Kyle Bass, hedge fund manager and founder of Hayman Capital Management L.P., was in CNBC News on February 10th, 2016 about a letter sent to investors warning them of considerable equity losses in China. In 2015, Bass filed reviews, known as IPR petitions through his organization, Coalition for Affordable Drug to challenge drug patents of pharmaceutical companies. Pharma businesses claim the IPR petitions were part of a scheme to nullify patents, allegedly for the purpose of investment strategies. While this was happening during the year, investors with Hayman Capital hadn’t received advise on hedge fund investments in two years. Is it possible that Bass was occupied resolving patent controversial issues and sanctions issued by the Patent Trial & Appeals Board?
According to the letter written by Kyle Bass and put up on Wikipedia, investors are warned that China is headed towards an economic crisis worse than the 2007 financial downturn. He is basing his prediction of the government and economic activities, including careless risk taking, in excess leverage, and arbitrage regulation. Bass believes China banking system will lose over 400 percent, compared to the United States banking system during the Great Recession. Ten year ago, China’s system was $3 trillion in asset and presently, it has increased to $35.5 trillion. Bass explained that the reason was because credit grew quickly to fund the infrastructure spending program.
Kyle Bass also told the investors that if the banking system in China loses 10 percent of assets, the banks will most likely lose nearly $3.5 trillion in equity. If that happens, it will force Beijing to devalue the yuan and recapitalize the banks. That means China will have to print over $10 trillion worth of currency. Once the loss cycle rises, Kyle wrote that he believes the renminbi will depreciate 30 percent set against the U.S. dollar.
According to Wall Street Journal, Kyle Bass hadn’t written the investors in two years. In 2015, he was busy with the Coalition for Affordable Drugs filling inter partes reviews against patents of pharmaceutical businesses. Reuters reported that the U.S. Patent & Trademark Office refused to review two Acorda Therapeutics patents on August 24, 2015. Kyle started filing the reviews in February of last year against Acorda, which resulted in stock price dropping to 10 percent.
Kyle Bass successfully predicted the 2008 subprime mortgage crisis in the U.S. Time will determine if he’s accurate about China’s equity crisis, based on the letter he wrote to his investors. Bass is presently residing in Dallas, Texas where he manages hedge fund investments of Hayman Capital. He received a Finance & Real Estate Finance degree from Texas Christian University. Hayman Capital Management L.P. was founded in 2005 and is registered with SEC.