"Hedge Fund Manager Describes Rock Bottom"

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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.

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  1. Anonymous

    Is there a phone number or something that we can call so we can make a donation to him?

  2. Dave

    I have a limited partner in my private equity fund that unfortunately had over 60% of his net worth tied up in Devaney’s funds. He told me late last year that Devaney was telling his investors in the various funds that given time he could return between 20% and 60% of their capital (depending on the specific fund) if he “just had a little more time” and could effect “an orderly liquidation” of the positions. I told my LP at the time: “This guy is a fraud, a liar and he’s going to lose 100% of your money by the time this is all finished.” Obviously he should have just taken the hits immediately and sold his positions at deep discounts, because any positive number is greater than zero. What a clown. Although I have little sympathy for my LP who was seduced by the siren call of 40% annual returns in “safe mortgage investments.” Puhlease. “A fool and his money are soon partners.” Very sad.

  3. Anonymous

    I wonder how many hedge funds lost money because of the bailout of Bear Stearns by the Fed.

  4. Jojo

    He was probably watching CNBC too much and fell for their continuous parade of guests and on-air talking heads, constantly calling a market bottom. This guy deserves to be barred by the SEC from ever handling investor monies again.

  5. Francois

    A hedge fund manager trying to fight the market trend; best way to get creamed aplenty.

  6. Richard Kline

    So Dave at 12:45, thanks for the context; that’s just what this situation smelled like. ” . . . [T}he siren call of 40% annual returns . . . ” THAT salient fact tells me everything I need to know about Devaney, but somehow this didn’t make it into the NYT’s ‘Tragadey for the Fallen Heroic Investor’ piece.

    40% annual from mortgages paying a fraction of that??? *HAHAHAHAHAHAHA* “It’s all in how you slice it boys: cut real fine and they won’t even realize their carotid’s gone for, oh, two and a half years.”

  7. Anonymous

    This is exactly why I do not watch TV and do not read newspapers. Much better to get your news via “trickle up” blog postings that wrap the main stream fluff in a healthy dose of reality. (I’m also bullish on libraries.)

  8. Ginger Yellow

    At the ASF conference in February, Devaney said on during a panel that anyone who wanted to buy his fund’s securities should just head over to the UCM booth and upt in a bid. The guy seemed pretty desperate even then.

  9. Ginger Yellow

    Addendum: here’s what I wrote at the time. “John Devaney, CEO of specialist broker-dealer United Capital Markets, was unrelentingly bearish, saying total losses from the credti crisis could reach $1tr and there was a 20% chance of a major international investment bank going bust. He also underscored the scale of market value declines by revealing that had bought mortgage paper for as little as 10 cents on the dollar.”

    Turns out he wasn’t bearish enough.

  10. Scott Finch

    The best bit included in the article was, hands down, “the skills I have”. what about luck?

    im bullish on libraries too.

  11. Anonymous

    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.”…
    This tells you everything you need to know.

  12. Anonymous

    “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.”…

    Excuse me? What skills would they be? Bilking investors? Egomania? Pigheaded stubborness?

  13. Anonymous

    One of the best blog comments that I ever read was about the sale DeVaney’s yacht, which he had humbly named “Positive Carry”.

    The blog poster said that the new owner would rename it “Margin Call”


  14. Anonymous

    The trilogy comes full circle.

    Part I:
    “As Subprime Market Implodes, a Contrarian Prospers”
    Which includes the classic “I don’t think there is anyone in the business who wouldn’t want to be John Devaney,” said Mark H. Adelson, a senior analyst with Nomura Securities in New York

    Part II:
    “Creators of Credit Crisis Revel in Las Vegas”
    Where we learn: in Las Vegas fashion, he said he was doubling down.

    We know how Part III ended.

    I look forward to not buying the book.

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