The Hedge Fund and the Despot

August 23, 2014 5:23 PM

How an investment by one of America's largest hedge funds helped Robert Mugabe, Zimbabwe's brutal longtime dictator, maintain his grip on power when he was on the verge of losing it in 2008
posted by knoyers (35 comments total)

Hedge funds! Is there anyone or thing they can't fuck over?!!!
posted by Fizz at 5:26 PM on August 23, 2014 [5 favorites]

What's scary is that according to the article, the total value of all the currency in Zimbabwe at the time was 100 million... which is apparently nothing to some of these really big hedge funds.
posted by subdee at 5:47 PM on August 23, 2014

100 million isn't what it used to be, but as the total value of a currency, it is nothing
posted by knoyers at 5:50 PM on August 23, 2014 [1 favorite]

It sounds like a clear sanctions violation. Why doesn't the Fed or SEC prosecute?
posted by dave99 at 5:59 PM on August 23, 2014

I'm not 100% sure how this stuff works, but the investment seems to have been made about four months before the sanctions were announced.
posted by jpe at 6:07 PM on August 23, 2014 [1 favorite]

Och-Ziff Capital Management, which lead the Mugabe-backing consortium including BlackRock, GLG Partners, and Credit Suisse, was outed as the regime's bagman in 2012. (As the largest publicly traded hedge fund, its total assets under management were $45.9 billion as of the end of the last quarter, so $100 million is seed money to it.) Since 2011, it's been under investigation for possible violations of the Foreign Corrupt Practices Act, so it's no coincidence that last month, it hired the SEC’s former general counsel as its chief legal officer and chief compliance officer.

I feel like I'm taking research notes for John le Carré's next novel.
posted by Doktor Zed at 6:29 PM on August 23, 2014 [34 favorites]

A certain hedge fund does seem to be going to great lengths to distance themselves from a certain former employee.

And yes it does sound a lot like a John Le Carré novel.
posted by maggiemaggie at 7:04 PM on August 23, 2014

The article spends an unusual amount of time on two people: Michael Cohen and Dan Gertler. I don't know anything about Cohen, but his name is stereotypically Jewish. This wouldn't have made me raise my eyebrows if not for the way the article also singles out Dan Gertler as "an Israeli diamond trader". He and Cohen are the only named "baddies" whose backgrounds are identified: the same attention isn't paid to Muller Rautenbach, Stuart Groves, the "trio of Kazakh oligarchs", or the very many anonymous people who would have been the other shareholders and/or directors of Camec, or BlackRock, or GLG Partners, or Credit Suisse. There's a further dig at Cohen: when he left Och-Ziff he bought an estate that "includes a sprawling main house, cottages, a church, a large lake with ducks, a boathouse, bridges, wooded areas, fountains, and formal gardens." Why do we need to know this? Is it a dig at the nouveau riche? What did the other players do with their money? The subject matter of the article is important, but there's a certain whiff of anti-Semitism about the way it has been presented.
posted by Joe in Australia at 7:08 PM on August 23, 2014 [5 favorites]

Fizz: "Hedge funds! Is there anyone or thing they can't fuck over?!!!"

Arguably, Mugabe's economic downfall stems from fucking over white colonists. European Colonialism: is there anything it doesn't fuck over?
posted by pwnguin at 7:14 PM on August 23, 2014 [2 favorites]

I don't understand how one could read this and be focused on the hedge funds' bad acting rather than that of western governments...
posted by Perplexity at 7:50 PM on August 23, 2014 [1 favorite]

Arguably, Mugabe's economic downfall stems from...

The Ndebele would like a brief word, if they may.
posted by aramaic at 7:59 PM on August 23, 2014 [1 favorite]

I don't understand how one could read this and be focused on the hedge funds' bad acting rather than that of western governments...

Really, in an article where some of Mugabe's various acts of political oppression, corruption, torture and murder are discussed, along with the sadly typical eagerness of a sophisticated investor to do business with such a regime in exchange for a piece of a (hot) pie, it's the ineffectual attempts by the US government to financially isolate Mugabe's regime that stands out to you here?
posted by knoyers at 8:23 PM on August 23, 2014 [3 favorites]

Hedge funds don't operate in a vacuum; their financial and regulatory environment was carefully designed over many decades specifically to allow this divorce between capital and its ultimate application. I bet a lot of the people reading these comments own some sort of investment that owns part of one of those banks that invested in a Zimbabwean mining venture, and that they are therefore among its ultimate beneficiaries. It would be difficult or impossible for them to know this, by design. So if your country has laws that force you to invest in managed funds (mine effectively does, unless you're reasonably wealthy and good with money) then you're probably a conscript in this war against democracy.
posted by Joe in Australia at 8:38 PM on August 23, 2014 [17 favorites]

Yeah, it's easy to point at fund managers and blame them for everything, but the real picture is a lot more complicated and at the bottom of every pyramid is thousands of average people demanding a return on their investment. In a perfect world, it would be practical to only invest in 'ethical' ways, but who among those average people has any real idea about where their invested superannuation ends up? How many of them look in any way beyond the rate of return and how soon can I retire and take my money?
posted by dg at 8:52 PM on August 23, 2014 [1 favorite]

Have any of you met or known hedge fund managers? I've known a couple. One seemed pretty reasonable, down to earth (he was not part of the culture though, he created his own company and worked outside of the typical wall street environment). The other was entrenched in the hedge fund 'culture' and was one of the most awful human beings i've ever encountered.

The 2nd one I knew from before their career change (they worked in infosec). Before the career change the person seemed like a reasonable, intelligent awesome person. After the career change (into being a hedge fun manager) they became a person that was so callous (towards to poor as whole) that a bystander asked if the person was trolling when they made remarks about their worldview.

I guess what I'm getting at is the Wall Street culture is so awful, it'll turn a reasonable human being into a monster that looks like someone trolling as their stated viewpoints are so outlandishly awful.

And that is why I've avoided work in the financial industry (more than what i've done) - I don't want to culture to turn me into a monster. No amount of money is worth that to me.
posted by el io at 9:22 PM on August 23, 2014 [3 favorites]

Well, color me fascinated. Articles like this are like opening the hood on a car to see the engine: you knew the fucking thing was in there, but it's still astonishing to see the moving parts. Mugabe using collective punishment on the regional level to kill, torture and intimidate voters, funded by a bankers' consortium who emerge from the deal with millions to spend on their own London estates.
posted by ssr_of_V at 11:14 PM on August 23, 2014 [1 favorite]

> there's a certain whiff of anti-Semitism about the way it has been presented.

Honestly? You read this whole article, where rich people buy and sell the lives of millions of others, an article that doesn't use the word "Jew" "semite" "Israel" or any other such word - and what you get out of this is anti-semitism?

Has it occurred to you that the people being discussed are just bad people and this has nothing to do with whether they're Jewish or not?

If you want the term to have any meaning at all, then for Yahweh's sake do not use it to try to defend rich, powerful, evil people doing evil things when no one except you has even mentioned their race.
posted by lupus_yonderboy at 11:47 PM on August 23, 2014 [17 favorites]

I've seen lots of documents whose authors have no presumption of innocence; they write for explicitly racist publications or whatever. Some of the articles, viewed in isolation, seem ordinary enough. But then you notice that while they're banging on about Bolshevism, they happen to mention that Communist X studied in a yeshivah, or they specifically mention only Jewish members of a particular committee, or they promote someone Jewish from the ranks to become the (previously unrecognised) key to the whole affair. So there's no mention of the word "Jew"; it's just very obvious from context. Just like when you write about someone called "Cohen", or someone called "Gertler", who's Israeli.

As far as I'm aware neither of this article's authors deserve to be placed in that company. None the less, they're the ones who chose the subject matter and which people and events they would treat as significant. One of their choices, Cohen, looks like a mere bit-player to me: he was an employee of a fund and the article implies that he was the one responsible for getting his employer to invest in Camec, becoming its fourth-largest shareholder. This was after Camec had announced its plans to invest in Zimbabwean platinum. So it's a pretty tangential connection. Why do we need to know about him, and what he spent his redundancy payment on? We're not told about any of the other employees, even the former CEO.

Another character, Gertler, does seem to be genuinely significant - but probably not as significant as Muller Conrad BillyRautenbach (who allegedly supplied Mugabe's vehicles). Why are we told that Gertler is Israeli, when we're not told the nationality of Rautenbach or indeed any of the other investors? Why is Cohen pushed to the front? I suppose there might be good reasons for either or both of those decisions; I don't have grounds to think that there's a bad reason; but the choice, as it stands, doesn't look right to me.
posted by Joe in Australia at 1:03 AM on August 24, 2014 [3 favorites]

Here comes the derail.
posted by colie at 2:14 AM on August 24, 2014 [5 favorites]

Mod note: Let's drop this please, everyone. Joe in Australia, if you have evidence the authors or the publication are racist or anti-semitic, that would be something to discuss with us or in Metatalk as a reason for removing the post, but please don't derail this discussion any further.
posted by taz (staff) at 4:33 AM on August 24, 2014

It sounds like a clear sanctions violation. Why doesn't the Fed or SEC prosecute?

Regulatory capture.
posted by five fresh fish at 5:13 AM on August 24, 2014 [1 favorite]

Rautenbach has a lovely Wikipedia entry, with sub-headings:

3.1 Creation of jobs
3.2 Community irrigation construction and rehabilitation
3.3 Refurbishment of social service institutions
3.4 Commercial out grower programme
3.5 Benefits to the Zimbabwean economy
3.6 Environmental Protection

Sounds like a thoroughly wonderful guy, and Mugabe is lucky to have such a forward-looking fellow on his team as they work together to build a beautiful new Zimbabwe.

(Now how do I turn this snark button off?)
posted by clawsoon at 5:21 AM on August 24, 2014 [3 favorites]

Fed isn't the regulator, its hard to see what SEC reg they would have violated (Actually I'm guessing the entity that made these investments is regulated by the FSA not the SEC). Really it sounds like the onus lies on the DoJ - however I wonder if its the NY Federal Prosecutor - who has shown a real interest in going after HF's or if its someone else because its either a sanctions or FCPA violation?

Also the article notes that Och-Ziff acknowledges the DoJ is investigating.

There are tons of these shady stocks on the AIM - maybe not directly connected to someone shooting people in the street, but certainly plenty that represent a conduit to paying off unsavory politicians in resource rich regions around the world. But the UK seems uninterested in dealing with it at all. Could give you a list of ten off the top of my head.

The guys who actually ended up buying the company at issue here were basically an arm of the Kazakh government.
posted by JPD at 5:36 AM on August 24, 2014

their financial and regulatory environment was carefully designed over many decades specifically to allow this divorce between capital and its ultimate application

I'd say that's close to backwards. A partnership is governed in large part by contractual principles. If I tell you I'll invest your money but I won't tell what I've invested in and you say ok, under normal legal rules I don't have to give you any information.

Where we interpose public policy is to increase transparency in that relationship. The level of transparency may not be up to snuff, but it's still the case that any careful design has been aimed at increasing, rather than decreasing, transparency and disclosure.
posted by jpe at 7:07 AM on August 24, 2014

The irony is that despite what the average MetaFilter member might think, the required transparency in the US is miles and miles ahead of what is required Ex-US. And the SEC is a much much more aggressive auditor than any other securities regulator.
posted by JPD at 7:19 AM on August 24, 2014 [2 favorites]

In retrospect, of course some immoral financier found a way to profit off the economic chaos in Zimbabwe. Someone always does. The problem was with a collapsing illiquid currency there was no direct way to directly trade off the Zimbabwe dollar. Manipulating mining leases is sort of clever. Also a long historical precedent of awfulness. These days you mostly read about China being the bad actor in Africa that way.

If you want to be a bit more sophisticated about financial reporting, "hedge fund" is not a very useful descriptor. There's an enormous variety of hedge funds. Most of them are mild and uninteresting, basically mutual funds with big enough clients they don't have to go through the trouble of marking-to-market daily for retail investors. Every pension fund in the US is heavily invested in hedge funds of various types, most boring bond traders. Some hedge funds are rapacious and awful, particularly funds set up to trade off of international influence in third world commodities.
posted by Nelson at 8:34 AM on August 24, 2014

The irony is that despite what the average MetaFilter member might think, the required transparency in the US is miles and miles ahead of what is required Ex-US. And the SEC is a much much more aggressive auditor than any other securities regulator.

Which is just another way of saying "not very aggressive at all."
posted by JackFlash at 9:00 AM on August 24, 2014

I might phrase it another way and say that the people the SEC has to regulate are much more sophisticated about find ways around rules than who the other regulators have to watch, and outside of some niche areas Investment Banking is pretty much dominated by US firms - especially culturally and when you consider that the larger European domiciled banks are mostly made up of acquired US and British firms.

But the FSA (who should have been regulating the entity that actually physically gave the money to Mugabe) is basically a joke compared to the SEC.
posted by JPD at 9:44 AM on August 24, 2014

JPD: The irony is that despite what the average MetaFilter member might think, the required transparency in the US is miles and miles ahead of what is required Ex-US.

Or maybe the average MetaFilter member is comparing the status quo to the way things ought to be on an absolute scale, and not grading on a curve based on the fact that other countries are also asleep at the regulatory wheel. Raising the spectre of what the average MeFi member thinks is a sure-fire way to start a derail about what community biases may or may not exist, so perhaps we can talk about this without doing that?
posted by tonycpsu at 10:18 AM on August 24, 2014 [2 favorites]

ok then on an absolute scale what do you want to see done - and tell me how that wouldn't already apply to investing in public equities and what the reporting requirements are for US listed equities above a very small size.
posted by JPD at 1:08 PM on August 24, 2014

I don't need to have a better plan in order to take issue with your false dichotomy. I'm also not prepared to get dragged down into the weeds with someone who clearly knows the underlying subject matter better than I do. It may in fact be difficult to craft the regulations in such a way that doesn't have negative side effects, but negative side effects of regulations are often in reality far less negative than you'd expect from the dire predictions of the people who have to follow them.
posted by tonycpsu at 2:21 PM on August 24, 2014 [1 favorite]

It may in fact be difficult to craft the regulations in such a way that doesn't have negative side effects, but negative side effects of regulations are often in reality far less negative than you'd expect from the dire predictions of the people who have to follow them.

the problem is thinking that financial transparency and direct regulation is ever going to alter the ability of global capital to go where it wants... the idea of the post-way Keynesians that internationalism and state power was going to counterbalance the instabilities generate by global capital flows has been pretty decisively repudiated at this point.

basically, you're arguing for a more convincing fig-leaf. There's no fundamental reason why hedge funds should exist at all... much less prop up weak foreign states to whatever ends.
posted by ennui.bz at 6:24 PM on August 24, 2014

hedge funds exist people rich people want to invest with them. that's really the only reason that's needed.
posted by jpe at 6:55 PM on August 24, 2014

ennui.bz: the idea of the post-way Keynesians that internationalism and state power was going to counterbalance the instabilities generate by global capital flows has been pretty decisively repudiated at this point.

That could go two ways. Democratic states could say, "We'll never win, so we better give up." Or we could say, "Looks like this is an eternal fight where the only way to stay even is to never quit fighting."

The unfettered power of capital, which in part comes from its unfettered flow, is bad for most of us. (Some flow good; unfettered flow bad.) Right now we've mostly chosen the "we'll never win, so let's give up" option, and - whaddyuh know? - the power of concentrated capital is decisively winning.
posted by clawsoon at 7:29 PM on August 24, 2014

I wonder if this is the article the head editor mentioned on Facebook recently that was "definitely" going to get them sued.
posted by gottabefunky at 7:34 PM on August 24, 2014 [1 favorite]