The Caged Bird Sings

Vultures

Few designations are as intriguing as “the world’s most feared investor”.

Bloomberg crowned Paul Singer with that very title about 7 years ago and the rest of the world co-signed.

Other monikers include the doomsday investor, the activist, and the vulture capitalist.

Singer is the founder, co-CEO, and co-CIO of Elliott Management, a $65B+ hedge fund focused on activist / distressed investments.

His accolades make him seem like a Batman villain:

• Bought Peruvian debt that had defaulted for $11M. Peru’s President tried to flee the country on corruption allegations, but Singer confiscated the jet and proposed that he could leave the country if he was paid $58M, the amount Elliott was awarded in bankruptcy courts. He paid and then left.

• Became the owner of AC Milan in 2018 when the previous owner, Li Yonghong, defaulted on a $37M loan payment to Singer. Under Singer’s ownership, AC Milan won their first Serie A title in over a decade, after which he sold the team for $1.2B to RedBird Capital Partners in 2022

• Forced Jonathan Bush, President George W. Bush’s cousin, out of his CEO role at AthenaHealth, in a very messy and public battle.

Regardless of the media’s disdain for Singer, there is plenty to learn from his ultra-successful approach to investing…

Getting Active

Activist investors are individuals or investors that seek to acquire a controlling interest in a target company and gain seats on the board of directors to affect change in the company.

Well known activists include:

• Bill Ackman. CEO of Pershing Square Management. Known for his bold use of media to create value for his concentrated bets; held a $1B short against Herbalife, calling it a pyramid scheme.

• Carl Icahn. Founder of Icahn Enterprises. Known as one of the greatest hedge fund managers of all time and the OG activist. Constantly beefing with Ackman.

• Daniel Loeb. Founder of Third Point. Known for his love of distressed companies. Was classmates with Obama at Columbia and later supported his campaign, before withdrawing support later down the line.

Singer’s journey to becoming a renowned activist investor is a rather quiet, uneventful one.

When he graduated from Harvard Law School in 1969, he was interested in investing and began educating himself. He also put his family’s money to work, losing a good chunk of change in the process.

And then he learned about convertible arbitrage.

The idea was to buy convertible bonds - debt securities that can be converted into equity - while shorting the company’s equity simultaneously. He started making consistent income from these trades. Singer gradually transitioned from his corporate law job to managing money for his family and a few clients in a full-time manner.

The crash of 1987 woke him from slumber.

Although his portfolio took a relatively benign hit, Singer saw the damage other investors suffered and decided to turn his back on the convertible arbitrage playbook.

He wanted to invest in areas where he could drive value, and that’s when Elliott Management fell in love activist investing, particularly distressed debt situations.

• Distressed debt investing involves buying discounted debt from existing lenders in a company nearing or undergoing bankruptcy, with the expectation that the company will emerge from bankruptcy successfully.

• Singer approaches distressed debt from an activist perspective, looking to gain control of the company or obtain sizable payouts through litigation.

Indebted

More recently, Elliott was targeting a $7B vehicle dedicated to distressed assets (late 2023).

Distressed debt as an asset saw its best fundraising year in 2017, however, the largest fund closes came in the last few years.

• Oaktree Opportunities Fund XI: $16B raised. 2021

• Lone Star Fund XI: $8.2B raised. 2019

• Ares Special Opportunities Fund II: $7.1B raised. 2022

Assuming Singer and Co. manage to close on their target, the vehicle would be a top 5 distressed debt vehicle ever raised by size.

Scary hours for sinking ships in the corporate sea…

Dealflow

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Headlines

• Elliott Management buys a sizable stake in Sumitomo, the Japanese trading house backed by Warren Buffett. Japan Times article here

• Viking, a luxury cruise line, delivers biggest IPO of the year so far. Quartz article here

• Exxon deal approval could signal how the FTC handles other oil mergers. Axios article here

• NBC is ready to spend billions to take media rights from TNT. FOS article here

• April jobs report shows a looser labor market. Reuters article here