naked capitalism

The New York Times has a peculiar story on hedge fund manager John Devaney who managed to lose all his investors’ money. Not 80% or 90%. All.

And it wasn’t as if the fund somehow blew up spectacularly over a short period. Devaney froze redemptions a year ago. That begs the question: had he started liquidating then, would his investors have gotten a better recovery? I suspect the answer is yes, but either way, the Times should have probed that question.

Yet the Times engages in one-sided reporting totally lacking in skepticism or irony:

One by one, John Devaney sold his treasures, hoping to forestall what was in the end inevitable. He sold his Renoir and his Gulfstream, his home and his helicopter. Even his cherished yacht — gone.

But on Wednesday Mr. Devaney, who made and then lost a fortune trading mortgage investments, finally called it quits. He shut his hedge fund, and told his investors that all their money was gone too.

“I’m devastated, I’m totally devastated,” Mr. Devaney said by telephone from Aspen, Colo. “I feel horrible that I’ve lost my own money and that so many people who saw the skills I have and trusted in us have now been hurt.”…

In an interview Wednesday, Mr. Devaney called himself a fighter and described his efforts to avoid the collapse of his fund during the last year. He said he had personally lost more than $150 million. And he described his plans to rebuild his business and reputation.

“I’ve taken as much pain as virtually anybody in this industry,” Mr. Devaney said. “I am bleeding, personally.”

He said he was determined to recover money for his investors last July, when he froze his funds, blocking investors from removing their money. But in September, a bank demanded he repay a large loan. That bank, which he would not name, seized 40 percent of the equity in his hedge funds. His accountants and lawyers told him to shut down his funds. But he did not, he said, because he wanted to try to save his investors’ money.

“Other guys who are only looking at dollars and cents would have shut the fund down,” he said. “I have battled it out to try to save all my investors.”

In September, Mr. Devaney said he stopped receiving management fees on the funds, paying expenses out of his own pocket. He was also staggering beneath a $50 million trading loss in his main broker-dealer business, United Capital Markets Holding, which is still in business.

The only money Mr. Devaney made last year came from his personal liquidations — some at a profit, like his Renoir, which he bought for $9 million and sold for $13.5 million…

For all his troubles, Mr. Devaney was unbowed Wednesday.

“Do I pack up everything and quit?” he said. “Do I retire? No!”

This appears to have been an exercise of ego over common sense. His advisors told him to shutter the funds, yet Devaney threw good money after bad trying to trade his way out of a very big hole.

And we are supposed to feel sorry for him because he had to sell his paintings, his airplane, and yacht? Please. Where did the money to buy them come from?

Probably the worst aspect of this article is the headline. For most people, “rock bottom” would be being homeless, or living in a car or tent, which is happening here in increasing numbers. But we are still apparently measuring Masters of the Universe by different standards.