Friday, April 22, 2016

Clever People and the SunEdison Bankruptcy

SunEdison was a corporation that specialized in building clean energy plants around the world and then selling them off as free-standing companies. It just filed for bankruptcy after failing to make payments on debt it took on to buy a series of solar firms.

Which seems almost routine in the modern world of business. The amusing thing is that the owners of now worthless SunEdison stock include several of the biggest and most respected hedge funds. At one point it was two-thirds owned by hedge funds. Hedge fund stock pickers were drawn to the company partly because it liked to structure its business deals in such an opaque way that it was very hard to figure out what was going on. Matt Levine:
SunEdison was beloved of hedge fund managers, who revelled in the idea they had spotted a lucrative opportunity hidden in the weeds of its financial filings. David Einhorn, the founder of Greenlight Capital, who has invested $243m in the company, hailed its prospects at the Robin Hood investment conference in 2014. He told the audience in New York that SunEdison’s “complicated” financial statements “make it challenging to decipher the economic value of the company from a cursory review of the balance sheet or income statement”, but that leads the market to “undervalue” the shares.
I just love this image of hedge fund gurus who think they are so clever being fooled by a business model that more sober analysts called a "magic money machine." Such are the wages of vanity.


G. Verloren said...

The image is decidedly less amusing when you realize these hedge fund managers are investing hundreds of millions of dollars of other people's money, for which they are ultimately not responsible or able to be held accountable.

At the end of the day, whether they make a good investment or a bad one, they still get paid and they still walk away clean, no matter the damage to their clients. Even if they burn too many bridges and destroy their hedge fund's reputation, they just start over by forming a new company and getting new clients elsewhere. Repeat the process ad infitinum, profiting every step of the way by offering sham services that you can't get in trouble for. It's the perfect long term scam.

John said...

But at least they're mainly losing rich people's money.

G. Verloren said...

Is it really worth finding a needle of comfort in a haystack of misery if it turns out the needle doesn't actually offer comfort, but at best a small measure of schadenfreude?