Distressed-Debt Hedge Funder Becomes CEO of New Development Bank
The managing director of a US foreign development agency spent two decades at the helm of a hedge fund that previously controlled one of the largest holdings of Puerto Rican debt.
Scott Nathan, who was confirmed last Wednesday as the new top executive of the US International Development Finance Corporation (DFC), was previously a partner and chief risk officer at Baupost Group, a Boston-based hedge fund.
Led by billionaire Seth Klarman, the company is perhaps best known to the public for its holdings in almost a billion dollars in Puerto Rican debtwhich it acquired through a shell company subsidiary and got out in 2019. As a “vulture fund”, Baupost has developed its purchase strategy outstanding bank debt in Iceland after the financial crash of 2008, and was also a major investor in Greek public debt following the Eurozone crisis.
After being confirmed with bipartisan support last week, Nathan will now head the DFC, a new economic development corporation providing loans to the poorest countries.
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The nomination of a Wall Street Democrat to the top job signals the leadership of the little-noticed but geostrategically important agency, which has become part of a larger debate about the role of the private sector in energy and energy investments. overseas infrastructure. Private capital will play a role in the global energy transition, but many climate activists warn that investor priorities should not prevail.
There is a certain irony in choosing a leader of a company that has become notorious as a creditor to Puerto Rico, since development initiatives will be particularly focused on Latin America and the Caribbean. Part of the bank’s narrative is that it will compete with China’s growing presence in the Western Hemisphere, enhancing America’s image as a project lender with high labor standards and fair terms.
“The newest and freshest tool”
Launched in 2019, the DFC combined and replaced several dormant development institutions, including the Overseas Private Investment Corporation (OPIC). It doubles the investment cap of its predecessor, OPIC, from $29 billion to $60 billion, and its actual impact is expected to be multiples of that amount, as it will be allocated to leveraged offers attract private capital.
Backed by the full faith and credit of the U.S. government, the DFC can make direct loans to the poorest countries or sweeten deals with the private sector, such as providing “political insurance” coverage against threats such as violence and inconvertibility of currencies.
Foreign aid officials are enthusiastic about the company.
“The enhanced capacity that you all have given to the DFC is, from my perspective, the newest and newest tool in the toolbox,” said Samantha Power, Administrator of the United States Agency. for International Development (USAID), at a conference. audience with Chris Coons (D-DE), a key sponsor of the legislation, in July.
The American Development Bank is a bipartisan effort. Former Secretary of State Mike Pompeo promoted the DFC on its tour of the Indo-Pacific as part of an effort to improve market access for U.S. companies in the region. Chinese hawks from both political parties point to the need to compete with Beijing’s Belt and Road Initiative, a global infrastructure building project, and challenge its dominance in supply chains for green items like solar panels.
Climate activists have pushed for more funding for renewable energy in markets where access to capital is limited. A coalition of climate groups wrote in 2020 that the end of fossil fuel subsidies should be a key criterion in the selection of the leader of the DFC.
Under the Biden administration, the DFC appealed to those concerns, appointing a “climate chief” and announcing in December that it would lend $500 million to build a solar panel factory in southern India.
This contrasts sharply with another recent deal, in which the DFC agreed to buy oil assets and infrastructure of Ecuador, on the condition that the country agrees to block Chinese 5G telecommunications. As of last June, the agency’s energy sector portfolio included more than a dozen projects in mining, quarrying, and oil and gas extraction. Some of these projects include drilling new oil wells in Colombia and develop a liquefied natural gas plant in Mozambique.
Nathan has already offered signals as to which direction he will take the agency.
“Most developing countries need fossil fuels to run their economy,” Sen. Bill Hagerty (R-TN) told Nathan’s. confirmation hearing. “If there was a project that would improve development, to help us compete with China, and it would reduce emissions, but it would involve investment in fossil fuels, would you reject it just because it involves fossil fuels, and would you leave them stuck?”
” No I will not. The DFC is not limited in the type of technology choice it makes for energy projects,” Nathan replied. He spoke favorably of the natural gas projects financed by DFC in 2021 in Sierra Leone and Iraqi Kurdistan.
Private Sector Supported Energy Financing
Nathan joined Baupost in 1995, according to his LinkedIn profile. He left in 2014 to join the State Department as a special representative for the Bureau of Business and Commerce, where he lobbied to give American investors greater access to markets from Honduras to Egypt.
“I’m a competitive guy. I am a business guy. I like winning,” he told a House Foreign Affairs Committee in 2015. audienceexplaining that the “bread and butter” of his job was scoring contracts for American companies overseas.
Long considered a high-flyer in party circles, Nathan previously chaired the board of directors of the League of Conservation Voters, a centrist environmental organization, and served on the board of the Center for American Progress. CAP founder John Podesta, a prominent proponent of increased climate investment, hailed his appointment in a declaration.
Others are less thrilled. “It’s a slap in the face every time the Biden administration adds someone who is actively pursuing investments that have hurt Puerto Ricans,” Julio López Varona, an organizer at the Center for Popular Democracy, told The Prospect.
He added that Latino votes in Pennsylvania, a swing state home to some 400,000 Puerto Ricans, are a critical constituency for Biden. “If they [the Biden administration] want to continue to be politically insensitive to the needs of Puerto Ricans, they could pay the price in the next election.”
This is not the first appointment of a controversial financier to a top foreign investment post.
Climate and immigrant rights activists have opposed the hiring last year of private equity heavyweight Mark Gallogly, co-founder of Centerbridge Partners, a firm with its own history of investing in fossil fuels, l mining and drilling, and even Puerto Rican debt. After a investigation revealed ethical conflicts, Gallogly quit his job as adviser to White House climate envoy John Kerry.
During Nathan’s tenure at Baupost, the hedge fund entered into a series of transactions in sectors exposed to significant financial risk of public criticism for environmental and social damage.
For example, when BP shares crashed after a 2010 oil rig explosion in the Gulf of Mexico, Baupost picked up shares of the oil giant. At one point, according to the Huffington Post, the company owned more than $700 million in PB.
As recently as the third quarter of last year, according to SEC FilingsBaupost held shares valued at $59 million in Archaea Energy, Inc., one of the largest renewable natural gas in the United States and some $69 million in Pacific Gas and Electric Co., a California utility responsible for fatal wildfires.
Baupost has also invested heavily in infrastructure giant DigitalBridge, formerly known as Colony Capital, which builds cell towers, data centers, fiber and other infrastructure in countries around the world.
Nathan and a DFC spokesperson did not respond to requests for comment, including on whether he retains a stake in Baupost.
Kerry, Biden’s special climate envoy, highlighted the role of private finance in financing renewable energy for the developing world. During a CNBC chat last year, Kerry said: “I’m currently in discussions with a number of our top asset managers and major banking institutions in hopes that we can begin to understand where the capital could come from.”
This focus is unpopular with some development experts who say the money to “de-risk” renewable energy investments, making them more palatable to wealthy-world investors, is a small-return corporate subsidy. in return.
“The U.S. government’s overall approach to funding is focused on supporting and empowering the private sector, often with the public interest as an afterthought,” said Justin Guay, director of global climate strategy at The Sunrise Project. Perspective. Asked about Nathan’s choice to lead DFC, Guay said: “It says a lot about your worldview and your approach to finance and investing, if you cut your teeth scamming developing countries.”
Power, who as a USAID administrator is a key U.S. development strategy official and is a vice chairman of the DFC, did not respond to requests for comment from the Perspective. But at the July hearing, she stressed the importance of public-private partnerships.
“Your continued message that this is a development finance institution is really important,” she said. “As Vice President of DFC, I feel like that’s really the direction of the DFC leadership. To meet those needs in developing countries, recognizing that it’s going to be profitable for all the world over time.