By Michelle Celarier
As AR was going to press last month, we were served with court papers by Elliott Management regarding a news story about the $17 billion hedge fund run by Paul Singer. Hoping to dissuade us from publishing a chart detailing Elliott's winning and losing positions during the second quarter, Elliott asked the court to force us to reveal the source of that information, even if it meant going through our e-mails to find it.
Our attorney told us we were protected by the New York state shield law, which says journalists do not have to reveal confidential sources—without exception. We knew we were up against one of the most litigious and wealthiest hedge funds in the country. But we don't like to be bullied. The principle was worth fighting for, so we proceeded to publish. As soon as Elliott learned that the story would appear online and in print anyway, they withdrew their suit, citing unnamed "developments."
The case forced me to think about why what we do is important. My views were detailed in my affidavit to the court, which I'll summarize: Because hedge funds are private investment vehicles, little information about them is publicly available beyond that which they wish to reveal, and new financial reform legislation won't change that. Given the large amount of money hedge funds control, and that college endowments and corporate and public pensions are becoming their dominant investors, our economy, our educational institutions and our retirements are best served by a financial media that is independent of financial pressure or coercion.
Just finding out the size of the American hedge fund industry, which we report is $1.202 trillion in our semiannual Billion Dollar Club survey this month, is not easy. Most firms report to us their assets under management, but sometimes they fudge the numbers. Although we specifically request that they not include leverage, UCITs, 130/30 or long-only funds, we continually find that some have done so.
And so we turn to independent sources to help us get at the truth. Take this month's cover profile of John Paulson, whose hedge fund, Paulson & Co., is the third largest in the country with $31 billion. After becoming famous for the many billions he earned shorting the real estate market in 2007, Paulson has grown understandably media-shy. Paulson agreed to be interviewed for the story, but he would have preferred we not write it. With his funds losing money during the summer, and with a fair amount of negative press surrounding his role in the Goldman CDOs that the Securities and Exchange Commission was investigating, that's certainly not surprising. These days just getting information out of Paulson's investor letters is difficult, even for those who've entrusted him with millions. That said, we were able to interview 18 of Paulson's investors to help us get a more balanced view of Paulson and his firm.
At AR we believe that our conscientious reporting, promoting transparency and accountability, helps foster a healthy hedge fund industry. To do our job, we know that protecting our sources' identity is sacrosanct, and we're grateful that the New York shield law supports us in that endeavor.
