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“ ‘It’s a complete abomination’ ”
That is Nate Koppikar, a partner at Orso Partners quoted in a Bloomberg News article on Tuesday that expressed his displeasure about the prospects of hedge funds claiming bailout money intended to help cash-strapped small businesses in the throes of a recession wrought by the outbreak of COVID-19.
The Bloomberg article makes the case that hedge funds, which tend to charge 2% fees for managing other people’s money and take 20% of the profits from their bets, are enticed by the roughly $350 billion recovery package that offers loans to cover everything from payroll, rent and utilities for hair salons, restaurants and other businesses that have been bludgeoned by forced closures to help mitigate the spread of the infectious disease that was first identified in Wuhan, China in December and has now infected nearly two million people globally.
The story hits upon a raging debate on Wall Street about whether hedge funds should avail themselves of bailout funds during the pandemic, which has hit nearly every corner of the economy and threatens to throw the U.S. in one of its deepest recessions in generations.
Chamath Palihapitiya, chief executive of venture-capital firm Social Capital LP, last week argued that Fed’s massive coronavirus stimulus package helps the ultrarich at the expense of ordinary American workers.
“On Main Street today, people are getting wiped out. Right now, rich CEOs are not, boards that have horrible governance are not. People are,” Palihapitiya said last Thursday on CNBC’s “Fast Money Halftime Report” with Scott Wapner.
“Just to be clear on who we are talking about. We’re talking about a hedge fund that serves a bunch of billionaire family offices. Who cares? They don’t get the summer in the Hamptons?” Palihapitiya said. “Who cares? Let them get wiped out.”
Over the past three week, the U.S. job market has suffered more than 16 million job losses.
Bloomberg reported that some hedge funds already have applied to small business aid and certified that the “current economic uncertainty makes this loan request necessary to support the ongoing operations.”
Broadly speaking, markets have been rocked by the outbreak of the contagion, with the Dow Jones Industrial Average DJIA, +2.09%, the S&P 500 index SPX, +2.56% and the Nasdaq Composite Index COMP, +3.50% all falling by at least 20% from their February peaks before staging a recovery off their lows hit on March 23.
In theory, the current environment for hedge funds should be favorable to stock picking, compared with the period that preceded this current environment, where hedge funds failed to outperform benchmarks like the S&P 500.
