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CNN Money is reporting Fund
manager's fun sailing away.
Hedge fund manager [John Devaney] whose fund ran into trouble from the sell-off
in securities backed by subprime mortgages is having to put his huge yacht
up for sale, seeking $23.5 million.
John Devaney, the CEO of United Capital Markets, a fund that specializes
in buying and selling bonds that are backed by the mortgage payments, particularly
adjustable rate subprime mortgages, has put his 142-foot yacht "Positive
Carry" up for sale, according to a yacht broker's Web site.
Devaney's fund has run into trouble lately. A spokesman for the firm told
Reuters on July 3 that it had stopped honoring request from some of its investors
for redemptions, or withdrawal, of investments.
Devaney told Money magazine this spring that despite problems that the
loans cause for borrowers, the assets backed by them provided a good return
for his fund.
"The consumer has to be an idiot to take on those loans," he said. "But
it has been one of our best-performing investments."
But with rising delinquency and default rates in the sector, investors
have been scared away from the assets lately, hitting those like Devaney
who made a big bet on the investment.
According to the yacht broker's listing, the yacht has accommodations for
10 passengers in its five staterooms, along with space for a crew of seven.
Its amenities include his and her baths in the master suite, and four guest
bathrooms with Jacuzzi tubs and showers and cherry wood interior throughout.
It has two 2,250-horsepower engines and a range of 3,500 nautical miles.
The New York Post reported Monday that Devaney is also seeking to sell
a home in Aspen for $16.5 million.
Pure Arrogance
On 2007-05-02 Devaney spoke with CNN Money about How
to get rich trading "idiot" loans.
The housing boom was good to John Devaney. Really good. He owns a Rolls-Royce,
a Gulfstream Jet, a 12,000-square-foot mansion in Key Biscayne and a 143-foot
yacht, as well as a few Renoirs and a valuable 1823 reproduction of the Declaration
of Independence.
Devaney's not a developer, and he's certainly not a flipper. The 36-year-old
CEO of United Capital Markets is a bond trader. And one of his specialties
is buying and selling bonds that are backed by the mortgage payments of ordinary
homeowners.
Option ARMs? Devaney loves 'em. "The consumer has to be an idiot to take
on those loans," he says. "But it has been one of our best-performing investments."
"Some of the investors who bought CDOs certainly took on more risk than
they thought," says John Weicher, a former assistant secretary of housing
now at the Hudson Institute. But Devaney, who told a crowd of investors that
the riskiest mortgage bonds looked "awful" before the crash, says he thinks
he'll be buying. "I don't believe the carnage and fallout will be as bad
as people think," he says.
Whether or not big investors come out okay, the damage is done for many
homeowners. "The system allowed banks to create unsustainable loans that
are going to haunt borrowers for years to come," says Allen Fishbein, director
of credit and housing policy at the Consumer Federation of America. "Unlike
the bank, the borrower has no way to lay off the risk."
Indeed "the damage is done". In more ways than one. Not only was he willing
to bet on "idiots" willing to buy houses at ever absurd prices he was willing
to roll the dice with OPM (other people's money) with that idea on his hedge
fund. Why not? Hedge funds collects 20% of the profits and suffer 0% of the
losses when they blow up.
Devaney, like Bear Stearns (whose High-Grade Structured Credit Strategies
Enhanced Leverage Fund went to zero) has locked in investors and has stopped
redemptions.
Devaney did NOT say this, but he may as well have: "You have to be an idiot
to knowingly invest in a hedge fund that admittedly makes money by betting
on the behavior of other idiots (with leverage), knowing full well that one
or the other or both idiots is bound to blow up".
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