AFG 6.43% $1.46 australian finance group ltd

rubicon

  1. 354 Posts.
    Michael West
    March 3, 2008

    AT THE zenith of the US property boom over the past two years Rubicon was not merely buying US property, it was revaluing its portfolio upwards and piling into an even more risky asset class, mezzanine loans over US properties. Then Rubicon sold the whole thing to Allco, just weeks before the game fell apart, for $320 million.

    For their expertise, Rubicon executives Gordon Fell and Matthew Cooper charged $80 million in fees last year alone, mostly in the three trusts: Rubicon America (RAT), Rubicon Europe (REU) and Rubicon Japan (RJT). This figure is disclosed in the Grant Samuel "independent expert report" which gave the thumbs up for Allco to buy Rubicon.

    "Fair and reasonable" was the call. For Allco shareholders, the deal could hardly have been more unfair and less reasonable.

    In an attempt to deflect the attention from his financial engineering disaster, Rubicon's principal, Fell, told one newspaper on Friday: "We want to control the agenda as opposed to letting the banks or the hedge funds control the agenda." Hedge funds? The hedge funds couldn't short these feeble trusts even if they wanted to. The combined market cap is now $160 million, twice last year's fees.

    Moreover, and this is the tragedy, the remaining investors are small shareholders whose holdings the hedge funds could not borrow. You have to borrow stock from an institution, or a Tricom perhaps, before you can sell it to establish your short position. No dice. The pros were onto this schemozzle long ago, and most departed the scene when Rubicon, countervailing its fundamental raison d'etre, started buying loans rather than property.
 
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