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New Yorker’s Sheelah Kolhatkar Profile of Doomsday Investor Explains “Reform” Mindset

September 6, 2018

The August 27 edition of the New Yorker features a lengthy article by Sheelah Kolhatkar profiling Paul Singer, “…the founder of Elliott Management and one of the most powerful, and most unyielding, investors in the world.” Titled “The Doomsday Investor“, Ms. Kolhatkar uses a case study of Elliott Management’s take down of Athenahealth, a publicly owned company founded and led by Jonathan Bush, to describe how Mr. Singer operates. In reading the article I came to the conclusion that it is no surprise that the hedge funders are underwriting “school reform” and somewhat alarmed at the effectiveness of their approach to date.

Basically, a vulture capitalist firm like Elliott Management makes a relatively small but significant investment in a corporation they identify as “underperforming” and, in doing so, gain a platform to present their findings on the deficiencies of the organization to the board of directors. In the case study in the New Yorker, Elliott Management bought just 9.2% of the shares. Elliott then calls the CEO of the corporation they have targeted and offers to “work with them” to increase profits, which can be readily accomplished by slashing the workforce, selling off portions of the business that are siphoning funds from the bottom line, outsourcing relatively unprofitable functions in the organization, and/or reducing wages and benefits. Should the CEO be reluctant, as was the case with Jonathan Brush at Athenahealth, Elliott Management will do everything possible to undercut the leadership by either sharing examples of mismanagement with Board members or, as was the case at Athenahealth, undertaking ad hominem attacks on the CEO.

In the article, Ms. Kolhatkar notes that Mr. Singer not only invests in the private sector, he also invests in politics and making his voice heard in the public forum. The following is a synthesis of his efforts in these arenas:

Singer has been deploying his riches in Republican politics, where he is one of the G.O.P.’s top donors and a powerful influence on the Party and its President… Along with Charles and David Koch and Robert Mercer, Singer is one of the largest financial donors to Republican political causes. During the 2016 election cycle, he contributed twenty-four million dollars. He is described as a “donor activist,” a reference to his deep involvement with candidates and campaigns…

Like many financiers who have achieved his level of success, Singer sees himself as more than a skillful player in the markets; he conducts himself like a public intellectual whose ideas on policy—on everything from taxation to regulation, education, and foreign affairs—should be heeded by politicians and other decision-makers on both a national and a local level…

Singer supports numerous media outlets and research institutes that disseminate his ideas. He is the chairman of the think tank Manhattan Institute for Policy Research, which encourages free-market policies as a means of addressing domestic-policy issues. It hosts dozens of fellows, who write op-eds, give speeches, and publish books. Singer sits on the board of the magazine Commentary and is also a major financial backer of the Washington Free Beacon, a conservative online news publication edited by Matthew Continetti, the former opinion editor at The Weekly Standard.

Toward the conclusion of the article, Ms. Kolhatkar details Mr. Singer’s increasingly “sophisticated” investments in forming public policy since the two thousands, investing in GOP presidential and gubernatorial candidates and causes. She writes:

After President Obama was reëlected, Singer and like-minded donors from the financial industry, many of whom had poured millions into Romney’s losing campaign, pledged to be more strategic in the future. Singer formed a donor network, called the American Opportunity Alliance, which includes wealthy Wall Street executives and hedge-fund moguls who coördinate political spending. “I think it’s important for informed citizens to try to give assistance,” Singer said, in April, of his political involvement. “We have less parochial interests in the things we talk to policymakers about than most folks.”

This echoes Andrew Carnegie’s belief that “the ‘man of wealth’ should view himself as “the mere trustee and agent for his poorer brethren, bringing to their service his superior wisdom, experience, and ability to administer“, and also mirrors the notions of “reformers” who are convinced that they alone know how to oversee public schools. Indeed, the “reformers” underwritten by hedge funders like Paul Singer want to dissemble public schools in the same manner Elliott Management dissembles corporations, and they have used their political influence to enact legislation that helps  promote the privatization of public schools. NCLB, with its test-driven means of identifying “failing schools” that would be closed and re-opened under new leadership opened the door for privatization… and once that door was opened low-cost high-profit organizations ran in. And networks of conservative funders with high-minded names like the the “Manhattan Institute for Policy Research” or the “American Opportunity Alliance” helped promote the meme of “failing government schools” and the notion that “choice” was the best solution.

It is alarming to see how successful the “reformers” have been over the past several years, particularly in their effort to equate “quality” with “high test scores”. As noted in yesterday’s post, it is relatively easy to convince voters that “high test scores” are indicative of “success” because that is what students have been told for decades… and all of those former students who equate “high test scores” with “success” are now the voters who are being asked to underwrite FAILING schools with LOW test schools! The idea that norm-referenced standardized tests necessarily result in a bell curve where 50% of the schools will score below average is lost on the average voter who doesn’t realize that the tests teachers use to grade students are criterion referenced.  Statistical niceties like that are unimportant to those who want to make a profit at the taxpayers expense… and after reading The Doomsday Investor you will see that civility and niceties are unimportant to investors. The only important metric is profit.

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