No one becomes a hedge-fund manager or private-equity partner to be popular. But in a downturn, getting on with the day job can be especially hard. There’s a risk of taking a public mauling from prominent politicians.
President Barack Obama laid into the small group of Chrysler's secured creditors, mostly hedge funds, which rejected a government-sponsored reorganisation plan for the ailing carmaker. Peer Steinbrück, Germany's finance minister, reportedly told Chris Flowers that it’s “too bad” if the US private equity investor doesn’t like the terms of the government’s takeover bid for struggling lender Hypo Real Estate.
The courts are likely to have the last word on both Chrysler and HRE. Legal action already helped dissident Fortis shareholders, including Chinese insurer Ping An, squeeze out better terms in the Belgian bank’s partial sale to France’s BNP Paribas.
Of course, not every investor who picks a fight with a government Goliath is necessarily a virtuous David. Flowers, for example, has a hard case to prove. He apparently wants to keep an equity interest in a bank that would almost certainly be bust without extensive government support.
But he’s right to try. As are the dissident Chrysler bondholders, who are understandably livid that the claims of retired workers have been put in front of their supposedly secured loans. In a crisis, hasty responses are hard to avoid. In the current financial emergency, governments may sometimes have let political expediency break established rules of justice.
Politicians may believe that investors, especially the highly leveraged variety, are a species of rapacious locusts. But by defending the reliable legal framework that is the bedrock of business and finance activity, these obstreperous capitalists are providing a valuable service.
