Litigation

Oh How the Mighty Have Fallen

By Angel L. Reyes, III

A recent Wall Street Journal article noted that Cerberus Capital Management, LP is literally facing a run on its funds. Clients withdrew more than $5.5B or 71% of the hedge fund's assets.

Stephen Feinberg named his fund Cerberus because it was the name of a mythical three-headed dog that guarded the gates of Hades. Touche. It looks like he'll be eaten by Cerberus in the end.

Feinberg was an almost mythical figure, hence the name he chose for his fund. Indeed, his lifestyle was like Howard Hughes. Feinberg didn't lack the stones for making big bets with his clients' money.

Chrysler, GMAC, big big busts. Cerberus is next. According to the Wall Street Journal,

It was Mr. Feinberg's two boldest bets made at the height of the credit boom -- his acquisitions of Chrysler and GMAC -- that turned him and his firm into the center of attention on Wall Street. He and other investors contributed $14 billion to do the deals, and demand was so great that Cerberus charged his co-investors rich fees to invest alongside it.

The two investments were effectively wiped out when Chrysler declared bankruptcy and GMAC was bailed out with billions of dollars in government aid. As part of that deal, Cerberus was forced to give up control of the company.

Meanwhile, the main hedge fund run by the firm, called Cerberus Partners, lost 24.5% in 2008. It is up about 3% in 2009. Since December, Cerberus has faced a wave of withdrawal requests by investors spooked by the markets and Cerberus's own losses. Cerberus refused to return cash, saying that weak market conditions would mean low prices if it sold holdings.

This is really the time for house cleaning whether you're an institutional money manager or a small investor working with someone from AG Edwards.

Have a look at Cambria Investment Management, Inc. and Dranger Capital Management, LLC. Both are getting some terrific press and since this is a good time to do some housecleaning, you may as well have a look at these two companies.

Full post as published by Angel Reyes Blog on August 30, 2009 (boomark / email).