Since I own and run an investment fund in my day life, I know that nothing feels worse than having an investment go south based on something you could have caught in your due diligence.
So, I'm guessing that the folks who work for Thomas H. Lee, the famous private equity investor, are feeling pretty crappy now that they have lost $1.3 billion of investor value in two weeks through their holdings in Refco.
For those that don't know the story, Refco announced about two weeks ago that its CEO had been hiding over $400MM in debt. This has led to a shit-storm of epic proportions. The stock has gone from $28 to $0.90 in two weeks. Now that's volatility!
Lee is a marquee name in the private equity world. Goldman, Sachs & Co., where I actually began my career, was one of the lead underwriters on the recent IPO and they are the gold standard in big i-banking.
How in God's name did they all miss this? Who was doing the checking on the books before they did these deals?
Remember this the next time you hear people talking about "smart money" investing in a deal.
One odd thing I have found in my career is that "smart money" is often not too smart.
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2 comments:
Is smart money as smart as smart bombs?
What's interesting is that, until this was discovered, the money still existed.
That is, it allowed the business to run, for executives and secretaries to get paid, and for huge deals to be made.
Then - poof! - it's all gone.
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