Hedge fund creditors are currently battling over the Lehman estate and some investors suspect that others are getting preferential treatment because they have a lot of money behind them.
One investor, Kyle Bass, the hedge fund manager of Texas-based Hayman Advisors, expects that recoveries from the Lehman estate will be about $55-60 billion. So there is a lot of money up for grabs in the bankruptcy proceedings.
Another investor, John Paulson, has bought $7 billion in Lehman bonds since 2008, according to Bass.
And because Paulson runs an “elite hedge fund,” he’s getting special treatment.
Bass wrote about the issue in his latest letter to investors.
These elite hedge funds [Baupost and Paulson] appear to have a very cozy relationship with the restructuring advisor in this case [the case of Lehman]. They have no doubt worked together in the past and have expectations to work together in the future. We can only speculate as to why they believe they are entitled to bend and possibly break the long established expectation of seniority that comes with purchasing senior bonds.
The small investor meanwhile is getting freight trained in this process, says Bass. “They have no voice, and the banks that sold them these bonds aren’t looking out for their best interests because they don’t want to have that difficult conversation with the people that they cost a lot of money to.”
“You realise that our country is based on this rule of law and you invest in a company based on the capital structure. What’s happening here is the capital structure is being re-drawn in the bankruptcy by the big funds, with the advisors who I think have too close a relationship,” he said on CNBC today.
Watch the conversation below.