Kyle Bass, an Investor’s Cautionary Tale

Kyle Bass is an American hedge fund manager who founded Hayman Capital Management in Dallas in 2006, but that’s not what he’s known for recently.

After making his name (and a fortune) by correctly predicting the 2008 subprime mortgage crisis he’s made nothing but questionable decisions since.

Bass has long been a proponent of the shortsightedly irresponsible policies of Argentina’s President, Cristina Fernández de Kirchner. Argentina defaulted on its sovereign debt for the second time in thirteen years and Bass frequently defended this move. These policies which have bankrupted a once prosperous nation were lambasted by New York Judge Thomas Griesa. In his ruling, Griesa said that Argentina would have to pay its creditors in full, not just when and if they take a reduced settlement – also known as “following the law.” Bass jumped to Kirchner’s defense saying this ruling was the equivalent of holding the nation hostage.

Bass invested in General Motors prior to the highly publicized fatalities caused by faulty steering columns and airbags. So Bass’s response was to blame the victims, baselessly claiming they were drunk or not wearing seatbelts as to deflect blame from GM.

Bass has become known to target a pharmaceutical firm, short-sell its stock, and then challenge their patents via a front organization. The media coverage causes the stocks to plummet. This makes Bass easy money while the companies have to respond by increasing their prices – which directly impacts the consumers who need the now more expensive medicine. Bass, predictably, insisted he was doing this all to bust the patents and drive drug prices down across the board, but the paper trail of his financial benefit made this false claim obvious. And the jig may soon be up, as the Patent Trial and Appeals Board is considering sanctioning Bass for abusing the system with his patent challenges.

As to how it looks for Bass going forward, the PTAB has denied his first two patent challenges, and bills are circulating through both the House of Representatives and Senate Judiciary Committees to expressly outlaw this specific type of behavior in the pharmaceutical markets. And, as to his original bread and butter? Barron’s Jim McTague says Bass’s mutual funds have lost approximately 30% in 2014 when most managed funds have netted a positive 30% that year.

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