Kyle Bass

Kyle Bass
Born 1969
Miami, Florida
Residence Dallas, Texas, United States
Alma mater Texas Christian University
Occupation Founder & President, Hayman Capital
Hedge fund manager

J. Kyle Bass is the founder and principal of Hayman Capital Management, L.P., a Dallas-based hedge fund. In 2008, Bass successfully predicted and benefited from the subprime mortgage crisis by purchasing credit default swaps on subprime securities issued by various investment banks (similar to shorting the bonds).

Bass has predicted the European sovereign-debt crisis and his expectations regarding the economic future of Japan and Argentina.[1][2]

Despite his early success in predicting subprime mortgages, he has received criticism for some of his investments for their performance.[3]

Early life

Bass was born on September 7, 1969, in Miami, Florida, where his father managed the Fontainebleau Hotel, before moving to Dallas, Texas. He attended Texas Christian University in Fort Worth on a diving and academic scholarship and graduated with a BA of Business Administration in Finance and Real Estate Finance in 1992.[4]

Career

Following a brief stint at Prudential Securities, Bass began working at the Dallas office of Bear Stearns, where he became a Senior Managing Director at 28, before leaving to become a Managing Director in Legg Mason’s Dallas office.

In December 2005, when Legg Mason sold the portion of the business where he worked, Bass left Legg Mason and started Hayman Capital Management, L.P., to serve as the investment manager to a "global special situations" hedge fund that he planned to launch. Shortly after launching the hedge fund in February 2006, Bass became convinced that there was a residential real-estate bubble in the United States one of the few investors to successfully predict and benefit from the subprime mortgage crisis, bringing him notoriety in the financial services industry.

Bass is a member of the Board of Directors of the University of Texas Investment Management Co. (UTIMCO), which manages over $27 billion of assets. He serves on the board of directors of the Troops First Foundation,[5] Business Executives for National Security[6][7] Additionally, Bass is a member of the Advisory Council of the Comeback America Initiative.[8]

Author Michael Lewis, begins his 2011 book Boomerang: Travels in the New Third World with an opening profile of Bass and tells of his time at Bass's ranch outside of Dallas, TX.[9]

Hayman Capital

Subprime mortgages

Bass first began formulating his subprime strategy after he met with an investment banker from New York while attending a wedding in Spain where they discussed how and why the Subprime Mezzanine CDO business existed.[10][11] After returning to the US, Bass hired several private investigators to determine the ease of obtaining a mortgage. Bass spent a significant amount of time studying the residential mortgage market and performed research to identify which residential mortgage backed securities (RMBS) composed of low-quality mortgages were most likely to default. This investment thesis was expressed by purchasing credit default swaps against the securitizations he deemed to be most unstable, which essentially was a manner of shorting the bonds using synthetic instruments. After purchasing the positions for his flagship fund in 2006, Bass raised additional capital for a special fund dedicated exclusively to capitalizing on the opportunity that existed in the market place. Bass managed or advised over $4 billion of positions in subprime RMBS.

In December 2007, after a wave of foreclosures had swept across the US, Bass was featured on Bloomberg TV as making a fortune betting against these subprime securities. In April 2008, D Magazine, the Dallas city magazine, profiled Bass in an article entitled “Cashing in on Subprime.” The tagline read: “The subprime crisis in the housing market has led to a financial crisis and fears of a recession. If only someone could have predicted it. Someone did. His name is Kyle Bass, and he made about half a billion dollars from it.” [12]

National debt

After the subprime debt crisis occurred, Bass decided that it was the symptom of a more significant problem with debt. Examining data on Europe, Japan, and the U.S., he concluded that high levels of government debt led to public defaults. In other words, he believed the financial crisis far from concluded. Over the next three years, he said in 2009, he warned of several potential defaults by major countries.[13] As of 2010, 10-15% of his portfolio was involved in bets against European and Japanese sovereign debts.[14] He predicted that 2012 would be a “doomsday year” for Europe and spoke of a looming breakup of the Eurozone, which, he declared, would lead to defaults in Japan and the United States.

He stated in June 2012, “Europe goes first, then Japan and finally the United States.”[15] In a speech reported on January 1, 2014, he assured the audience of his confidence that the next few years would be rife with turmoil, including the eruption of major wars. In his speech, he claimed that with the growing debt and inability to pay it off, eventually social unrest will lead to violent outbreaks. Bass finished his speech stating “War is coming – just as it has throughout history.” [16]

Greece

On September 14, 2011, Bass maintained on CNBC that Greece's only way out of its debt mess was a restructuring. Bass noted that despite the strife it would bring to Greece it was the only measure the nation could take. He added that within a year all of Europe would be in default as well.[17]

Japan

For several years, Bass has been predicting impending financial crisis for Japan, describing its approach to financing debt as a Ponzi scheme similar to Bernie Madoff's investment scam. Most experts have disagreed with his analysis.[18] Cullen Roche criticized Bass's Japan analysis in August 2010, noting that Bass comparing Japan to the EU was an error, since their monetary systems are wildly different. Roche stated "people still fail to understand that a nation with monetary sovereignty that is the supplier of currency in a floating exchange rate system never has a problem funding itself."[19] In May 2012, Business Insider agreed, faulting Bass's analysis, since debt-to-GDP ratios do not reflect the interest rate or credit risk of a nation. The Business Insider noted that in a nation that borrows its own currency, public spending finances borrowing.[20] In February 2013, Jesper Koll, Japanese equity expert at JP Morgan Securities Japan, weighed in with what Stephen Harner of Forbes called a “highly persuasive rebuttal to Bass” on Japan.[21]

Argentina

The BBC has described Bass as having a “good relationship” with Argentina's president Cristina Fernandez de Kirchner.[22] In February 2014, Bass said that Argentinian bonds represented a profitable opportunity and called Argentina most "interesting" nation for investments. He was virtually alone in this assessment, with one observer noting the poor state of the Argentine economy. The IB Times noted that the country had “cheated creditors seven times since it gained independence from Spain in 1816,” most recently defaulting on its debt in 1989.[23]

When the Argentine government defaulted on its debt in July 2014, Bass supported the move and criticized the bondholders, notably Elliott Management and Aurelius Capital, that, with the support of U.S. federal judge Thomas Griesa, had held out for full payment. Echoing Argentine President Cristina Fernandez de Kirchner, he called these creditors "vultures," said that they were “holding up 42 million people from progress,” and were holding Argentina for "ransom".[24] On August 27, 2014, Bass accused Elliott's Paul Singer of “holding poor countries as hostages,” prompting The New York Post to comment in an editorial the next day that Bass had “sounded more like Argentina’s leftist economy minister Axel Kicillof than a US hedge-fund manager.” [25]

General Motors

In April 2014, Bass, noted the New York Times, was among a very few defenders of General Motors automobile manufacturer for its failure to address a defect that had been tied to 13 deaths. Bass, whose fund at the time owned eight million shares of G.M., making it Hayman's single biggest holding,[26] said on CNBC that of the 13 passengers who had died owing to the defect, 12 “either weren’t wearing their seatbelt or were under the influence of alcohol.” [27] Bass admitted on October 22, 2014, that 2014 had been “a tough year” for Hayman due to his GM position, which remained the fund's biggest position.[28]

Challenging drug patent

Bass founded the Coalition for Affordable Drugs (CFAD) in order to challenge pharmaceutical patents.[29] As of August 24, 2015, he had filed 18 petitions in collaboration with Erich Spangenberg, who has been called “the world's most notorious patent troll.”[3] His challenges drew criticism because he shorted the targeted companies before challenging their patents, thus bringing down their stock prices and making a quick profit.

When he initiated this practice in January 2015, he claimed that his motive was to encourage competition in the manufacture of pharmaceuticals and thus bring down prices.[29] “This is going to lower drug prices for Medicare and for everyone,” he said, promising that the targeted pharmaceutical firms would get “knee capped” by his challenges. Patent expert Scott A. McKeown, calling Bass a “patent troll,” wrote in response: “Mr. Bass may be the only one about to be 'knee capped,' and rightfully so.” [30]

Bass later admitted that his motive was indeed profit, but insisted that he was not alone in this. When his main target in these patent challenges, Celgene Corp., accused him of abusing the patent-review process for his own enrichment, Bass replied through the CFAD that “Celgene is not giving...its profits away....It should be axiomatic that people do not undertake socially valuable activity for free.”[29] Bass himself stated, “At the heart of nearly every patent...the motivation is profit.” [31]

In June 2015, Celgene received permission from the U.S. Patent and Trademark Office to file a motion seeking sanctions against the CFAD for allegedly abusing the patent-review process. The Wall Street Journal noted that this development was “being closely watched because it raises the possibility that patent officials may put an end” to Bass's patent-challenge scheme. Celgene also told the patent office that the CFAD had threatened to challenge its patents unless Celgene paid CFAD an unspecified amount.[32]

On August 24, 2015, the Patent Trial and Appeal Board (PTAB) denied CFAD's first two patent challenges, both filed against Accorda Therapeutics.[33]

Fund performance

Hayman Capital earned 212% in 2007 by shorting subprime mortgages. In the next 8 years, the fund averaged 1.56% annualized. Hayman has gone through its ups and downs, but some of the downs have been significant. Bass' Macro Opportunities Master Fund went down 32% in a single month, April 2012, by which time it had declined 61% in value since its founding in July 2010. Hayman fell more than 6% in the first quarter of 2014, during which the S&P 500 gained 4.4%.[34]

References

  1. ↑ , D Magazine APR 2008 Debt Recession Worldwide Finances Global Debt Bomb
  2. ↑ "Kyle Bass Answers Questions At iCIO Investment Summit". ValueWalk. December 4, 2013.
  3. 1 2 McTague, Jim (13 August 2015). "Kyle Bass’ Comeback Plan: Oil, Argentina and Patents". Barron’s.
  4. ↑ "Kyle Bass – Hayman Capital". OctaFinance. OctaFinance Ltd. 2015.
  5. ↑ "Board Members". Troops First Foundation. Retrieved December 15, 2014.
  6. ↑ "Our Members". Business Executives for National Security. Retrieved December 16, 2014.
  7. ↑ "Speakers — New York 2010". Value Investing Congress. Retrieved December 12, 2014.
  8. ↑ http://littlesis.org/org/78917/Comeback_America_Initiative
  9. ↑ Rob Copeland (October 3, 2011). "Michael Lewis homes in on Kyle Bass’s killer instinct in new book". Institutional Investor's Alpha.
  10. ↑ Murphy, Paul. "The full subprime letter from Hayman’s Kyle Bass". FT Alphaville. Retrieved 22 April 2016.
  11. ↑ "House of Cards" interview CNBC, 2009
  12. ↑ Hanley, Craig (April 2008). "http://www.dmagazine.com/publications/d-magazine/2008/april/cashing-in-on-subprime "Cashing in on Subprime". D Magazine.
  13. ↑ "Hayman Capital's Kyle Bass Predicts Sovereign Defaults". market folly. 15 May 2009.
  14. ↑ "Kyle Bass Betting Against Japanese Government Bonds (JGBs)". market folly. 18 August 2010.
  15. ↑ Nilsen, Sverre Rørvik (20 June 2012). "Kyle Bass: - This is the formula behind my investments". E24.
  16. ↑ Slavo, Mac (1 January 2013). "Kyle Bass: You Know How This Ends Right? This Ends Through War…". Market Daily News.
  17. ↑ "KYLE BASS WITH DAVID FABER - 'GREECE WILL DEFAULT AND IT'S GOING TO BE UGLY FOR EUROPE, GERMANY AND THE U.S.' (17 BAILOUTS FOR 17 EURO NATIONS)". The Daily Bail.
  18. ↑ Wolinsky, Jacob (15 May 2012). "Kyle Bass’ Japan Macro Fund Down 29% for April". Value Walk.
  19. ↑ "THE "KEYNESIAN END POINT"?". Pragmatic Capitalism.
  20. ↑ Weisenthal, Joe (20 May 2012). "Kyle Bass's Most Famous Trade Is A Disaster, And It Is Never Going To Work Out". Business Insider.
  21. ↑ Harner, Stephen (11 February 2013). "Cooler Heads: The Rebuttal to Kyle Bass's Japan Market Meltdown Scenario from JPMorgan's Jesper Koll and Masaaki Kanno". Forbes Magazine.
  22. ↑ Justo, Marcelo (2 September 2014). "Los inversores que apuestan por Argentina a pesar del "default"". BBC Mundo.
  23. ↑ Rochan, M (4 February 2014). "US Hedge Fund Hayman Capital Bets on Argentine Bonds Despite Default Risk". International Business Times.
  24. ↑ Kelly, Kate (24 September 2014). "Kyle Bass big on Argentina; rips 'immoral' competitors". CNBC.
  25. ↑ Celarier, Michelle (28 August 2014). "Hedgie Kyle Bass crying as Singer, Argy dispute deepens". The New York Post.
  26. ↑ Stevenson, Alexandra (15 April 2014). "Hedge Fund Manager Makes Lonely Defense of G.M.". The New York Times DealBook.
  27. ↑ VW Staff (16 April 2014). "Kyle Bass Bullish On GM, But Still Thinks Japan A Disaster". Value Walk.
  28. ↑ "Hayman still owns General Motors". CNBC.
  29. 1 2 3 Decker, Susan (12 August 2015). "Kyle Bass Says So What If He Challenges Drug Patents for Profits". Bloomberg.
  30. ↑ McKeown, Scott A. (15 January 2015). "The PTAB as a Hedge Fund Tool?". Patents Post-Grant.
  31. ↑ "Kyle Bass responds to criticisms". IP Pro Life Sciences. 17 August 2015.
  32. ↑ Silverman, Ed (26 June 2015). "Celgene May Seek Sanctions Against Kyle Bass Over Patent Challenges". The Wall Street Journal.
  33. ↑ La Roche, Julia (25 August 2015). "http://www.businessinsider.com/two-kyle-bass-ipr-petitions-denied-2015-8 "This is not a good sign for Kyle Bass' new big short strategy". Business Insider.
  34. ↑ Michelle Celarier (August 22, 2015). "Kyle Bass’ post-crash returns small-caliber". New York Post.

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