Institutional Investor's Alpha Magazine - November 2008 - (Page 30)

Daniel Zwirn ployees. But if you produced, you got paid well. “Working for Dan, especially early on, when we worked every single day, including weekends, you could never really complain, because Dan was working harder than everybody else,” recalls one former DBZ managing director. Zwirn, who was both CIO and CEO, says he left the back-ofﬁce operations to his CFO, Gruss, who had joined in July 2002, and his COO, Kahn, who had come over in 2005 from Westport, Connecticut–based Pequot Capital Management. Gruss, who was popular among employees, dealt with the people side of the business — from negotiating partnership contracts to listening to complaints — which did not come easily to Zwirn. Gruss spent much of his time securing ﬁnancing for Zwirn’s vast array of investments. When Zwirn decided it was time to move out of the Highbridge ofﬁces, he had Gruss pound the pavement looking for real estate. As COO, Kahn had oversight responsibility for Gruss. According to former DBZ employees, Dubin played an important role in the early fundraising for Zwirn, introducing him to key investors and sitting in on some marketing meetings. They say it was Dubin who introduced him to Epstein, the wealthy money manager who achieved national notice through his friendship with president Bill Clinton, and to Druckenmiller. Both would become investors (Zwirn managed a separate account for Druckenmiller’s Pittsburgh-based Duquesne). The Highbridge connection also helped Zwirn attract institutional investors like Private Advisors, a $4 billion, Richmond, Special Opportunities Fund, a credit fund that follows a strategy similar to DBZ’s. Before joining Fortress in March 2002, Briger headed up a direct-lending business at Goldman, Sachs & Co., where he worked for 15 years, serving as co-head of the ﬁxed-income principal investments group and the Asian distressed-debt business. Briger and Zwirn met through business; their funds worked on deals together. In the early years it was Fortress that typically found the investments and invited Zwirn’s ﬁrm to participate, according to former DBZ employees. In 2004, Fortress brought Zwirn in on a deal it was doing with German retail real estate company Gagfah Group. Fortress and DBZ also provided $230 million in ﬁnancing to Horizon Technology Finance Management, a Farmington, Connecticut–based business that provides venture capital to development-stage life science and technology companies. Zwirn, according to people close to him at the time, thought he and Briger were friends. Those who know Briger say the Drawbridge manager saw his fund and Cerberus’ direct-lending vehicle, Ableco Finance, as leading the ﬁeld and Zwirn as riding in their wake. In early 2004, with $900 million in assets, including $400 million from Highbridge, Zwirn and his then 30person team moved into their own ofﬁces, just a few blocks away. In an April 2004 investor letter detailing the spin-off, Zwirn presented the development as an exciting part of the continued growth of the renamed D.B. Zwirn & Co. But in fact, according to people working at DBZ at the time, Zwirn was falling out with Highbridge and, in particular, with Dubin. That year, when Dubin asked that some of the capital DBZ was managing for Highbridge be returned, Zwirn used the request as an opportunity to renegotiate the terms of his deal. (Dubin and Swieca’s then–39 percent revenue share was cut back signiﬁcantly and would reduce over time.) By October 2004, a month after New York’s JPMorgan Chase & Co. agreed to pay a reported $1.2 billion for a majority stake in Highbridge, the Highbridge/ Zwirn Special Opportunities Fund had become simply the D.B. Zwirn Special Opportunities Fund. Dubin declines to comment on his relationship with Zwirn and DBZ. For his part, Zwirn says that he admires the way Dubin and Swieca built Highbridge. Indeed, Zwirn has tried to duplicate the Highbridge/DBZ seeding relationship a number of times, with mixed success. Zwirn has seeded a handful of ﬁrms, among them a merger arbitrage fund founded in 2004 by Kusan. Kusan’s ﬁrm, New York–based JCK Partners, was forced to close this year after Zwirn pulled his assets, partly as a result of his own fund’s wind-down. The relationship between Briger and Zwirn also cooled. Briger, who through a spokesperson declined to comment for this story, is said to have been put off by the way Zwirn ran his business. In the market, DBZ had a reputation for hiring young, hungry deal makers; Fortress was known for bringing in older, more experienced professionals and giving them the operational support they needed. “We would still have been very much in business if the audit had been done in a timely fashion.” — DANIEL ZWIRN Virginia–based alternative-investment ﬁrm. “We met with Dan because Highbridge was backing him,” explains Timothy Berry, the partner in charge of hedge fund investments for Private Advisors. “We know Highbridge, and they are a well-respected ﬁrm.” Berry met with Zwirn in 2002; by the following year Private Advisors was an investor in the fund. Institutional investors liked the investment proﬁle of Zwirn’s firm. Because borrowers had to pay back their loans on a regular, predetermined schedule, it generated very consistent returns, typically about 1 percent a month. The strategy was neither very levered nor volatile. Another important ﬁgure in Zwirn’s early success was Fortress co-president Briger, one of the pioneers of direct lending. Briger, 44, is the manager of the Drawbridge 30 • INSTITUTIONAL INVESTOR’S ALPHA • NOVEMBER 2008

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

Institutional Investor's Alpha Magazine - November 2008 Contents Letter from the Editor Longs & Shorts Pension Corner: Risk Rewarded The Good Guys: In the Here and Now Interview: Minister of Finance Cover Story: The Agony of Dan Zwirn Strategies: The Early Birds Are Awake Strategies: The Call of Shari’a Profile: Sweet Home Chicago Research Center: What Stampede? Alpha Bytes: Centralize the Data Unhedged: Commentary: Learning from the Wreckage

Institutional Investor's Alpha Magazine - November 2008

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