Unstructured Finance

By Matthew Goldstein

Hedge fund titan Steve Cohen is taking steps to appear more open these days.  Over the past year or so, he’s been showing up at industry conferences, charity events–even allowing himself to be photographed with his wife for a glossy spread in Vanity Fair magazine.

But there are some things the SAC Capital founder is drawing a line in the sand over when it comes to greater transparency, including some of his own words.

Cohen and his legal team are fighting hard to keep hours worth of deposition testimony that he recently gave in a civil lawsuit  under wraps. Last year, the billionaire trader sat for a deposition in the long-running stock manipulation lawsuit filed by Canadian insurer Fairfax Financial against SAC Capital and other hedge funds, including Dan Loeb’s Third Point and Jim Chanos’ Kynikos Associates.

His lawyers argue that making the deposition transcript public–even just extended excerpts–would provide “a road map, from the head of the firm, as to how SAC does business.” Cohen’s legal team contends allowing the transcript to come public would help his hedge fund competitors peel back some of the mystery that surrounds SAC Capital’s long and successful track record.

But Cohen also may not want the deposition released because it provides some inkling into his thoughts about the ongoing federal insider trading investigation, which already has led to guilty pleas by two former SAC Capital traders.

By Matthew Goldstein

Top hedge fund managers are great at enriching themselves through savvy trades that presumably come from a keen insight into the markets and economic trends. But all too often these titans of Wall Street come up small when asked for their opinions on the pressing economic questions of the day.

That’s what happened when three Reuters reporters recently asked 30 of the top U.S. hedge fund managers to respond to a quick email survey about the political morass in Washington and the potential for a double dip recession. Less than a handful of  managers offered any thoughts on the subject. The overwhelming majority either didn’t respond, or had a representative reply that the manager was either too busy to comment, or didn’t want to participate.

I’m not going to embarrass any one by calling them out for not responding but it’s hard to fathom how some of the wealthiest people on the planet couldn’t find the time to have someone on their staff take 5 to 10 minutes out to respond to a three question survey. (We were trying to make it real easy to get some responses).

By Matthew Goldstein

A measure aimed at protecting companies from community bank failures may be finding new life as a way to guard against the fallout from the political squabbling in Washington, D.C. over raising the debt ceiling.

Even though much of Wall Street believes that sanity will prevail in the end and the nation’s politicians will not allow a U.S. debt default to occur next week, the level of anxiety in the financial world has risen in the past few days. And that unease has led some money managers to begin looking at a post-financial crisis measure aimed at protecting non-interest bearing bank accounts as a potential safe haven.

One trader says he is aware of at least one manager who has moved some cash into a non-interest bearing checking account that that FDIC is providing unlimited insurance on in the event of a bank failure. The unlimited guarantee by the Federal Deposit Insurance Corp. runs through Dec. 2012 and was authorized under last year’s Dodd-Frank financial reform law.

By Matthew Goldstein

Derivatives guru Janet Tavakoli is a long-time critic of the rating agencies and in particular the role the raters played in the subprime debt crisis. And she says given the shabby job the rating agencies did in giving the green light to the subprime debt boom, it’s odd to think of firms like Standards & Poor’s playing such a big role in the ongoing US debt ceiling negotiations.

“Standard & Poor’s lost its credibility due to a long history of misrating financial products,” says Tavakoli.

The Chicago-based consultant, for now, isn’t taking position on how the on-again/off-again political wrangling in Washington over raising the debt ceiling should be resolved. But she said investors would be better off ignoring what the raters–in particular S&P–have to say on the matter.

By Matthew Goldstein and Svea Herbst-Bayliss

John Kinnucan, a research consultant who’s been linked to an ongoing insider trading probe, claims Maverick Capital founder Lee Ainslie has stiffed him by not paying all of the hedge fund’s bill from last year.

The Portland, Oregon-based Kinnucan tells Reuters/ Unstructured Finance that Maverick owes him $15,000 for research information he provided on technology companies in the second-half of 2010. The consultant says it was anger over Maverick’s outstanding tab that prompted him to send a brief and alarming email this week to Ainslie warning him that his $11 billion fund may “soon be charged with insider trading.”

Kinnucan, who concedes he has no inside scoop on what federal prosecutors are planning, says he was just having some fun at Ainslie’s expense because Maverick is the only one of his former customers that still owes him money. Kinnucan says Maverick won’t pay because the hedge fund contends he “caused a lot of disruption to their business.”

By Matthew Goldstein

It looks like the problems that Phil Falcone’s upstart wireless network may cause with some airline navigation systems may be impacting the price of the more than $1 billion in high-yield debt LightSquared has sold to hedge funds and mutual funds.

Over the past two weeks, the prevailing market price of LightSquared”s four-year term “junk” loans has slumped to about 95 cents on the dollar. That’s still a solid price for the high-yield offering that carries a 12 percent coupon. But it’s down considerably from late May, when the loans were fetching as much as 102 cents on the dollar.

LightSquared’s loans soared in the spring amid optimism that the prospects were looking good for the planned high-speed wireless network backed by Falcone and his Harbinger Capital Partners hedge fund. The optimism was fed by talk of a LightSquared initial public offering later this year, an infrastructure sharing agreement with telecom giant Sprint and a perceived increase in the value of its spectrum holdings.

By Matthew Goldstein

Valuing derivatives–especially complex ones tied to esoteric assets–is always a tough proposition. And maybe that’s what a previously unknown whistleblower action involving Deutsche Bank is all about.

The other day I wrote about a big settlement Deutsche reached in that matter with a former trader, who claims some of the bank’s most esoteric derivatives were improperly valued to hide trading losses. Deutsche denies the allegation and says an internal investigation found no substance to the trader’s charge.

Then again, the bank did find some substance to Matt Simpson’s allegation that another former top trader based in London, Alex Bernand, may have done some improper trading in one of his personal accounts. As I reported, the bank in October 2009 quickly dismissed Bernand–its former global head of credit correlation–after a quick internal investigation substantiated much of what Simpson alleged on that point.

By Matthew Goldstein

By most objective measures, hedge fund magnate John Paulson isn’t having a particularly good year.

His Paulson Advantage Plus fund lost nearly 6 percent in May. His Paulson & Co. fund empire is believed to have absorbed a $300 million paper loss when shares of Sino-Forest got hammered in the wake of a critical report from a noted short-seller, who claims the company has overstated the value of its lumber holdings. And the bullish bet he’s made on a rebound in the housing market appears to be several years too early.

Then again, this is John Paulson–the mastermind of the mega subprime housing bet, which bolted him to fame and riches and certified his rock star status in the $2 trillion hedge fund industry. Today, his New York firm controls about $37 billion in assets and seems to keep taking in new investor money every day.

By Matthew Goldstein

Phil Falcone’s love for all things wireless and his upstart telecom company called LightSquared is well-known. Indeed, he’s gambled the future of his Harbinger Capital Partners hedge fund on LightSquared being a commercial success.

Earlier this week, we reported that Falcone was planning to deal with the high-level of redemptions at his hedge fund by giving withdrawing investors “shares” in LightSquared as an alternative to outright cash. Here’s Falcone telling investors why he is so bullish on bringing 4G high-speed wireless technology to the masses:

LightSquared’s success over the past year underscores my view of the inherent value of this asset to our investors. Moreover, the tangible progress LightSquared is making in its commercial and strategic relationships further reinforces my belief that LightSquared is an investment capable of generating enhanced returns over time. While we have had opportunities to monetize a portion of our LightSquared position in recent months, I feel strongly that any sale by our funds of an interest in LightSquared would have been premature and would not only have jeopardized the ability to join forces with a strategic partner, but also would have limited the substantial upside that I am convinced will come to all of our investors as our plan is executed.

By Matthew Goldstein

Is hedge fund manager Dan Loeb considering planting his Third Point flag somewhere in Asia?

A person close to the New York-based fund says Loeb has no plans to open an outpost in Asia. But investors familiar with Third Point are fueling speculation that Loeb may be considering doing that at some future time.

The speculation about Loeb’s interest in Asia may be the result of a two-week tour Loeb took of China and Hong Kong earlier this spring. The visit was part vacation/part educational for Loeb.