Search results for: "hedge funds"

The New York Times reported on a huge merger of newspapers.

In August, Gannett, the parent company of USA Today and more than 100 other dailies, and New Media Investment Group, the owner of the newspaper chain GateHouse Media, announced their intention to join forces. Over the next two months, the plan breezed through the regulatory process, winning approvals from the Justice Department and the European Union. Last week, shareholders at the two companies voted yea. And now one in five daily papers in the United States has the same owner, under the Gannett name, according to figures provided by researchers at the University of North Carolina.

The combined company will have its headquarters in Gannett’s home base, McLean, Va., and will be led by Michael E. Reed, the New Media chief executive since 2006. The job puts him in charge of more than 260 dailies — from small papers like The Tuscaloosa News in Alabama to big ones like The Detroit Free Press.

GateHouse’s acquisition of Gannett, a cash-and-stock transaction valued at roughly $1.2 billion, was intended to give the combined companies an annual savings of some $300 million. Mr. Reed said the bulk of the savings “is not going to come from editorial,” meaning newsrooms would be largely spared.

Pressed to say more, Mr. Reed added: “I can’t give you an exact number, but almost nothing. I mean, just for context, there’s 24,000 employees in the two companies, and a significant portion of the cost reductions are going to come from things other than people. But, obviously, people’s a part of this as well. Out of 24,000 people in the company, there’s about 2,500 that are actually writing stories every day. So it’s a small number, relative to 24,000. So there’s so much opportunity beyond the newsroom for us to go get these efficiencies.”

Paul Bascobert, the chief executive of the former Gannett who will hold that same title for the new Gannett’s operating company, seconded that statement, saying the company’s mission “is to connect, protect and celebrate local communities.”

“And the core of that is great local journalism,” he added. “That’s the engine that has gotten us to the place we are today, and that’s the engine that’s going to carry us forward.”

Newspaper executives have sung this tune before, only to end up making aggressive cuts in an industry that has struggled since the one-two punch of the recession more than 10 years ago and the rise of digital media. Twenty-five percent of newsroom employees were laid off between 2008 and 2018, according to the Pew Research Center.

GateHouse and Gannett have both cut newsroom employees in recent years. GateHouse consolidated some business functions at a center in Austin, Texas, resulting in layoffs elsewhere, and laid off more than 100 newsroom employees in the spring. Gannett has let go dozens of journalists, including prominent sportswriters and a Pulitzer Prize-winning cartoonist.

Mr. Reed and Mr. Bascobert, who spoke with The New York Times at the USA Today office in Midtown Manhattan, said the savings they had in mind amounted to 8 percent of annual costs. “So it’s not an overwhelming number — very achievable,” Mr. Reed said.

The News Guild, which represents journalists at many of the company’s newspapers, has been critical of the merger. The union “intends to hold managers of the new Gannett to the promises they have made,” the News Guild president, Bernie Lunzer, said in a statement. “We will continue to demand that they fund high-quality journalism.”

Mr. Reed said he would make newsroom decisions with the help of data that tracked reader interest and the output of journalists. “The ability to measure production at the reporter level allows us to get stronger and healthier and do more quality local journalism with the same amount of resources, potentially,” he said.

He seemed aware that his stats-based approach to newsroom management was not likely to sit well with the union. “The Guild would fight me on that, and say, ‘We should do business like it’s 1950,’” Mr. Reed said, adding, “I frankly think the Guild’s a big problem, and until we can get them to sit at a table and have a real discussion about where the world is today, there’s going to be inefficiencies….”

The merger raises another question: What does it mean that the beleaguered newspaper industry, considered essential to democracy, is controlled by ever fewer corporations, many of them with a focus on finance rather than covering the news?

The supersize version of Gannett has a byzantine corporate structure. It will be managed, under an agreement that lasts two more years, by Fortress Investment Group, a private equity firm in Manhattan. Fortress was the entity that controlled New Media Investment Group, the parent of GateHouse Media.

Fortress, in turn, is owned by SoftBank, the Tokyo conglomerate founded by Masayoshi Son, a brash executive who had a friendly meeting with Donald J. Trump in December 2016, when Mr. Trump was the president-elect. (Mr. Son was also a driving force behind the all-but-final megamerger of Sprint, a SoftBank-controlled company, and T-Mobile; that deal won regulatory approval after a lobbying campaign that included company executives staying at the Trump International Hotel in Washington.)

Iris Chyi, a professor at the University of Texas School of Journalism, expressed concern that the newspaper business was in fewer corporate hands. “From a media economics perspective, more competition is always better,” Ms. Chyi said. “We don’t want a company to have way too much power.”

Another large newspaper chain, MediaNews Group, is owned by a hedge fund, Alden Global Capital. Gannett resisted MediaNews Group’s bid to buy it earlier this year. On Tuesday, Tribune Company, a publicly owned major chain, announced that Alden had purchased a 25 percent stake in it. McClatchy, another major chain, said last week that it risked insolvency.

Mr. Reed grew up in Elmira, N.Y., and was once a delivery boy for The Star-Gazette there — the descendant of The Elmira Gazette bought by Frank E. Gannett in 1906. It was the first publication in what would become a newspaper empire.

Now a part-time resident of the Rochester, N.Y., area, Mr. Reed noted that the new incarnation of Gannett would have two publications in that part of the world: The Daily Messenger, in Canandaigua, formerly a GateHouse publication, and The Democrat and Chronicle, a longtime Gannett daily in Rochester.

“I think both products get stronger,” he said, “because now we’re going to be able to share those resources.”

When he spoke of how Gannett would manage the neighboring papers, he mentioned the newsroom. “Do we need two people covering the Rochester Red Wings?” he asked, referring to the minor-league baseball franchise. “So that’s where we potentially redeploy assets.”


A message about this merger from the publisher of ProPublica, which publishes investigative journalism:


Not Shutting Up


Welcome to Not Shutting Up, a newsletter from ProPublica’s president, Dick Tofel. You’re receiving this because you’ve supported ProPublica’s journalism; we’re grateful for that, and we hope to give you some context on how our newsroom works. If this email was forwarded to you, you can sign up to receive it here.

Dear ProPublicans,I know I’ve written to you before about the business crisis in local news, but it has accelerated significantly in the last couple of weeks, and I think you need to understand how and what it means.Here’s what’s happened in just the last 10 days:

    • Two local newspaper chains, GateHouse and Gannett, completed their merger, and the surviving company controls one-fifth of all the daily newspapers in the United States, including the Arizona Republic, Providence Journal and Austin American-Statesman. These newspapers have already been cut back so far that their average news staff — across 260 papers — is fewer than 20 people, and fewer than 10 reporters per city. In the aftermath of the merger, the company plans $300 million in cuts, with at least one leading observer estimating that the cuts will eventually come to $400 million.
    • Hedge funds, which seek high returns in a short amount of time and measure those returns solely in dollars, now effectively control all of the nation’s largest newspaper chains, either through stock or debt holdings. The second largest company, Digital First Media, is controlled by Alden Global Capital. Alden this week bought 25% of the stock of Tribune Publishing, publisher of the Chicago Tribune, Baltimore Sun and New York Daily News among others, becoming its largest shareholder as well. Alden is best known in newspapers for having gutted the Denver Post and San Jose Mercury News.
    • McClatchy, whose properties include the Miami Herald and Charlotte Observer, announced that it owes a pension contribution next year of about $125 million, but it will only have about $20 million in cash to make that payment. The company has shrunk to the point that it has 2,800 employees whose work must generate enough to fund 24,000 pensions. That’s not possible.
  • Meanwhile, important new research from the Knight Foundation (disclosure: a ProPublica funder) and Gallup finds that most people erroneously believe that local news organizations are doing well financially. One bright spot: When told this is incorrect, a majority expressed willingness to support a local news nonprofit.

What, you may ask — you should ask, we certainly do — is ProPublica doing about this? Here, I think, the recent very bad news is somewhat leavened by some hopeful signs.

This week, our own first local newsroom, ProPublica Illinois, published an extraordinary story about the horrifying use of isolation rooms for children as young as 5 years old in schools across the state. This story was the fruit of a collaboration between two ProPublica Illinois reporters and one from the Chicago Tribune, and it was published by both organizations. Yesterday, the state took emergency action to ban the practice. If you have not already read the story, I urge you to do so, as well as this month’s moving and insightful ProPublica Illinois story about the racial legacy of the town of Anna.

Also this week, we published the latest installments in continuing series from our Local Reporting Network partners concerning the concentration of political power in New Jerseyand a major environmental threat in Louisiana.

And we’re in the early stages of our forthcoming initiative in partnership with The Texas Tribune; we posted many of the jobs for it this week.

So that’s what we’re doing. We’re working on possible plans to do more.

What, I hope you might ask, can you do to support local journalism? Beyond continuing your engagement with us, for which we are always deeply grateful, if you still have a local news outlet you think provides you with important facts and perspective on your community, don’t just assume its immortality. Subscribe if you can; donate what you can if that’s possible.

These are tough times for local reporting in this country, and, with hedge funds calling the tune, tougher times lie ahead. You should expect us to do our part to make this a high priority. I hope some of you can do the same.

Regards, Dick




The Public Accountability Initiative is the place to go to follow the money. The team that produces these reports is called “Little Sis,” the opposite of Big Brother. Little Sis recently posted an eye-opening analysis of the funders of Teach for America.

This post identifies the Hedge funders who hold large amounts of Puerto Rico’s debt and are demanding a reduction in pensions and public services (especially public schools). It also details how people can fight back.

Time is running out for retirees in Puerto Rico in the struggle to preserve their pensions: the Financial Oversight and Management Board has proposed cuts that would take effect July 1, 2019.1 If those cuts go through, around 167,000 families will be affected immediately in this new attack against Puerto Ricans’ living conditions.2 Vulture funds, on the other hand, stand to rake in millions in profits at the expense of the suffering of thousands.

Rather than helping retirees take care of their families, the pension cuts will instead channel the money to hedge fund billionaires to pay for their extravagant lifestyles.

But retirees can still fight back by mobilizing against the upcoming debt deal, pressing the legislature to vote against the bill allowing the restructuring, voting against the debt adjustment plan, and pressuring judge Laura Taylor Swain to not approve the plan.



Alan Singer reviews the ways that hedge funds will benefit by the privatization of public funding for public schools.


Consider Michigan, just one state:


Michigan, Betsy DeVos’ home state, has 1.5 million children attending public elementary and secondary schools and spends about $11,000 per student. If charter networks operated all of Michigan’s schools, we are talking about $16.5 billion. Now that is real money! The charter network could stash away profits of $5.5 billion just my having high teacher turnover.


But that’s not the only way the hedge fund charter networks and private schools will make money. Inexperienced teachers need scripted lessons, staff development, and supervision, so the hedge fund schools can outsource these activities to subsidiary companies. They can also buy books, tests, supplies, computer software and hardware, and guidance services from their own companies and award maintenance contracts to themselves.

The Wall Street Journal reports that Randi Weingarten is taking union pension funds away from hedge funds that attack teachers’ pensions. Leading hedge funds have contributed to organizations that want to eliminate defined-benefit pensions and substitute 401k plans for them. The hedge fund billionaires have also taken the lead in funding nonunion charter schools.

Randi has pushed the investment committees of unions to withdraw their pension funds away from hedge funds that are subsidizing attacks on teachers’ pensions.

Defenders of the hedge funds say that the unions should seek the best return on their funds, without regard to the politics of the hedge fund.

Randi has the better side of this dispute. Why should teachers invest their pension funds in a company that wants to take away their pensions?

Daniel Loeb, Paul Singer and dozens of other hedge-fund managers have poured millions of dollars into promoting charter schools in New York City and into groups that want to revamp pension plans for government workers, including teachers.

The leader of the American Federation of Teachers, Randi Weingarten, sees some of the proposals, in particular the pension issue, as an attack on teachers. She also has influence over more than $1 trillion in public-teacher pension plans, many of which traditionally invest in hedge funds.

It is a recipe for a battle for the ages.

Ms. Weingarten started by targeting hedge-fund managers she deemed a threat to teachers and urged unions to yank money from their funds. Then she moved to Wall Street as a whole.

Her union federation is funding a lobbying campaign to eliminate the “carried-interest” tax rate on investment income earned by many money managers. It is trying to defeat legislation that would increase the charitable deduction in New York state for donations to private schools. And it has filed a class-action lawsuit accusing 25 Wall Street firms of violating antitrust law and manipulating Treasury bond prices.

‘Given your strong support…for an organization which is leading the attack on defined benefit (DB) pension funds around the country, I was surprised to learn of your interest in working with public pension plan investors.’
—Randi Weingarten, in March 15, 2013, letter to hedge-fund manager Daniel Loeb

Some pension funds have withdrawn money from hedge-fund managers criticized by the teachers union. And some hedge-fund managers stopped making donations to advocacy groups targeted by Ms. Weingarten.

Hedge funds, reluctant to buckle to the pressure, say Ms. Weingarten is doing a disservice to the teachers she represents, because funds should aim solely to earn the highest possible return on their assets. The personal beliefs or donations of hedge-fund managers, they argue, shouldn’t be a factor in that decision. At least one manager, Mr. Loeb of Third Point LLC, has increased his donations to a charter-school group, citing Ms. Weingarten.

Sander Read, chief executive officer of Lyons Wealth Management, which hasn’t been targeted, likened what Ms. Weingarten is doing to “hiring a dentist because of their political beliefs. You may see eye to eye on politics, but you may not have great, straight teeth.” None of the hedge funds targeted by the teachers unions would discuss the matter publicly, a sign of how sensitive the battle has become.

Ms. Weingarten said in an interview: “Why would you put your money with someone who wants to destroy you?”

The battles are rooted in a political fight over how to improve public education. Republicans have long sought major changes, such as creating new competition for public schools, including charter schools. Democrats largely have supported solutions backed by the unions, particularly increased spending for existing schools.

About a decade ago, some liberals joined conservatives in pushing to expand charter schools. Those efforts received financial support from hedge-fund managers including Mr. Loeb, Mr. Singer of Elliott Management Corp. and Paul Tudor Jones of Tudor Investment Corp., who together kicked in millions of dollars.

Some of those involved in the effort cast public-school teachers and their unions as obstacles to improving education. The reputation of the teachers union took a beating.

When Ms. Weingarten was elected president of the American Federation of Teachers in 2008, she aimed to restore public trust in public-school teachers and their unions.

As she rose in the union, she got close to Bill and Hillary Clinton. Last summer, the federation became the first union group to endorse Mrs. Clinton’s presidential campaign. Ms. Weingarten sits on the board of the super PAC supporting her candidacy, and the American Federation of Teachers has donated $1.6 million to the Bill, Hillary and Chelsea Clinton Foundation.

Ms. Weingarten’s federation represents about two dozen teachers unions whose retirement funds have a total of $630 billion in assets, a big chunk of the more than $1 trillion controlled by all teachers unions. The federation doesn’t control where that money is invested; the unions themselves do. But Ms. Weingarten can make recommendations.

She instructed investment advisers at the federation’s Washington headquarters to sift through financial reports and examine the personal charitable donations of hedge-fund managers. She says she focuses on groups that want to end defined-benefit pensions. Many of the same entities also back charter schools and overhauling public schools.

In early 2013, the union federation published a list of roughly three-dozen Wall Street asset managers it says donated to organizations that support causes opposed by the union. It wanted union pension funds to use the list to decide where to invest their money.

The Manhattan Institute for Policy Research, a think tank that supports increasing school choice and replacing defined-benefit pension plans with 401(k)-type plans for future government employees, is one of the groups to which donations were viewed unfavorably.

Lawrence Mone, its president, says the tactics amount to intimidation. “I don’t think that it’s beneficial to the functioning of a democratic society,” he says.

After KKR & Co. President Henry Kravitz made the list in 2013, Ms. Weingarten got a call from Ken Mehlman, an executive at the private-equity firm and former chairman of the Republican National Committee.
Mr. Mehlman said KKR had a record of supporting public pension plans, according to Ms. Weingarten.

Ms. Weingarten agreed, removed Mr. Kravitz’s name from the list and invited Mr. Mehlman to talk about the firm’s commitment to public pensions at a meeting in Washington with 30 pension-fund trustees representing 20 plans that control $630 billion in teachers’ retirement money.

When Cliff Asness of hedge fund AQR Capital Management LLC found out Mr. Kravitz had gotten off the list, he called Mr. Mehlman, a friend. Mr. Asness also hired a friend of Ms. Weingarten’s: Donna Brazile, a vice chairwoman of the Democratic National Committee who has been a paid consultant to the American Federation of Teachers.

Ms. Brazile arranged a lunch meeting between Mr. Asness and Ms. Weingarten, where they discussed ways to work together. Not long after, Mr. Asness’s firm paid $25,000 to be a founding member of a group that KKR’s Mr. Mehlman was starting with Ms. Weingarten to promote retirement security.

Mr. Asness was removed from the list. A year later, when Ms. Weingarten noticed he continued to serve on the Manhattan Institute board, she considered putting him back on.

In September of last year, when the California State Teachers’ Retirement System, or Calstrs, considered increasing its hedge-fund investments, Ms. Weingarten saw another chance to apply pressure.

Dan Pedrotty, an aide to Ms. Weingarten who runs the hedge-fund effort, spoke to a Calstrs official about Mr. Asness’s continued service on the Manhattan Institute’s board. The Calstrs official then called Mr. Asness.

In December, Mr. Asness said he would step down from the Manhattan Institute board. His spokesman says he already had made the decision at the time of the call, after reassessing time spent on the boards of several nonprofit groups.

“Randi is committed to helping hard working employees achieve the secure retirement they deserve,” Mr. Asness said in a written statement.

Mr. Loeb, founder of the $16-billion Third Point fund, has been more combative. He is a donor to the Manhattan Institute and chairman of the Success Academy, which operates a network of charter schools in New York City.

‘I can appreciate that it may be frustrating for the certain plan sponsors to invest with managers who have different political views or party affiliations, an issue they must come to terms with due to their fiduciary responsibilities.’
—Daniel Loeb, in March 22, 2013, email to union leader Randi Weingarten

In a March 2013 letter to Mr. Loeb, Ms. Weingarten noted his support of a group “leading the attack on defined benefit pension funds” and said she was “surprised to learn of your interest in working with public pension plan investors.” Seeking business from union pension funds while donating to the group, she wrote, “seem to us perhaps inconsistent.”

The two agreed to meet.

Mr. Loeb emailed Ms. Weingarten, noting his fund’s average annual return of 21% over 18 years. “I completely respect the political considerations you may have and understand if other factors dictate how funds are allocated,” he wrote.

A week later, Ms. Weingarten wrote back to reiterate that unions were wary of investing with Mr. Loeb “given the political attack on defined benefit funds.”

In response, Mr. Loeb asserted that it must be “frustrating” for unions to invest with funds that “have different political views or party affiliations.” He added: “At least we can rejoice in knowing that as Americans we share fundamental values that elevate individual opportunity, accountability, freedom, fairness and prosperity.”

The meeting was called off, and Mr. Loeb was added to the list.

At a fundraising dinner that May for his charter-school group, Mr. Loeb stood up and said: “Some of you in this room have come under attack for supporting charter-school education reform and freedom in general.” He called Ms. Weingarten the “leader of the attack” and pledged an additional $1 million in her name.

“Both Randi and I believe America’s children deserve a 21st century education, and I hope the day comes when she embraces the positive change created by public charter schools,” Mr. Loeb said recently in a written statement.

In late 2013, state union officials pressed a Rhode Island pension fund to fire Third Point. The following January, the pension fund did just that, pulling about $75 million from Mr. Loeb’s fund. A spokeswoman for the state treasurer said at the time that Mr. Loeb’s fund was too risky.

Roger Boudreau, a member of the teachers union and an elected adviser of the Rhode Island fund at the time, says the donations played a role. “It’s fair to say that those kinds of donations are going to be looked at very critically,” he says.

Around that time, a giant billboard appeared above Times Square. “Randi Weingarten’s Union Protects Bad Teachers,” it read above a picture of her scowling face.

Ms. Weingarten immediately assumed the hedge-funders were behind the attack. The entity listed as the billboard’s sponsor is the Center for Union Facts, a Washington-based advocacy group. The group declines to disclose who paid for the billboard.

“We all guessed it had to be people like Dan Loeb,” Ms. Weingarten says. Mr. Loeb declined to comment.

The billboard kicked off a campaign against Ms. Weingarten by the Center for Union Facts, including radio and newspaper advertisements. “She’s the head of the snake, so it was appropriate to go after her personally,” says the group’s president, Richard Berman.

The ads directed people to a website that said she oversaw a “crusade to stymie school reforms and protect the jobs of incompetent teachers.” It listed her salary and called her a “member of the elite.”

In September 2014, Mr. Berman sent a 10-page letter to lawmakers, union officials and opinion leaders charging that Ms. Weingarten‘s “ineptitude is a threat against America, against hard-working teachers, and especially against our nation’s children.”

Lorretta Johnson, secretary-treasurer of the American Federation of Teachers, responded in a letter to union leaders that Mr. Berman represented a “front group whose mission is to vilify and destroy unions.”

The Center for Union Facts, led by Richard Berman, is a rightwing, virulently anti-union public relations firm that specializes in demonizing unions; it has also defended the tobacco industry against critics.

As reported here on several earlier posts, hedge funds saw that Puerto Rico was staggering under debt and bought up its bonds. Now that Puerto Rico is virtually bankrupt, the New York Times reports today that the financiers are fighting bankruptcy protection. States and cities may declare bankruptcy, but Puerto Rico must get permission from Congress to do so. Forcing Puerto Rico to pay back its lenders will require austerity that cripples the island and its people. Lenders have proposed that the debt could be paid off by slashing health care and education.


To block proposals that would put their investments at risk, a coalition of hedge funds and financial firms has hired dozens of lobbyists, forged alliances with Tea Party activists and recruited so-called AstroTurf groups on the island to make their case. This approach — aggressive legal maneuvering, lobbying and the deployment of prodigious wealth — has proved successful overseas, in countries like Argentina and Greece, yielding billions in profit amid economic collapse.


The pressure has been widely felt. Senator Marco Rubio, whose state, Florida, has a large Puerto Rican population, expressed interest this year in sponsoring bankruptcy legislation for the island, says Senator Richard Blumenthal, Democrat of Connecticut. Mr. Rubio’s staff even joined in drafting the bill. But this summer, three weeks after a fund-raiser hosted by a hedge-fund founder, Mr. Rubio broke with those backing the measure. Bankruptcy, he said, should be considered only as a “last resort…..”


“What they are doing, by getting all the resources for themselves, is undermining the viability of Puerto Rico as a commonwealth,” said Joseph E. Stiglitz, the Nobel Prize-winning economist. “They want their money now, and they want to get the rules set so that they can make money for the next 20 years.”


This is predatory capitalism at its worst.


On this earlier post, a couple of commenters argued that the hedge funds had only a small investment in Puerto Rico and that I was wrong for saying they were pressuring P.R. to cut services and programs to repay their debt. Why were they defending the hedge funds? Because one of the major lenders to P.R., John Paulson, made a gift of $8 million to Eva Moskowitz. So they take from the children of P.R. and give to the children who are retained in SA.

The New York Times reported in June that hedge funds invested heavily in Puerto Rico, feeling sure that the Puerto Rican government could turn the economic crisis around.

Now that the debt crisis has worsened, hedge funds are advising the government of Puerto Rico to save money by closing some schools, laying off teachers, and cutting university budgets. Most people think of education as the seed corn of future growth, but not the hedge funds. They want their debts repaid. Maybe they will propose bringing the African model of cheap, for-profit schools to Puerto Rico, which will cut costs considerably while opening new investment opportunities. (See here.)

According to the Times:

Hedge funds like Appaloosa Management, Paulson & Company and Blue Mountain Capital gathered in a conference room at the Barclays offices in Midtown Manhattan last September to talk about what was then the hottest trade: Puerto Rico.

An hour into the conversation, however, it became clear that if things started going bad, not everyone in the room was going to get along. Some had wagered on real estate, while others had bought up the debts of the central government and its troubled electric utility.

Those divisions intensify an increasingly contentious battle the hedge funds are beginning to wage to salvage an investment that, less than a year ago, looked like a sure thing.

This week’s announcement by Gov. Alejandro García Padilla of Puerto Rico that the commonwealth may seek to delay debt payments has thrown the hedge funds’ investment strategies into turmoil.

The governor said that at the rate the debt is developing, every person in Puerto Rico would owe creditors $40,000 by 2025.The Bonds That Broke Puerto RicoJUNE 30, 2015
Puerto Rico is struggling with more than $70 billion in debt and a sluggish economy.Puerto Rico Debt Crisis Splits Congress on Party Lines and Draws Muted Response From White HouseJUNE 29, 2015
Gov. Alejandro García Padilla plans to discuss the island’s fiscal crisis on a televised broadcast on Monday night.Puerto Rico’s Governor Says Island’s Debts Are ‘Not Payable’JUNE 28, 2015
Even debts that appeared to be secure now seem in jeopardy, sending hedge funds and other investors scrambling to re-examine their legal rights and potential remedies should the government push for a restructuring.

The Commonwealth’s biggest cheerleader on Wall Street has been John Paulson:

For the hedge funds, the idea was to lend the money at high interest rates, then flip the bonds to traditional municipal bond investors, like mutual funds, once the fiscal crisis on the island had passed. As part of that strategy, some of the hedge funds circulated research last summer arguing that Puerto Rico’s problems were overstated.

But Governor García Padilla is now contending exactly the opposite, releasing a report by former officials at the International Monetary Fund and the World Bank that says that Puerto Rico’s deficit is worse than it appears and that the commonwealth cannot solve its problems without restructuring its debts, possibly even its general obligation bonds.

Still, Puerto Rico’s relationship with the hedge fund industry is complicated. At the same time the government is gearing up for a series of restructurings with hedge funds and other creditors, officials are courting investments in the broader economy.

Hedge funds have been among the few investors willing to take a chance that Puerto Rico can turn things around.

Puerto Rico’s biggest hedge fund cheerleader in New York has been the billionaire John A. Paulson. Mr. Paulson told investors at an investment conference in San Juan last year that Puerto Rico’s economy was turning a corner. He went as far as to predict it would be the Singapore of the Caribbean, referring to the Southeast Asian city-state that is considered the region’s biggest economic success story.

Mr. Paulson bought up some of the island’s most exclusive luxury hotels, including the St. Regis Bahia Beach Resort, the Condado Vanderbilt Hotel and the La Concha Renaissance hotel and tower.

And he has acted as a de facto liaison between the commonwealth and Wall Street.

This is a great discussion, in which Amy Goodman of “Democracy Now” interviews Juan Gonzalez of the NY Daily News about the big money pushing charter schools. The discussion is based on this article.

“New York Hedge Funds Pour Millions of Dollars into Cuomo-Led Bid to Expand Charter Schools | Democracy Now!

In his latest column for the New York Daily News, Democracy Now! co-host Juan González reports on the tens of millions of dollars in hedge fund donations behind the push for charter schools in New York state. Gov. Andrew Cuomo is the single biggest recipient, hauling in $4.8 million. After winning approval for up to $2,600 more per pupil for charter school facilities, Cuomo is calling on the state Legislature to increase the state limit on charter schools.

AMY GOODMAN: Juan, before we move on with our first segment, you have a very interesting piece in the New York Daily News today, “Hedge fund executives give ’til it hurts to politicians, especially Cuomo, to get more charter schools.”

JUAN GONZÁLEZ: Yes. Well, I wrote about an interesting symposium that was held at the Harvard Club yesterday, an all-day symposium titled “Bonds & Blackboards: Investing in Charter Schools.” And it was a meeting, basically, of hedge fund types sponsored by the Gates Foundation and by the Walton Foundation, basically—


JUAN GONZÁLEZ: Of the Wal-Mart family—basically enticing more investors to begin to see how they can make money off of charter schools. An all-day symposium with a small protest of parents outside. But it really has marked the enormous change that’s occurred in New York politics and, I think, around the country, as a new report showed that hedge fund executives over the last decade have poured nearly $40 million into political contributions just in New York state. The prime beneficiary over the last few years has been Governor Cuomo, who has received almost $5 million. We’re talking about Carl Icahn, you know, the famous “corporate raider”; we’re talking about Paul Singer of the vulture fund, hedge fund guy; we’re talking about Julian Robertson of Tiger Management—some of the richest people in New York City. And they’re also, most of them, also major backers of charter schools.

AMY GOODMAN: How do they make money from charter schools?

JUAN GONZÁLEZ: Well, that’s—I think a lot of it now is going to be coming in with the facilities financing that’s going to occur. aGovernor Cuomo pressed the Legislature, for instance, in New York state to begin providing what will be the equivalent of about $2,600 per child to build new facilities for charter schools, forcing Mayor de Blasio in New York City to share some of this cost. So there’s going to be a new revenue stream: In addition to direct funding from the state for pupil education, there’s now going to be a charter facilities fund that’s been set up. And, of course, the governor wants to lift the cap on charter schools to allow many more charter schools to be started in New York. And the amount of money is not just in the direct contributions; it’s also in money being given to new groups, the dark money that we’ve seen after the Citizens United case, where folks like Robertson and Dan Loeb have contributed as much as a million dollars apiece last year to a new group funding ads promoting Republicans for Senate seats in New York state, which would assure, again, support for charter schools. So it’s an enormous amount of money that’s being poured into these political campaigns specifically by hedge fund folks who are very close to charter schools. In fact, one charter network alone, the Success Academy, which I’ve reported on repeatedly, 19 members of the board of directors, or their family members, gave $600,000 to Governor Cuomo’s campaigns in the last—for his last two election campaigns. It’s an enormous amount of money, and it’s not getting much attention.”

New York magazine reports that activists are succeeding in persuading public pension funds to drop out of hedge fund investments.

The pension fund trustees have included that these investments are a bad risk. Their decision making was influenced by an activist group called the Hedge Clippers, which was created by the AFT to embarrass the hedge fund managers.

Part of the anger towards the hedge funds results from their heavy investment in Puerto Rico bonds and their public relations campaign to stop Congress from allowing Puerto Rico to get bankruptcy protection. Certain hedge funds bought Puerto Rico’s bonds at a deep discount and now hope to make billions by getting paid in full. They have been running slick commercials on television featuring a Puerto Rican woman who says she will lose her life savings if Congress allows Puerto Rico to find a solution other than paying the bondholders in full.

Paying the bondholders in full will mean bankrupting the Puerto Rican economy, closing its schools and social services, but paying the hedge funds the face value of the bonds they bought at a deep discount.



Just five days before New Yorkers went to the polls in bitterly contested presidential primaries defined by the widespread sense among voters that Wall Street is indeed “rigged,” the New York City Employees’ Retirement System, or NYCERS, where Garrido is a trustee, voted to pull its money out of all hedge funds. That amounts to about $1.5 billion, or 3 percent, of a $50 billion pension fund.


The perception that hedge funds are a raw deal for everyone but their fee-fattened managers has not only become mainstream with astonishing speed, it has begun to pose a threat to an industry that pretty recently seemed to be on top of the world. The move by the pension for the largest municipal employees union in the U.S., representing 100,000 New Yorkers, to get out of hedge funds is the latest sign that the near $3 trillion hedge-fund industry has peaked, with global assets now slightly lower than they were in 2014, as investor redemptions hit $15 billion after last year’s poor performance. NYCERS was following the lead of another bellwether entity, the $300 billion California Public Employees Retirement System, which exited hedge funds more than a year ago.


But NYCERS pulling its money out of hedge funds is perhaps best read as the biggest victory yet for a burgeoning anti-hedge-fund movement that is fueled by widespread anger at economic inequality and argues for divestment on a wide variety of grounds — most notably right now that prominent hedge funds are squeezing Puerto Rico for debt payments, even as the island spirals deeper into economic depression. At the forefront of that protest effort is a group called Hedge Clippers. About a year ago, the American Federation of Teachers created the organization in response to anti-union efforts and other conservative political actions by various hedge-fund titans. For months the group has been lobbying public pension funds — including NYCERS — to get out of the investment vehicles. Last November, Hedge Clippers published an AFT report showing that 11 big public pension funds that have invested in hedge funds would have done better elsewhere. New York City public advocate Tish James, a NYCERS trustee, gives some credit to Hedge Clippers for the decision to divest. The group’s arguments reached “the minds of a number of individuals who want to be conscious about our public investments,” she says, and likens its efforts to the 1980s campaign to pull money out of apartheid South Africa.


Following on the heels of New York’s move, Hedge Clippers met with Ohio public-pension-fund execs to make its case, and it plans to take its battle to college campuses next, where it hopes to win over liberal-leaning universities, which have invested a huge chunk of their endowments in hedge funds, including those run by the moguls who are their alumni. “We feel confident that more pension funds are going to divest,” says Stephen Lerner, a former organizer with the Service Employees International Union and one of the key architects of Hedge Clippers.

This all comes at a time when many hedge funds have experienced their worst year since the crash of 2008, following a string of disappointing ones. Last spring, New York City Comptroller Scott Stringer (also a NYCERS trustee) released the devastating report that made Garrido so angry: He found that private equity, real-estate, and hedge-fund assets had cost the city’s pension system $2.6 billion in lost value over the prior ten years, in large part due to the hefty fees they charged. Then, in 2015, NYCERS’s hedge-fund portfolio lost 1.88 percent, lagging behind both the S&P 500 and key bond indexes.


The explosive growth of hedge funds — they had one-sixth as much money under management at the turn of the century as they do today — was fueled in no small part by public pensions like NYCERS handing them huge sums of money. Those billions helped transform what previously had been a boutique investment for the Über-rich into an institutional asset class where management fees of 2 percent of the money under management and 20 percent of the investment returns created a slew of hedge-fund billionaires. Even in years their funds lost money or barely broke even, some managers earned hundreds of millions off management fees alone. Castles sprouted up on the Connecticut shore. World-class art collections were assembled. Historic fortunes were made.


Financed largely by the AFT and a few philanthropic foundations, Hedge Clippers has quickly morphed into a coalition of more than a dozen labor, civil-rights, environmental, and progressive community groups expanding to ten states and Puerto Rico with a stated mission of “unmasking the dark money schemes and strategies that the billionaire elite uses to expand their wealth, consolidate power and obscure accountability for their misdeeds.” The group’s top dozen organizers work out of the offices of their respective organizations, primarily in Washington, D.C. and New York, mobilizing through a Google listserv. The group protests a variety of issues, some more comprehensible than others: They interrupted investment conferences in New York City, alternately demanding Starboard Value’s Jeff Smith institute a $15-per-hour minimum wage for his fast-food workers at the Olive Garden and blaming Larry Robbins of Glenview Capital for causing cancer by investing in Monsanto. Still, the group knows it’s riding the zeitgeist.


To some extent, the anti-hedge fund movement has its roots in Occupy Wall Street. Lerner, who has been a leading labor political strategist for decades and is now a fellow at Georgetown University, was also involved in that movement. He says the new, laserlike focus on hedge funds grew from seeing billionaires like GOP donors Paul Singer and Dan Loeb battle unions on public education and taxes. When Hedge Clippers shone a light on investments by billionaires Julian Robertson and Steve Cohen in drug company Gilead, which has priced a hepatitis-C-virus drug out of reach for many, that brought AIDS activists and civil-rights groups into the anti-hedge-fund cause.


In New York state, the anti-hedge-fund activists have also hooked up with a group called “Patriotic Millionaires” — which includes some hedge-fund and private-equity managers — in an effort to kill a tax break that allows these managers to pay a lower tax rate on income they earn from managing other people’s money. A bill to abolish the so-called “carried interest” loophole is currently working its way through the New York Senate.


To be sure, hedge funds aren’t going away. The biggest fund, $104 billion Westport, Connecticut–based Bridgewater Associates, which runs an opaque black-box strategy, grew 16 percent last year despite lackluster returns, according to a recent survey by data provider Hedge Fund Intelligence. Funds that are $5 billion or greater in size continue to dominate the industry, and those tend to have fee structures that allow them to survive sizeable redemptions. Moreover, the decade-long boom has made it possible for many hedge-fund billionaires to keep the doors open with just their own wealth if it comes down to that.


But the industry can’t ignore the winds of change. “The pressure on institutional investors to reduce, or abandon, their exposure to hedge funds is growing,” placing the industry at a “tipping point,” says HFI managing editor Nick Evans. Hedge funds will have to deliver results for investors that are not achievable elsewhere to justify their high fees, he says. Between 1990 and 2000, hedge funds had average annualized returns of almost 20 percent, but those days are long gone. “Out of maybe 10,000 hedge funds, only 1 percent are worth their fees on a net basis,” says Michael Hennessy, managing director of Morgan Creek Capital Management, which invests in hedge funds. “There are a lot who are not worthy and should go away.”

To survive, hedge funds will also have to confront the new political reality that has taken hold, as their politics and their investments become more closely scrutinized, thanks in no small part to Hedge Clippers. Nowhere is this clearer than in the case of NYCERS, whose divestment was partly motivated by its hedge funds’ role in the Puerto Rican debt disaster that is still unfolding. Last year, the pension fund learned that at least three of the hedge funds in its portfolio (D.E. Shaw, Brigade Capital Management, and Fir Tree Partners) were among the many that own about 30 percent of Puerto Rico’s outstanding debt. Hedge funds bought into a $3.5 billion junk bond offering in 2014 and swooped in to buy more as prices sank last year.


When Puerto Rico said it might default on its $72 billion debt last summer, Hedge Clippers hammered on the hedge fund connection and staged a protest in front of the office of one of the biggest hedge-fund owners of the debt, BlueMountain Capital. The crisis hit home for the NYCERS retirees as hedge funds pushed Puerto Rico to cut public services and lay off government workers to avoid default. Thousands of those workers are members of AFSCME (American Federation of State, County and Municipal Employees) — the same union that represents NYCERS retirees.


Puerto Rico, now facing a 45 percent unemployment rate, has since devolved into a humanitarian crisis, with power outages and shuttered hospitals as the Island Commonwealth has been unable to push bankruptcy legislation or debt relief through the U.S. Congress. Instead, the bondholders have launched a massive lobbying and advertising campaign accusing Puerto Rico of profligacy and demanding it pay up. The developments nudged NYCERS toward pulling its money. “A significant number of NYCERS retirees are Puerto Rican, and if they were to know we were investing in hedge funds that had a [negative] financial impact on Puerto Rico, they would support the divesting from those hedge funds,” says Tish James.
Last November NYCERS appealed to the hedge funds to help solve the Puerto Rican crisis. When that failed, trustee Garrido — who had previously complained that hedge funds’ high fees combined with lousy returns were a “rigged system” — went on the attack at a December 3 press conference on Capitol Hill. As Latino political activists pressed Congress for help, he criticized hedge funds for profiting from the economic crisis while demanding austerity policies that hurt the island’s working class. Four months later, NYCERS voted to dump its hedge-fund investments.



The authorizer of the Hmong College Prep Academy in St. Paul, Minnesota, wants to fire the superintendent of the school after learning of big losses in the school’s funds.

A St. Paul charter school’s authorizer has placed the school on probation and recommended the board fire its superintendent after she lost $4.3 million of the school’s money investing in a hedge fund.

The authorizer, Bethel University, said Hmong College Prep Academy’s failed investment “illustrates areas of great concern related to managing finance, governance and legal compliance.”

Christianna Hang, superintendent and chief financial officer, founded the school in 2004. It’s now the state’s largest single-site charter school, with around 2,400 students in the Como neighborhood, and is building a $43 million middle school with financing facilitated by the city of St. Paul.

Hang was looking for opportunities to pay for that project when she ended up wiring $5 million to a hedge fund in 2019, in violation of the school’s policy and state law. The school is now suing the hedge fund.

Bethel’s Aug. 30 letter also cited “significant concerns” about conflicts of interest regarding the superintendent, her husband and a former school board member.

The first conflict involved Bridge Partner Group, a company owned by Hang and her husband, Paul Yang. The board in January approved a contract with the company, effectively converting Yang from the school’s chief operating officer to an independent contractor on a fully guaranteed, five-year contract worth around $190,000 a year; the board later reversed that move.

The second conflict involves Northeast Bank, which was chosen to finance $7 million of the middle school project while one of its vice presidents, Jason Helgemoe, served as vice chair on the Hmong College Prep board.

Bethel has directed the board to spend 90 days making numerous changes at the school, including dividing superintendent and chief financial officer into two separate positions and hiring a financial consultant who reports directly to the authorizer.

In addition, Bethel is “recommending” the board fire Hang and replace her with someone with no prior ties to Hmong College Prep and for the board to appoint a chairperson who is not employed by the school; the current chair is a teacher.

If you are wondering why there is a Hmong charter school, Minnesota has a long-established practice of authorizing racially and ethnically segregated schools. Defenders of the practice say the children are more comfortable going to school with children of the same background.

I remember when Southerners said the same about segregated schools in the 1950s.

When was the last time your school had millions to invest in the market?


In Rhode Island, Governor Gina Raimondo is Charter-mad. This makes sense since she used to be a hedge fund manager and most HFMs are Charter zealots.

What was not so well known is that Jonathan Sackler has contributed large sums to support more charters in RI and to help Raimondo’s political career.

Sackler’s billions are derived from the marketing and sale of opioids, which have killed more than 200,000 people.

The Massachusetts Attorney General is suing the Sackler Family, not just Purdue Pharmaceuticals.

Raimondo won’t return the bloody Sackler money.

“A GoLocal review of federal tax documents has found that Jonathan Sackler — who is now being personally sued by the Commonwealth of Massachusetts and Suffolk County New York for his role in the illegal marketing of opioids which is tied to the deaths of tens of thousands overdoses — has funneled millions of dollars to charter school company Achievement First. The company runs three schools in Rhode Island.

“As GoLocal has previously reported, Jonathan Sackler and his wife Mary Corson are significant donors to Governor Gina Raimondo and the Governor has repeatedly refused to donate or return the donations.

“Sackler has served as a board member for years for Achievement First, but disappeared from the list of Board member in mid-2018 — about the time that hundreds of lawsuits were filed by states and municipalities against Sackler’s company Purdue Pharma. Purdue Pharma is controlled by the Sacklers and Jonathan has served on the Purdue board for years. The State of Rhode Island and a number of municipalities have filed suit against Sackler’s company Purdue — and other firms.”

Is it “for the kids”?