NEW YORK — President Barack Obama’s scolding of hedge funds sparked an immediate backlash from fund managers who resent what they see as an increasingly heavy-handed approach from Washington.
Obama, during remarks about Chrysler’s bankruptcy, said a group of investment firms and hedge funds held out for “an unjustified taxpayer-funded bailout,” hoping they could avoid the sacrifices that other stakeholders had made.
“I don’t stand with those who held out when everybody else is making sacrifices,” he said.
The comments, which came after an unnamed administration official went so far as to say the holdouts weren’t acting in the national interest, overshadowed some of the details of the historic Chapter 11 filing and news of Chrysler’s alliance with Fiat.
The fact that Obama expressed his displeasure more than once during his remarks seemed to indicate he was picking a fight with hedge funds, and it didn’t play well with many on Wall Street.
“So what?” asked Phil Goldstein, who runs Bulldog Investors, referring to the decision by some funds to hold out. “Aren’t you entitled to reject a deal?”
Goldstein has railed against hedge-fund regulation in the past.
Henry Bregstein, who is co-managing partner at law firm Katten Muchin Rosenman and represents hedge funds, said it’s possible that accepting the government’s offer could have theoretically exposed the funds that Obama criticized to lawsuits from investors.
“The managers of those investment firms and hedge funds have fiduciary responsibilities to their investors,” Bregstein said.
A person at a hedge-fund firm that owns Chrysler loans, speaking anonymously, told Dow Jones Newswires that the difference between what loan holders would get in bankruptcy and out of bankruptcy wasn’t that much, meaning the non-TARP lenders are making a political statement more than anything.
