Mitt Romney Hedge Funds
Mitt Romney's Often Overlooked Hedge Fund PastDan Primack of Forbes ran an interesting story today on Mitt Romney and Bain Capital's history in the hedge fund industry. Romney is, of course, more well-known for his work in private equity as a co-founder of one of the largest private equity firms, Bain Capital, and his name usually only comes up in the same sentence as hedge funds as donors to his presidential campaign. Primack's story highlights some interesting investments made by Bain Capital and the seeding of an independent hedge fund and how that fund worked with Bain.
Mitt Romney likes to talk about his time as a venture capitalist with Bain Capital, helping to launch corporate giants like Staples and The Sports Authority. His critics like to focus on Romney's years as a leveraged buyout investor, highlighting (a handful of) deals in which Bain made money while its portfolio companies went broke. Job creator versus corporate raider.
Both narratives are largely legitimate, since Bain Capital diversified its investment activities during Romney's time at the helm.
But there also is another part of Romney's investment activities that neither his supporters nor his detractors seem to talk about: Mitt Romney, hedge fund manager.
Virtually all of Bain's early investment activities were centered on long-term bets in the private markets, but there were exceptions.
In 1995, for example, the firm used its fourth private equity fund to purchase shares in a listed Florida record label called Alliance Entertainment. It didn't go too well. Not only did Alliance file for bankruptcy two years later, but the company would accuse Bain of executing "short-swing" trades that generated over $2.9 million in profits that Alliance felt should be returned to the company (under rules stating that 10% shareholders must disgorge to the issuer any profits on trades made within a six-month period of one another). The two sides eventually settled for $750,000, without Bain having to admit any liability. Source