NYmag.com has a great profile on David Tepper, whose talk at the Ira Sohn investment conference some are crediting with the run up on Friday. The profile is the standard form hagiography for someone coming off a big win, but there is some interesting discussion of the positions Tepper was taking in March 2009:
Last year, when the market effectively crapped itself, Tepper’s firm, Appaloosa Management, made a fortune rolling around in it. In February and March 2009, when consensus had coalesced among market watchers that certain financial institutions were insolvent and would have to be nationalized, triggering a massive sell-off that drove shares of companies like Citigroup and Bank of America into the single digits, Tepper decided to tune out the chatter. After all, the Treasury Department had said it would hold up the banks—why wouldn’t they keep their promise? He directed deputies at his firm to purchase billions of dollars’ worth of bonds and stocks in those and other financial institutions. Then they waited.
At the time, taking such a position was like swimming into the ocean as a tsunami approaches: It looked crazy. But actually it was the right thing to do. When the government intervened as promised, the value of the shares shot back up. Appaloosa made over $7.5 billion. Not bad for a tiny fund from New Jersey.
There’s also some interesting back story on the formation of Appaloosa, his first fund:
In 1993, with a few big scores under his belt and an investment from Jack Walton, a fellow Goldman junk-bond trader who agreed to become a partner (he has since retired), he started up Appaloosa. Since then, the fund has grown in adolescent fits and starts. Distressed investing is a tricky area: When you’re purchasing the garbage of a troubled company, hoping to find something valuable you can pawn, it’s “feast or famine,” as one investor puts it. Year to year, Appaloosa’s rate of return is wildly uneven. In 1998, Tepper bought a bunch of Russian debt on the assumption that the Russian government wouldn’t default. When it did and the ruble collapsed, it cost his fund hundreds of millions of dollars. But even as the market tanked, Tepper kept buying the ever-cheaper bonds, and a few months later, his tenacity paid off: The fund went up 60 percent.
A similar situation occurred in 2002, when the junk-bond market collapsed for a second time. Tepper lost 25 percent, but made up for it the following year, when bonds he’d purchased in bankrupt companies went up 150 percent. He took home $500 million, at the time a personal best, and the following year made his donation to Carnegie Mellon.
And the story of how he got some brass balls on his wall:
Tepper has a pair of brass testicles.
The balls were a gift to Tepper from a former employee—Alan Fournier, who now runs his own fund, Pennant Capital Management—in the wake of Tepper’s big score in 2003. Tepper had purchased the distressed debt of the three then-largest bankruptcies in corporate history: Enron, WorldCom, and insurance giant Conseco. When they emerged from bankruptcy and the debt appreciated, Appaloosa went up a whopping 148 percent.