Hedge funds are staring at California's rebuke over the role in the wildfire questions | Company Business News

(Bloomberg) – Hedging funds face the backlash in California, as their bets are linked to insurance claims arising from the wildfires in Los Angeles, as unethically attacked. The transactions in focus are linked to so-called subrogation claims, which buy hedge funds, private equity firms and other alternative investment managers over the past few months from insurers. Subrogation kicks in as a third party like an aid program is presumably responsible for losses covered by insurers. Hedge funds that buy these demands from insurers are now attacked from the California Earthquake Authority, which is the administrator of the California Wildfire Fund. It described such transactions as “opportunistic, profit -driven investment speculation”, saying that he intends to “assume” hedge funds and other speculators “that he claims that” actively profits from California’s devastating wildfire catastrophes. ” In practice, this means that the government will try to be the payment of what stands there, ‘billions of dollars’ for investors who bought the claims, according to material prepared before a meeting that took place last month with the California Council of Catastrophe, which oversees the fund. For that purpose, it intends to engage the state law in California, according to a transcript of comments made during the meeting and seen by Bloomberg. A spokesman for the authorities refused to comment. Bradley Max, a director of Cherokee Acquisition, an investment bank in New York that trades and invests in subrogation claims, says the development has “placed a cold prayer”, which is already visible in prices. Subrogational rights that are linked to the Eaton fire that ripped through South California in January are trading at one point as high as 50 cents on the dollar, but has now “dropped at least a few points lower,” Max said. Although political development led to lower prices on the subrogation claims, it did not withhold transactions, he said. Cherokee said in April he mediated the presentations to the Los Angeles fires for ‘larger, more sophisticated hedge funds for distress.’ And by April 15, Investment Bank Oppenheimer & Co. Inc. Ten transactions carried out to the Eaton and Palisades fires are linked to the recovery right of more than $ 1 billion, Ronald Ryder, co-head of special assets at Oppenheimer, told the California Earthquake Authority. That includes more than $ 125 million in just one day claims, Ryder wrote. A spokesman for Oppenheimer declined to comment. Cherokee did not mention the hedge funds for which he traded. In “NE -mail to the California earthquake authority, Ryder said as catastrophic weather events” become more common “, insurers are increasingly using a” recovery -subrogation in the secondary market to strengthen the balance sheet. ” There is a growing consensus that insurers cannot cover the rising costs of weather -related disasters alone, especially as climate change attracts more extreme events. For this reason, the industry is looking for ways to move part of its financial risk to capital markets, with alternative asset managers who are often the only investor class willing to step in. Attempts to prevent investors from benefiting from the subrogation demands they bought represent “a politically motivated attempt not to pay legitimate obligations,” Max said at Cherokee. Despite the ethical and legal implications, they “tried to defeat a deep business decoration,” he said. Restoring sub -grogation claims is expensive and it can take years to play out, which is why insurers have started selling it in exchange for a prepaid cash payment. The hedge funds it buys it bet that the recovery amount at the end of the process will exceed the amount the insurer paid to buy the claim. The investment market in subrogation claims is characterized by the counter transactions with little to no transparency. Subrogation transactions had an important moment more than half a decade ago, when faulty power lines and equipment errors at the California Utility PG&E Corp. the blame for wildfires in the state. At the time, the hedge fund bought Baupost Group LLC claims at PG & E worth $ 6.8 billion. Bloomberg previously reported that Baupost may have earned an estimated $ 1 billion profits. The California Wildfire Fund, which is administered by the state’s earthquake authority and held by the California Council for Catastrophe, was erected in 2019 to compensate the claims arising from wildfires caused by utility companies. If hedge funds prevail in their subrogation demands, some of the money may come from the California Wildfire Fund. The fund, which sits at about $ 13 billion on liquid assets, is partly capitalized by three utilities – San Diego Gas & Electric Co., Edison International’s Edison in South California and PG & E. While the cause of the January fires is still being investigated, it is already clear that the Eaton fire started in Edison’s service area and therefore may have exposed the fund, the authorities said. With the current estimates for insured losses up to $ 45 billion, wildfires in southern South California are expected to be the most expensive in American history according to the California Earth Premade Authority. The Earthquake Authority and the Council of Council Council Council is now reviewing claims and administration procedures as it takes the matter to the state law. More stories like these are available on Bloomberg.com © 2025 Bloomberg LP