George Schultze - The art of vulture investing adventures in distressed securities management

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Copyright 2012 by George J. Schultze, Janet Lewis. All rights reserved.

Published by John Wiley & Sons, Inc., Hoboken, New Jersey.
Published simultaneously in Canada.

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Library of Congress Cataloging-in-Publication Data:

Schultze, George J., 1970 author.
The art of vulture investing : adventures in distressed securitites management / George J. Schulze with Janet Lewis
pages cm. (Wiley finance series)
Includes index.
ISBN 978-0-470-87264-2 (cloth); ISBN 978-1-118-22099-3 (ebk);
ISBN 978-1-118-25925-2 (ebk); ISBN 978-1-118-23473-0 (ebk);
1. Investments. 2. Securities. I. Title.
HG4521.S3578254 2012
332.632dc23
2012020187

This book is dedicated to my wife,
Kristen Schultze,
my six children
(Annabelle, Julia, Hugo, Walter, Eloise, and Blaise),
my brothers (Axel, Dietrich and Peter),
my sisters (Christina, Katia, Karen and Ingrid),
and
my father and mother.

Foreword

Capitalism has created more economic growth and well-being in the last two hundred years than all the economic activity in all the history of humanity combined. And the power, demand, punishment, and rewards delivered by efficient markets are all crucial parts of the capitalist system.

It has become old hat to say that capitalism is partly based on creative destruction. However, it seems that everyone likes the creative part, but nobody likes the destruction. Investors like George Schultze may be called vulture investors, but they do far more than feed on decay. They create opportunities for sick companies to survive and for restructured businesses to flourish.

Mr. Schultzes business surely includes some destruction. But that misses the point.

The real point is that capitalism requires the market to efficiently allocate capital to its most productive uses. It is wonderful that entrepreneurs and businesses create jobs, but nobody ever started a company for that purpose alone. Entrepreneurs start companies to make profits; when capital is poorly allocated or badly managed, those inefficiencies lead to destruction. Investors like George Schultze maximize capital efficiency in such situations. The errors have been made; now someone has to do the cleanup.

When capital is efficiently invested, it creates a larger pie for everyone. It can be devastating for someone to lose a job in a company downsizing. But without investors like George Schultze, many of these companies would fail entirely and all the jobs in those companies would be lost.

When vulture investors are at their best, they actually save jobs and allow companies to go forward on a healthier basis where efficiently allocated capital can expand the pie for everyone.

When economic liberty is challenged by the government, so are personal and political liberty. During the 2009 bankruptcy of Chrysler Automotive, which is discussed in this book, the government strong-armed investors into an unfair settlement, which infringed upon that economic liberty. George Schultzes book is an unvarnished statement of the importance of economic and market freedom.

Charles E.F. Millard
Rye, New York
Charles E.F. Millard served as Director of the United States
Pension Benefit Guaranty Corporation from 2007 to 2009.

Acknowledgments

No major project is successful due to the efforts of just one person. In addition to my co-author, Janet Lewis, many people helped me in writing, editing, and developing its contents over a period of more than a decade. The employees, both current and former, of Schultze Asset Management LLC were all instrumental in making this happen and I wish to acknowledge their major contributions. Similarly, the many attorneys, investment bankers, and other experts I have worked with over the years were critical to helping me achieve my objectives. Of course, I would like to thank my family and clients for all their patience with me over the years, both in my investing work and during the writing of this book.