by CanWest Global Communications Corp.
They were later assisted by Wall Street banks J.P. Morgan and Morgan Stanley, which offered $700 million in loans.
The newspaper chain subsequently become known as Postmedia. Since last June, however, the parent company Postmedia Network Canada's nonvoting shares have nosedived, falling from $17 down to an all-time low of $1.50.
The Postmedia Network B shares reached a high of $17.75 on June 24, 2011, and are now trading at an all-time low of $1.26.
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Also explains why western politicians have shown so LITTLE hindsight in reforming bankrupt corporate monopoly information distribution with scaled down diversity so easy under digital distribution models -- they cooked deals to destroy their economies with the SAME 'masters of the universe' and so the propaganda machines act as a protection racket for their own crimes.
Also explains why there is virtually no reporting on how western governments have imposed austerity measures uniformly, crowing about fiscal prudence, while collectively breaking a new record for military spending without any discernible threat. Canada spent nearly 23 billion on it's military last year ranking it 13th in the world. For comparison, Russia a country of 300 million and presumably a major world power, if not superpower, spent 64 billion.
An honest media not only wouldn't be suppressing this -- it would have a field day running 'conservative' pundits denouncing the inefficiencies and why Russia is getting a bigger bang (pun intended) than Canada (or Britain!) simply out of boredom with their 'rinse and repeat' Faith-based dogma that always seems to blame unions, low wage workers, retirees and cab drivers in Italy simply because an election was held in their country at some point and some criminal got elected.