By Julie Reynolds

As a reporter who’s covered Alden Global Capital for more than two years, people often ask me who are the investors behind the hedge fund that owns one of America’s largest newspaper chains?

They want to know who exactly profits when we learn, as Harvard Nieman Lab’s Ken Doctor recently reported, that the firm netted $160 million last year from its Digital First Media newspapers.

My answer is it’s hard to know. As a privately held hedge fund, Alden doesn’t have to reveal much to the public.

But there are some clues here and there. A search through nonprofit groups’ publicly available financial reports, commonly known as “Form 990s,” reveals that all kinds of organizations — some surprising — have invested their monies with Alden over the years. Other records turned up from public pension funds and filings of publicly traded companies.

The California Public Employees Retirement System, a few European banks, and Citigroup and Coca Cola Company’s pension funds have all invested in Alden, along with charities such as the Circle of Service Foundation and the Alfred University Endowment.


The Knight Foundation? Really?

But the group that jumps out to me on the list is the John S. and James L. Knight Foundation. After all, it has a long and venerable history of supporting local news. So I was more than a little shocked to learn that, according to its tax filings, Knight had invested $13 million with Alden’s “Distressed Opportunities Fund” by 2010 and kept investing through 2014.

I asked Knight about those investments and whether the Foundation’s officers had any regrets, knowing what we now do about Alden’s devastating effect on its own newspapers. I asked if anyone there at the time was aware of Alden’s “vulture” business strategy. I asked, “What is the Foundation’s perspective on those investments now, as news of Alden’s gutting of these newspapers has come to light?”

This all seemed especially relevant considering many Alden/DFM papers were previously part of the Knight-Ridder chain, the family news empire from which the foundation sprang.

Knight spokesman Andrew Sherry declined to answer any of those questions, saying instead, “Our endowment investments support our grantmaking.”

“We invested approximately one half of one percent of our endowment in an Alden fund between late 2009 and early 2014,” he said via email. “Connecting this to the current state of American newspaper ownership seems rather tenuous.”

Well, that wasn’t the point. My question was did Knight know what Alden was doing to newspapers when it invested with the hedge fund, and does it regret that investment now?

During its five-year run with Alden, it seems quite unlikely that no one at Knight knew about the hedge fund’s slash-and-burn strategy — for two reasons.

One, the warning shot was fired in 2011, in a Poynter Institute article titled “Who is investor Randall Smith and why is he buying up newspaper companies?” Randall Smith is the co-founder of Alden, together with his young protégé, Heath Freeman, and has been called the “grandfather of vulture investing.” Vulture funds by definition don’t reinvest in their properties — they suck them dry.

And two, by at least 2013, those of us who worked at Alden-controlled papers (like me) were already experiencing the slashing and burning. In addition to the constant layoffs, our buildings were being sold, basic office supplies became scarce and the hot water stopped working.

To be sure, the Knight Foundation does much to help promote and sustain local news. It emphasizes “supporting the emergence of new, sustainable models for local news, through both grantmaking and research,” Sherry told me, including grant programs for nonprofit news organizations. In the for-profit news arena, Knight is “spurring the digital transformation of local newsrooms through the Knight-Lenfest Newsroom Initiative,” Sherry said.

All good works, and Knight is to be commended for them.

But as an organization that believes that “quality information is essential for individuals and communities to make their own best choices,” it was disappointing that the foundation couldn’t simply own up to its error in judgment when it came to Alden.

If Knight’s total divestment from Alden in 2014 was because someone made an ethical decision to stop dealing with the vulture fund, good for them. But we don’t know, because they aren’t saying.

Financially, it was a raw deal. Knight first reported its investment in Alden in 2010, noting the fair market value of its Alden holdings was $13.4 million. By 2011, when Alden’s Distressed Opportunities Fund lost more than 20 percent of its value, Knight’s holdings in the fund were valued at $10.7 million. Knight began selling off its Alden holdings in 2012, and got completely out in 2014.

According to its 990s, Knight ended up making $185,000 over five years on its initial $13.4 million investment. One researcher tells me that if that money were invested in the S&P 500 Index Fund, it would have earned roughly $11 million over the same period.


So what is this “Distressed Opportunities” fund?

Alden’s Distressed Opportunities Fund was launched in 2008 and saw astounding success in its first few months, showing returns of more than 30 percent — a big rescue for Alden, whose investments in Russia the year before had lost more than 61 percent of their value. At the time, reported that the Global Distress Opportunities fund would focus on financial firms as well as “homebuilding, gaming and auto-related names.”

Smith began investing in newspapers and media around the same time. While some finance reporters noted that Smith’s newspaper investments were all losing value, none seemed to notice that Smith and Alden’s president Heath Freeman would soon start “strip mining” their news companies’ real estate and other assets.

Alden gradually took control of the papers that would become DFM. In early 2011, Alden was still considered a non-controlling investor, but by the end of the year, that would change. At the time, even savvy media insiders like Martin Langeveld wistfully predicted Alden would keep newspapers’ future in mind: “Smith… knows that the only way to win his big bet on the future of newspapers is to turn them into nimble, modern digital news enterprises.”

To many, it just didn’t seem possible that Alden would instead choose to destroy newspapers by laying off the workforce en masse and stripping papers of all their assets. But by 2013, despite deep losses to Alden funds’ overall values in the previous two years, Smith was able to begin buying his now infamous swath of South Florida mansions for $58 million and Freeman was acquiring multi-million-dollar New York condos. Clearly, for Smith and Freeman, chop-shopping their newspapers paid off.


OK, then who invests in Alden today?

Today, we know that Knight, CalPERS and others no longer invest with Alden. So who is investing with them? According to Alden’s scarce SEC filings, it currently has fewer than 10 investors, most of them from “overseas.” But who most of those few souls are, and how much of the hundreds of millions skimmed from DFM papers they’ve received remains a deep, dark mystery.

One known investor, however, is the Randall and Barbara Smith Foundation, named for Alden founder Smith and his wife. Located in the same Manhattan office building as Alden, it funds stem-cell research, health-related charities, arts and culture — and Duke University, alma mater of Smith’s protégé Heath Freeman.

In 2016 (year of the most recent 990 available), the foundation invested $17 million in Alden funds. These included several Cayman Island-based funds and another profiting from Greek debt stemming from that country’s financial crisis.

Interestingly, Smith’s foundation didn’t do well with its Alden investments in 2016. By the charity’s own accounting, it lost $ 2.3 million in book value on a $17 million investment that year.