| David Tepper, Appaloosa Management (Bloomberg) |
David Tepper’s rope-a-dope strategy paid off.
After racing to a 14 percent gain in the first five months of 2015, the co-founder of Short Hills, New Jersey, Appaloosa Management turned to play defense. Tepper was worried about China, whose economy and markets were starting to crack, and was uncertain whether and when the Federal Reserve would finally raise interest rates.
So Tepper sharply cut back on his stock portfolio and amassed a lot more cash than usual. The goal: Do no harm.
Sure enough, his Palomino and Appaloosa Investment I funds finished the year up 16 percent gross and 11 percent net, just slightly below where they stood in the middle of the summer.
This contrasts with many other managers who had similar or even larger gains early in the year and not only frittered them away but wound up finishing the year in the red.
That performance is yet another reason why Tepper, who is mistakenly viewed by some as a wild-risk taker, has the best long-term record among all hedge funds that use fundamental analysis rather than software to make investment decisions.
In fact, since its 1993 inception Appaloosa has made $22.8 billion for its investors, ranking third on Leveraged Capital Holdings’ annual ranking of hedge fund firms that have generated the most profits for their investors since their launch.
Tepper declined to comment about the 2015 results.
However, according to a person familiar with the firm’s results, last year’s gains were driven by an eclectic mix of strategies, typical for Tepper, who generally roams all over the capital markets, looking for the best opportunities.
For example, last year he made money from equities, both on the long and short sides, including in Japan and Europe.
In early 2015 high-flying shares of HCA Holdings, the for-profit hospital company, and e-commerce company the Priceline Group helped build his gains.
Appaloosa also profited from currencies, especially by shorting the euro. Early in the year the firm cashed in on the U.S. dollar’s climb against the Japanese yen.
In addition, the hedge fund firm benefited from playing the U.S. fixed-income market, both on the long and short sides. Appaloosa did especially well buying the discounted distressed debt of casino giant Caesars Entertainment Corp.
At the end of the year, Appaloosa’s assets stood at a little more than $18 billion — down from $20 billion — after the firm returned about $2 billion to investors.
Most of those assets come from Tepper and other employees.
In 2014, Appaloosa posted an anemic 2.2 percent gain, knocking Tepper off the top spot of Alpha’s Rich List for the first time in three years. He wound up tied for No. 11 with $400 million in earnings.
Now it looks like he might be among the top earners once again.
