Seth Klarman '79, pictured here at a dedication for Klarman Hall in 2016, owns a hedge fund that manages nearly $1 billion in Puerto Rican debt.

Brittney Chew / Sun File Photo

Seth Klarman '79, pictured here at a dedication for Klarman Hall in 2016, owns a hedge fund that manages nearly $1 billion in Puerto Rican debt.

October 12, 2017

Hedge Fund Run by Seth Klarman ’79 Owns Nearly $1 Billion in Puerto Rican Debt

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Seth Klarman ’79, the billionaire investor for whom Cornell’s Klarman Hall is named, reportedly manages a hedge fund that owns nearly $1 billion in Puerto Rican debt, drawing ire from some students and calls to boycott or modify the building.

Klarman manages The Baupost Group, a hedge fund in Boston, which owns $911.6 million in bonds issued by Puerto Rico. The group purchased the debt through a shell company, Decagon Holdings LLC, according to a court filing and a statement The Baupost Group’s spokeswoman issued to The Intercept and CNBC. The spokeswoman, Diana DeSocio, noted to The Intercept that Klarman does not personally hold any Puerto Rican debt.

The Decagon entities, which all use an address in Boston, manage about $469 million in COFINA senior bonds and about $442 million in COFINA subordinate bonds, Reuters reported. They were incorporated in Delaware in 2015, according to the Delaware Department of State entity search.

John McKain, associate vice president of university relations, said Cornell did not have any comment on the revelation. An email sent to The Baupost Group was not returned.

Seth Klarman '79 at a dedication ceremony for Klarman Hall in May of 2016.

Courtesy of Jason Koski / University Photography

Seth Klarman ’79 at a dedication ceremony for Klarman Hall in May of 2016.

Chris Arce ’19, co-president of the Puerto Rican Student Association, said the fact that Klarman holds so much of the U.S. territory’s debt is “saddening for several reasons.”

“To hear that one of the main buildings on campus has a connection to that debt crisis, it’s frustrating,” Arce told The Sun.

Matthew Indimine ’18, a member of the Student Assembly, called for students to boycott the building in a public Facebook post. He said in the post that a resolution is “soon to be in the works.”

Klarman is a major political donor, giving the maximum amount allowed to both Hillary Clinton and Marco Rubio in 2016, and is a cofounder of The Times of Israel website, according to Haaretz, a newspaper in Israel. Forbes estimated his net worth at $1.5 billion this year.

Klarman Hall, which the University said cost $61 million to build, opened in January of 2016 and currently houses the Temple of Zeus cafe. At a ceremony in May of 2016, Klarman said students “must bring speakers to campus, to Klarman Hall, with diverse ideas, speakers who will challenge people’s beliefs and moral perceptions, raise ideas and even say outrageous things.”

“You must bring them, even if what they say will be hard for some to hear,” he said, The Sun reported.

Seth Klarman '79, pictured at the Klarman Hall dedication in 2016.

Brittany Chew / Sun File Photo

Seth Klarman ’79, pictured at the Klarman Hall dedication in 2016.

Arce, who has family in Puerto Rico, said mainlanders are “constantly forgetting that there are people behind these [debt] numbers and people whose lives are impacted.” Cornell, he said, should create some kind of physical marker in Klarman Hall honoring Puerto Rico.

“Regardless how one feels about Seth Klarman, there is no denying that because the building is named after him, the building is tied to the debt crisis,” Arce said, “and it would be a shame if the building, tied to the debt crisis, had no recognition of Puerto Ricans.”

The Puerto Rican Sales Tax Financing Corporation issues the COFINA bonds to “provide funds for the Commonwealth of Puerto Rico to repay certain debt obligations,” according to the Puerto Rican government.

The austerity crisis in Puerto Rico has hindered the territory’s ability to recover from Hurricane Maria, Reuters reported, as the Puerto Rico Electric Power Authority, responsible for restoring power to its citizens, went bankrupt in July.

The Intercept speculated that its revelation could lead to political consequences for Klarman, in part because Boston has a large Puerto Rican community.

“Our work right now will be about activating our community in Boston, letting them know [Klarman] has been hiding and making sure we go to his houses and his companies to hold them accountable,” Julio López Varona, member of the HedgeClippers coalition, an organization committed to reduce the power of hedge funds, told The Intercept.

 

  • concerned alum

    I don’t get it. A debt is a debt!
    What is with these snowflakes?????
    Great idea! While you are at it—-Why don’t you boycott Day Hall if you have a loan to Cornell, boycott the US Treasury if you owe taxes, boycott MasterCard if you have credit card debt.

  • Reality Check

    Klarman’s firm bought Puerto Rican debt in the open market because it placed a higher value on that debt than any other available buyer. What’s non-constructive about that?

  • Michael A. Smith

    The sale of the debt instruments provided funds for economic development in Puerto Rico. The fact that the funds were subsequently pissed away on economically unsustainable projects should not be laid at the feet of debt holders such as Mr. Klarman. As it is. Baupost, a sophisticated investor, purchased the debt knowing full well that there were risks that have indeed manifested themselves. We should be concerned more for Mr. Klarman and other investors, especially if President Trump enacts his proposal to simply wipe out the obligations the same way he consistently walked away from his own debts.

  • Stephen Lerner

    So investing in Puerto Rico is now a bad thing? Or… is the bad thing expecting to get your investment back? Perhaps Mr. Arce or Mr. Indimine would prefer that Cornell and its alumni make no investments in any worthy causes (e.g. renewable energy) because to expect to be paid back is mean and capitalist?

    • mjp294

      Because people like Klarman deepen the crisis. PR is essentially a pseudo-colony, and they cannot deficit spend to fund public services. They are forced to borrow on bonds, and they are put on austerity, much like how the IMF can force Greece into austerity, further deepening their own debt crisis. Austerity further shrinks the economy, making it harder to pay off the bonds. This forces the crisis to get worse–bondholders become plaintiffs in bankruptcy court, and they can put the island on further austerity, extracting what they can. And now, with the hurricane, bondholders are looking to lend even more money to pay for relief, only forcing them into the exact same cycle. These people are sucking the marrow out of a territory because Klarman full well knows that they can almost form an economic fiefdom as they pick them apart in austerity. Bondholders like Klarman are payday lenders, but on a much larger and more destructive scale.

      • Stephen Lerner

        I’m sorry, that still doesn’t make sense to me. I understand full well your comment that Puerto Rico can’t deficit spend. Where, then, to raise funds to spend on badly needed infrastructure? I expect you’ll propose direct aid from the U.S. Government and we can discuss that at length, but it’s surely not expected of Klarman that he provide that aid personally, is it? Hedge funds are investing money at least in part for pension funds, insurance companies, college endowments, unions, etc. The investment managers have a job to do which is to get a return on investment. The two (and only two as far as I can see) alternatives open to Klarman are to buy the PR bonds or not. To avoid buying the bonds to avoid being in the position later of asking for repayment means that PR is denied an alternative ab initio. What PR should want and develop is a broad base of bond investors because competition amongst investors is what will allow PR to insist on favorable terms in their bond offerings. Look at Tesla which got away with ridiculous terms on its recent bond offering. PR would die to have such attractive terms. The reason it happened is because investors desperate for yield drove the bid level for the Tesla paper higher and Tesla had leverage. By encouraging investors to actively buy PR bonds, you’re actually destroying PR’s leverage in the process.

  • Jay Wind

    I had left one of the first comment to this story, which was censored. In brief the points that I made were that because the Romance Languages and Comparative Literature Departments as well as the Arts College Admissions Office are all in Klarman Hall, a boycott of the building would not work as it holds the offices of faculty who teach Spanish and Puerto Rican literature. It would not make sense to ask Puerto Rican students to boycott the Arts College Admission and Advising Office as well.

    I also pointed out the facts which indicate that Klarman apparently made his investment in Puerto Rican debt after he pledged the money to build Klarman Hall, so Klarman Hall was not financed with the proceeds of Puerto Rican bond speculation. I respectfully ask the Sun to restore the censored posts.

  • Lord Caldlow

    This is literally the most dumb thing I have ever read in my life and I’m ashamed that I got my Ph.D. at an institution that admits people lacking in the most basic cognitive functions. Like, can these people honestly operate a motor vehicle or feed themselves?

  • Michael Jacobs

    Cornell should be ashamed of this article. It is a regurgitation of an article in the Intercept, repeatedly referred to in this piece, that has anti-semitic undertones. The Intercept is NOT a reliable source of news and the Cornell Sun should know better. The Intercept is a platform in league with wikileaks, Edward Snowden, and Julian Assange. I am so fed up with this crap at my old school. I have no intention of ever giving Cornell another cent if this continues.

    • Jay Wind

      If the Sun and the Puerto Rican Student Association want to do original research, they should investigate David John Breazzano who just had the new Business School building named in his honor. According to Bloomberg, ” Mr. Breazzano has extensive experience in high yield, distressed and special situation investing.” Does his firm, DDJ Capital Management, LLC, hold Puerto Rican debt? Why have a double standard of protesting the building that houses the Departments most relevant to Puerto Rican culture but not other buildings at Cornell?