Vulture in distress

The grandfather of vulture investing is producing results of late that are for the birds.

Randy Smith, the 69-year-old reclusive head of Alden Global Capital, who came out of semiretirement in 2008, is showing a 7.5 percent decline in his main distressed fund through June 30.

The poor results are in stark contrast to the 5.75 percent median gain for distressed funds, according to the AR Distressed Index.

Smith’s troubles date back at least 18 months — his Manhattan-based Alden Global Distressed Opportunities fund fell 22 percent in 2011.

The stumble by the investor who helped invent vulture investing has surprised hedge-fund industry insiders.

“He had a stellar reputation,” said one. “So many people learned from him in the business.”

Most notable among his early employees is Avenue Capital’s Marc Lasry.

Since 2008, Smith has focused his investments on newspapers, gobbling up such well-known dailies as the Philadelphia Inquirer, Denver Post and Orange County (Calif.) Register.

While some of his media holdings have been winners, the Inquirer deal showed how Smith may have gotten tripped up by letting his emotions get the better of him.

In September 2010, Smith and rival hedge fund Angelo, Gordon teamed up to pay $139 million for the Philadelphia Media Network, which owns the 189-year old daily.

Alden already owned Journal Register Co., with newspapers in Connecticut and in the Mid-Hudson New York region. Combining the two companies would save tens of millions of dollars, a source close to the situation told The Post.

But the two hedge funds needed to decide how to allocate savings.

At the time, Smith was flying high. His main fund had gained 180 percent in 2009.

But for a full year, the two partners couldn’t reach an agreement.

All the benefits should not flow to Alden, an Angelo, Gordon director said.

Smith, who started his first distressed investment firm in 1985, was extremely emotional during negotiations, sources said, and after both sides continued to disagree over how to split the cost savings, Smith decided he did not, after all, want to combine the two.

Unable to make peace, the hedge funds put the Inquirer up for sale.

By the time they sold it, the company managed to fetch only $55 million, less than half what the two hedgies had paid for it.

Alden’s biggest single losing position in May was in Freedom Communications, which owns the Orange County Register — although it recently put it up for sale.

Other media losers were: Media News Group, which owns the Denver Post and San Jose Mercury News; Postmedia Network, which owns a slew of Canadian papers; and Gannett Co.

As Alden’s assets have soured, so have some investors in his funds — and some key employees.

Assets in the funds have fallen to $2.1 billion as of May from a peak of $3.5 billion a year ago.

In April, Smith’s No. 2 executive, Eli Combs, reportedly left the firm.

Smith, too, has taken a hit as at least a third of the fund’s capital belongs to him.

Alden and Angelo, Gordon did not return calls.