Gavin Newsom Signs Law Blocking Hedge Fund Wildfire Speculation

Governor Gavin Newsom signed legislation to curb hedge fund speculation on wildfire insurance subrogation claims. The new law voids transactions where alternative investment managers purchase claims from insurers unless the targeted utilities are offered the same terms to settle. This right of first refusal, alongside new non-disclosure clauses, is designed to prevent investment firms from profiting at the expense of the state's recovery efforts.

The California Earthquake Authority described the practice of subrogation bets as "opportunistic, profit-driven investment speculation." The law also increases the capacity of the California Wildfire Fund by $18 billion, with funding sourced from customer electric bills and utility shareholder contributions.

Utility companies including Pacific Gas and Electric Company and Southern California Edison welcomed the legislation, stating it would strengthen the state's wildfire fund. However, legal experts indicated the restrictions might reduce market liquidity for insurers. Investment firms such as The Baupost Group, Cherokee Acquisition, and Oppenheimer & Co. have historically operated in this market, with The Baupost Group reportedly generating $1 billion in profits from claims against Pacific Gas and Electric.