Paul Singer, founder of $17 billion hedge fund Elliott Management, is the newest investor GuruFocus has chosen to track. Singer has a background in law that set the stage for his formidable distressed debt tactics he has used to profit from bankrupt companies and sue sovereign nations. From 1977, the year he founded his firm (making it one of the oldest hedge funds), to November 2010, he had an annualized net return of 14.4%. As one of the few to foresee and warn of the pending housing crisis in 2008, his fund was only down 3.08% in 2008, compared to the S&P 500 which was down 37% the same year.
Singer graduated from the University of Rutgers with a B.S. in psychology and then obtained a J.D. from Harvard Law School. He practiced law for four years after graduation at corporate law firms and Donaldson, Lufkin & Jenrette, an investment bank.
As an example of Singer’s distressed debt investing is his profitable stake in Delphi, the bankrupt auto parts supplier. According to the New York Post, Elliott Management and partner Silver Point Capital held an 18% stake in Delphi when it emerged from bankruptcy in October 2009. At the time that Delphi exited bankruptcy, the stake was worth $640 million. By October 2010 it had more than doubled to $1.54 billion.
When Elliott entered the Delphi deal, the company’s bankruptcy had been stalled in court for four years, and GM, the Treasury and an auto task force wanted to privatize the company and sell it to a private-equity firm that would not have been profitable for lenders. Elliott Management and its partner instead bought $2.9 billion worth of Delphi loans for about 15 cents on the dollar and used the position to block the sale.
Singer ‘s team managed a deal with the government and lenders and told them, “You can either take it or try to fight it in court,” the New York Post reported.
Singer had also bought debt of Chrysler and Lehman Brothers, and has taken activist equity stakes in Novell and Iron Mountain (NYSE:IRM).
He sued his first nation in 1996, when his firm bought defaulted debt of Peru. After a lengthy legal battle and the overturning of a law that stood in his way, Elliott received a $58 million judgment on his $11 million investment, according to Fortune. He has also sued Congo-Brazzaville, Argentina, and several other countries using the controversial tactic that some say disenfranchises the people of the countries with indebted governments.
Elliott has strong opinions about the governments of the U.S., Japan and Europe as well. He often pens impassioned but heavily guarded quarterly letters expressing his thoughts on the economy and his extremely republican viewpoints. He is also a major donor to conservative political candidates. Staunchly opposed to Fed’s handling of the financial crisis and stimulus plan, he said in one of his letters obtained by DealBook in August 2010:
“Instead of addressing the unsound financial system by deleveraging the banks, making them understandable and transparent, and modernizing the regulatory scheme, the bulk of the actions taken by the new government, starting in early 2009, consisted of an ideological wish-list and cronyism. Very little was oriented toward supporting the private sector, except for the surviving banks, which were nursed back to ‘health’ (that is, mostly as highly-leveraged trading shops) with lavish dollops of close-to-free money and blanket guarantees.”
Some of Elliott Management’s top equity positions in the first quarter 2012 are Brocade Communications Systems (NASDAQ:BRCD), Delphi Automotive (DFG), Iron Mountain (NYSE:IRM) and News Corp. (NASDAQ:NWS).
Paul Singer’s portfolio will be added to GuruFocus soon.