Hedge Funds Bite Back At Obama Over Chrysler Reshuffle

by Phillip Morton, Investors Offshore.com

08 May 2009

US President Barack Obama has come under criticism this week for the government’s reorganisation plan of the embattled car manufacturer Chrysler. Hedge funds with major investments in the company have rejected Obama’s package stating that it benefits small shareholders, particularly Chryslers' employees, more than larger ‘more reliable’ creditors.

In a letter addressed to Obama and widely circulated throughout Wall Street, AQR Capital Founder Clifford Asness, whose company does not have shares in Chrysler, spoke out on behalf of the hedge fund industry. His letter answers Obama’s claims that funds holding out for a better deal for their investors have acted unpatriotically.

Under Obama’s reorganisation plan all large creditors would receive thirty cents in the dollar. Hedge funds have argued that this is unacceptable, arguing that Obama’s treatment of Chryslers’ largest creditors (which include US banks JP Morgan, Citigroup, Goldman Sachs and Morgan Stanley) is unjust stating that the share is substantially lower than it reasonably should be. The hedge funds have suggested that Obama proposed the disproportionate bill knowing full well the banks would be powerless to object following the US treasury’s multi-billion Troubled Asset Relief Progam (TARP).

The dissident funds who have dubbed themselves non-TARP creditors have requested that they should instead receive USD0.60 per dollar invested; double that currently offered.

Obama has responded by denouncing the hedge funds’ request stating that he ‘does not stand with them’, arguing that ‘everyone else is making sacrifices’.

In his letter to Obama, Asness audaciously corrects the President, stating that his comments were ‘backwards’ and ‘libelous’. He stated:

"Managers have a fiduciary obligation to look after their clients' money as best they can, not to support the President, nor to oppose him, nor otherwise advance their political views."

“It is the job and obligation of all investment managers, including hedge fund managers, to get their clients the most return they can. They are allowed to be charitable - but if they give away their clients' money to share in the ‘sacrifice’, they are stealing."

Asness underlined that the treatment of the twenty-or-so hedge funds was unjust as they had been paired with other large creditors – the nation’s banks. Asness noted that the hedge funds had not received nor asked for the same bailout and should therefore be treated on a different basis within the deal.

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