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Billionaire Dan Loeb, founder and chief executive officer of Third Point LLC, will be holding a fundraiser for Gov. Cuomo at his East Hampton mansion.
While Puerto Rico’s 3.5 million residents continue to face a frightening government default on its debt, a group of New York hedge fund executives will be partying this weekend at a $5,000-a-head East Hampton fundraiser for Gov. Cuomo.
Many of those same hedge fund moguls happen to be playing an unprecedented role in Puerto Rico’s troubles, concludes a new report by Hedge Clippers, a liberal research group – a role so big that several community organizations in the city are planning to picket the soiree.
Hedge funds have “bought up huge chucks of Puerto Rican debt at discount prices, pushed the island to borrow more, and are driving toward devastating austerity measures,” the report claims.
Up to half of Puerto Rico’s $73 billion in bonds is held by hedge funds, Fortune magazine has estimated.
Some of the biggest Puerto Rico players are Andrew Feldstein of BlueMountain Capital, Mark Gallogly of Centerbridge Partners, Paul Tudor Jones, a key investor in Stone Line Capital, and John Paulson, the principal investor in the island’s biggest bank and in luxury hotels there. All are also big contributors to Cuomo and backers of New York’s growing charter school enterprises, the report notes.
Andrew Feldstein’s BlueMountain holds $400 million in Puerto Rico electric authority bonds. Bloomberg/Bloomberg via Getty Images
Paul Tudor Jones is a key investor in Stone Line Capital. Lucien Capehart/Getty Images
Feldstein’s BlueMountain, for example, holds $400 million in Puerto Rico electric authority bonds, and it successfully sued in federal court last year to overturn a Puerto Rican law that would have allowed the company to file for bankruptcy.
Meanwhile, ordinary residents of the island are paying a steep price. On July 1, the island’s sales tax jumped from 7% to a whopping 11.5%, to help pay for a set of bonds backed by sales tax revenue.
Even worse, a recent report by former International Monetary Fund economists has proposed lowering the island’s minimum wage, reducing benefits for government workers and slashing social spending further.
This for a territory that is already broke, that suffers from depression-level unemployment, and where the population is declining as residents flee to the continental U.S.
An updated report Puerto Rico released last week claims “fiscal deficits are much larger than assumed and are set to deteriorate” to as much as $3 billion to $8 billion per year.
Douglas Hesney, a spokesman for BlueMountain, declined to comment on his firm’s investments or how it believes Puerto Rico can get out of this hole.
Russell Grote, a spokesman for the Ad Hoc Group, a coalition of creditors group that includes Centerbridge and Stone Line, and which holds $4.5 billion in Puerto Rico bonds, also declined comment.
In other countries, these New York hedge funds are derided as “vulture funds.”
“They have been taking advantage of distressed economies in other parts of the world, in Argentina, in Greece, and now they are pushing the people in Puerto Rico to the brink,” said Javier Valdes co-director of Make the Road NY.
Puerto Rico Crisis Threatens Bond Insurers
Valdes’ group is one of the organizations that plan to picket Saturday outside the East Hampton mansion of billionaire Dan Loeb, host of the fund-raiser for Cuomo.
Loeb’s firm, Third Point LLC, was a major player in Puerto Rico bonds as recently as last year, but divested itself after acknowledging to investors major losses on those holdings.
“We generally don’t comment on our investments,” a Third Point spokeswoman told The News.