Philosophy of a vulture fund: hedge fund swoops to pick at carcases of Irish banks

MANHATTAN-BASED lawyer Mark Brodsky named his hedge fund after the Roman emperor Marcus Aurelius, a Stoic philosopher.

He set up the fund in 2005 but Brodsky fine-tuned his skills as a distressed debt investor over nine years at Elliot Associates, a hedge fund known for taking on sovereign states that defaulted on debt, particularly Peru and Argentina.

The strategy he learnt at Elliot was straightforward – buy debt on the cheap and then run a legal campaign to recover a higher value. This is the art of the vulture fund which sees value in high-risk investments in the debts of financially stricken firms and countries.

A recent win for Aurelius was its purchase of just $5 million out of $25 billion in debt at Dubai World, the state-owned investment fund, for 50 cents in the dollar.

The company refused to accept a restructuring deal, eventually leading the emirate’s adviser Deutsche Bank to buy out Aurelius for close to 100 cents in the dollar rather than fight a legal action.

Brodsky has also challenged a debt restructuring at Tribune Company, publisher of the Chicago Tribune, to secure better deals.

Aurelius first swooped to pick at the carcass of the Irish banks last November when it bought Anglo Irish Bank subordinated debt at 20 cents in the euro at the same time and at the same level that the bank was trying to buy the debt back.

It followed a similar strategy at AIB, investing in junior bonds in January during a debt buyback.

Unlike most of Aurelius’s debt battles, at AIB the fund is taking on a sovereign government with an action against an order forcing subordinated bondholders to share in the losses of the bank.

“Aurelius always prefers to resolve disputes consensually and usually accomplishes that objective,” Mr Brodsky told The Irish Times, “but we are prepared to enforce our rights if they are not fairly taken into account at the bargaining table.

“ In the present case, we attempted to reach a settlement with the Finance Minister before resorting to litigation, and the Finance Minister completely dismissed our overture.”

Stoic philosophy says that men should submit without complaint to unavoidable necessity.

Marcus Aurelius the emperor might have succumbed to the inevitable will of a state fixing its ruined finances.

Aurelius the hedge fund will not.