Hedge funds and private equity money have stayed mainly on the sidelines during the credit crisis, waiting for the Treasury Department to come up with a coherent plan for pricing toxic assets. “The government has done a very poor job of communicating,” says Richard Marshall, a partner who represents hedge funds at New York–based law firm Ropes & Gray. Marshall believes investors might come forward if a truly credible plan is put forth.
“This is starting to smell like Japan,” says Kevin Hebner, an investment strategist for Third Wave Global, a $187 million hedge fund firm based in Greenwich, Connecticut. It’s an odor Hebner knows firsthand, having spent a decade in Japan, first at the Bank of Japan, then later at UBS, Credit Suisse Asset Management and Citigroup Asset Management. He finds the slowness of the U.S. response surprising, given that the general plan for fixing the banks is well known: a government/private sector partnership not unlike the kind of deal financier J. Christopher Flowers and private equity firm Ripplewood Holdings got in Japan when they bought Long-Term Credit Bank for $1.1 billion in 2000, turned it around and renamed it Shinsei Bank.
Scott Sumner, an economist at Bentley University in Waltham, Massachusetts, says that if private equity firms and hedge funds get bigger and richer as a result of bank restructuring, so be it. “Nobody’s going to do this because they want to be popular,” Hebner agrees. “But it has got to be done.”
