Institutional Investor's Alpha Magazine - April 2008 - (Page 40)

Top 50 Moneymakers long-short strategy with 12-year-old, New York–based Blue Ridge Capital. At year-end the ﬁrm had $3.7 billion in just 51 stocks. The biggest positions were in Covanta Holding Corp., a waste management and energy services provider, and discount brokerage Charles Schwab & Co.; Grifﬁn had puts on Washington Mutual in an exchange-traded fund that tracks the Dow Jones U.S. real estate index. In the fourth quarter he closed out a put position in an ETF that tracks the Russell 2000. Grifﬁn, 44, has a big intellectual streak: The fund manager is a parttime business school professor at Columbia University and the University of Virginia. He also runs a charitable foundation that serves as an incubator for new nonproﬁt organizations. Late last year he pledged $22 million for a new building at the University of Virginia to be used for business classes. The building is to be named after Grifﬁn’s mentor, Tiger Management founder Julian Robertson Jr., and Robertson’s wife, Josie. 10 Halvorsen O. Andreas Viking Global Investors $520 MILLION Market Paranoia? Or Market Paranoid Schizophrenia? hen the Dow Jones industrial average fell 1,300 points over the course of three weeks in early January, dropping below 12,000 for the ﬁrst time since November 2006, the jitters set in. Even stalwart personalities known for their cast-iron stomachs and nerves of steel were beginning to wonder whether the market would fall below 10,000 or recover its losses. Brave hedge fund types were among those who appeared to have had their conﬁdence shaken as they watched the Federal Reserve Board ﬂail against the tide. “The ineffectiveness — so far, at least — of traditional Fed measures in stemming rising risk-aversion accounts for a preference for ‘riskless’ government bonds over stocks as house prices continue to fall,” John Makin, chief economist of New York–based Caxton Associates, wrote to clients in early January. One man’s ceiling is another man’s ﬂoor, however, and many opportunistic hedge fund managers pounced on what they considered to be bargains created by the W sell-off in the credit market. Though the value of Tontine Financial Partners, for example, plunged by 58 percent in 2007, investors were jumping back in as the new year dawned. A fresh batch of capital poured in from clients mindful of manager Jeffrey Gendell’s success at playing the consolidation of the banking industry over the past two decades. Managers in general scrambled to adjust, and some lowered their forecasts for returns, to levels that would be easier to beat should markets recover by the end of the year. Others adjusted their positions. In January, Caxton cut its exposure to macro trading from 40 percent to 30 percent and lifted its allocations to U.S. equities to 24 percent from 21 percent and to international equities to 25 percent from 21 percent. It boosted its ﬁxed-income allocation to 15 percent from 12 percent. Some hedge fund managers who made billions last year betting that the subprime mortgage market would blow up are moving in on what they say will be the next area to collapse. John Paulson of Paulson & Co. has wound down the enormously proﬁtable bet against subprime mortgage pools that made him $3.7 billion in 2007. Early this year, however, he was still holding short positions in credit. “There are parts of the market that have not corrected yet but we expect will correct,” Paulson says. He was shorting bank bonds, where spreads had widened to near-record levels. Paulson thinks current problems and excesses in the banking industry are worse than they were in the late 1980s and early 1990s, when roughly 700 savings and loans failed and investment bank Drexel Burnham Lambert collapsed. Paulson predicts that more banks will stumble — following Bear Stearns Cos. — and that a greater correction is on the way as defaults hit other types of high-risk mortgages, such as so-called option adjustable-rate mortgages and Alt-A mortgages. What if he’s wrong? Paulson points out that shorting bonds is different from shorting stocks because the downside is limited. Looking ahead, Paulson anticipates going long on distressed securities. But not just yet. “It is too early,” he says. “I still think the best opportunity is on the short side.” — S.T. Andreas Halvorsen, yet another Tiger Management cub, is a native of Norway who was a platoon commander in that country’s naval SEALs, a good thing if only because these days he’s doing a lot of swimming — in assets, that is. Greenwich, Connecticut–based Viking Global Investors manages $9 billion, up from $6.5 billion in 2006. Halvorsen, a 47-year-old long-short specialist who launched Viking in 1999, netted a 41 percent return last year. Late in 2007, Halvorsen moved heavily into ﬁnancial services stocks such as Atlanta-based investment management company Invesco. 11 John Arnold Centaurus Energy $480 MILLION John Arnold, a secretive former Enron Corp. trader, has stayed hot ever since launching the Centaurus Energy hedge fund in 2002 with an $8 million bonus he got from Enron. (He’d made $750 million for the company before an unrelated accounting scandal sent it into bankruptcy.) Last year the $3 billion, Houston-based Centaurus — said to be the largest energy hedge fund in the world — was up 50 percent, in part by going long on commodities, after returning a net 200 percent in 2006 and 160 percent in 2005. Arnold, 33, joined Enron after graduating from Vanderbilt University. 12 James Dinan York Capital Management $470 MILLION Jamie Dinan is back, making the Alpha list for the second time in seven years with returns of 20 to 25 percent in 2007 on four of his eight hedge funds at $14.1 billion York Capital, which he founded in 1991. The New York–based Dinan, 48, specializes in risk arbitrage, distressed and restructured debt, and events like company breakups and proxy ﬁghts. At year-end the ﬁve biggest holdings in his $4 billion York multistrategy funds were 40 • INSTITUTIONAL INVESTOR’S ALPHA • APRIL 2008

Table of Contents Feed for the Digital Edition of Institutional Investor's Alpha Magazine - April 2008

Institutional Investor's Alpha Magazine - April 2008 Contents Letter from the Editor Longs & Shorts Pension Corner: Here to Eternity The Good Guys: Voice of Hope Cover Story: The Kings of Cash Where the Money Is Into the Light Interview: Proceeding with Caution Strategies: A Convenient Truth Alpha Bytes: Village Voice Unhedged: Commentary: No Time for Complacency

Institutional Investor's Alpha Magazine - April 2008

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