| David Tepper, Appaloosa Management (Bloomberg) |
David Tepper is once again planning to return some capital to his investors.
The founder of Short Hills, New Jersey-based Appaloosa Management is telling clients he plans to return between 5 percent and 15 percent of their money at year-end. Appaloosa began the year with $18 billion under management. The firm declined to comment.
That Tepper is returning money likely isn’t a surprise to his investors, given that he has done this in each of the four previous years. And the amount of capital he is returning is basically in line with the returns he is generating this year.
Tepper — who was famously turned down for a partnership at Goldman Sachs three times — is proving this year that he is just as good at playing defense as playing offense.
His Palomino and Appaloosa Investment I funds posted just a 1.1 percent loss in September, a month when many hedge funds suffered huge declines.
Altogether, Tepper was down a total of just 3 percent over the past two months, when the global markets began sinking and experiencing a surge in volatility.
As a result, he is still up about 10 percent heading into the final quarter of the year. This makes him one of the better-performing hedge fund managers this year.
No doubt this is reassuring to Tepper’s investors, who are accustomed to agita-inducing volatility in the funds’ returns. Still, it usually works out very well for them, given that Tepper’s annualized returns since his 1993 inception are in the upper 20 percent range.
We reported earlier that back in August, Tepper moved more of his portfolio into cash than he had done in a long time, according to people familiar with the firm. He was mostly waiting to see how two major events played out in the markets: the slowdown in China and whether the U.S. Federal Reserve would raise rates in September.
One month ago, Tepper said roughly the same thing on CNBC. “I have problems with earnings growth [as well as with] problems with multiples,” he told viewers. “So I can’t really call myself a bull” over the short-term.
He also called the stock market environment “challenging.” It is not publicly known whether Tepper has been buying over the past week and a half during the stock market’s rally.
When it comes to Tepper, it is not accurate to interpret his decision to return capital as a sign of overall bearishness.
Rather, Tepper frequently reminds investors that he likes to keep his assets at a level that would enable him to maximize returns. After all, he is by far the largest investor in his funds, so the better the return the more money he personally makes on his own capital, which would be a lot more than he would make from higher fees but on lower returns.
“Appaloosa is more art,” he told me in an interview in late 2009. “It’s hard to create art. [The funds] can’t be that big and create art.”
