Will Appaloosa’s Returns Lead Straight to the Glue Factory?

Leaving the leafy suburbs of Chatham, New Jersey to go to Detroit is never a good idea. The Motor City is a world apart from Chatham, something David Tepper did not take into consideration before the got involved in the soap opera with Delphi Corporation.

Everything in Michigan is toxic at the moment, and Tepper probably does not own a hazmat suit. But his investors are likely to be simmering while he horses around in Michigan, and Delphi is not happy about being spurned:

A U.S. bankruptcy judge allowed Delphi Corp. to move forward with a lawsuit that seeks to force hedge fund Appaloosa Management LP to complete its deal to invest in the bankrupt auto parts maker. Judge Robert Drain refused a request by Appaloosa and other investors to dismiss the case

But the judge reserved some harsh words for Appaloosa in refusing to dismiss that hedge fund, noting other claims, including that it interfered with Delphi's efforts to secure loans, according to the report.

Drain said that were Appaloosa found to have undermined Delphi's effort to get its loans, it would be "truly jaw-dropping conduct that might in fact rise to the level of a bankruptcy crime," the AP reported. The wire service said that Delphi, a former unit of General Motors, wanted Appaloosa, founded by David Tepper, either ti take an equity stake in the company or compensate Delphi for the unraveling of the deal. CFO.com

Of course, the deal is just one of the headaches Appaloosa Management is facing. Their 2008 returns are among the worst in Hedgistan, and they are not they only hedgies that will need to post big numbers with five months to go:

New York’s Top 100 hedge-fund titans are getting flattened in the credit crunch.

The high-flying traders - who were touted around the globe for their killer 2007 returns and $100 million paychecks - can’t get out of the red in the first half of 2008, according to hedge-fund performance records obtained by The Post… For most of these hedge-fund gurus, 2008 could be the first year since 2000 that they lose money.

Even notable players not on the losers’ list - like super-secretive Steve Feinberg - are not exactly hitting home runs.

Feinberg is basically flat this year on his $5 billion Cerberus International fund. Bond-insurer antagonist Bill Ackman has not even cleared 2 percent on his $6 billion bucket of cash.

Jeffery Gendell, one of the biggest losers, bet wrongly on companies that make wind power towers. The companies have not turned a profit yet and their shares have fallen. Larry Robins has made bad best on financials and tech stocks. New York Post.

Although 200 basis point management fees might keep food on the table, many of the hero’s from the earlier this decade seem to be playing not to lose, rather than to win.

Yes it has been tough out there, but the past year has tarnished the fearsome reputations several industry veterans had built.. There are no deathblows on this list just yet, but Tepper and Appaloosa had better find a way to win over the next year or their assets under management are likely to be a fraction of what they entered the year with.

After all, you are only as good as your last trade.

NO FUN(D) FOR HEDGES
New York Post
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