David Tepper Personally Earns $4 Billion for 2009 Performance

David Tepper grew up in a middle class neighborhood in Pittsburgh, PA. He became interested in the stock market after observing his dad, an accountant, trade stocks during the day. Following high school, he enrolled in the University of Pittsburgh, where he excelled. After Tepper graduated with a degree in economics, he found a job with Equibank as a credit analyst. He quickly became bored with the role and enrolled in the MBA program at Carnegie Mellon's School of Business, now named after him. Tepper's experience at Carnegie Mellon helped him learn options theory at a time when there were no textbooks written on the subject. Kenn Dunn, the Dean of school of the school himself taught these option courses.

After graduating, Tepper worked in the Treasury division at Republic Steel, once the third largest steel manufacturer in the U.S. Soon after, Tepper moved onto Keystone Mutual Funds, and finally to Goldman Sachs. At Goldman, Tepper focused on his original role as a credit analyst. However, six months later, he became the head trader on the high yield bond desk! Despite his successes, Tepper was not promoted to partner due to his disregard for office politics. After eight years at Goldman, he left and started Appaloosa Management in 1992 with Jack Walton, another Goldman Sachs trader.

With his background in bankruptcies and special situations at Goldman, Tepper applied his skills and experience at the new hedge fund, and it worked out tremendously for him. Tepper is categorized as a distressed debt investor, but he really analyzes and invests in the entire capital structure of distressed companies, from senior secured debt to sub-debt and post-bankruptcy equity. His fund has averaged a 30% average return since 1993! While that number is particularly high, Appaloosa has fairly volatile historical returns. In 2008, Tepper's fund was down around 25% for the year. For the investor that stuck with him, this certainly paid off with a 120% return after fees in 2009. Tepper shies away from the typical glitz and glamour of the ostentatious hedge fund industry. Appaloosa is not based in New York, but in a small office in Chatham, NJ. It is only about 15 minutes from his house so he can spend more time with his family. The firm manages around $12 billion.

Tepper's astronomical returns resulted from huge bets on the banking industry, specifically Bank of America (BAC) and Citibank (C). He bought BAC around $3.72 and Citi near $0.79. At year's end, BAC ended at $15.06, a 305% return, and Citi ended at $3.31, a 319% return. Appaloosa also has invested in other financial companies such as Wells Fargo (WFC), SunTrust (STI), and Royal Bank of Scotland (RBS). Other companies Tepper has investments in are Rite Aid (RAD) , Office Depot (ODP), Good Year Tire and Rubber (GT), OfficeMax (OMX), and Microsoft (MSFT). He believes that valuations on stocks and bonds in the financial industry remain favorable, and he is now investing in commercial real estate, a place where many analysts expect huge losses.
Tepper's investment strategy involves finding value in these distressed companies and betting big. He is not very diversified in his holdings compared to most hedge funds. Investing in these distressed companies can be a very lonely business. David Tepper stated about his recent purchases of BAC and Citi, "I felt like I was alone. No one was even bidding." While some don't like being alone, Tepper's contrarian approach helped him scoop up these companies at bargain prices. Tepper reminds himself that he needs a contrarian attitude every day when he walks into his office and sees a pair of brass balls on his desk, literally. "Mr. Tepper keeps a brass replica of a pair of testicles in a prominent spot on his desk, a present from former employees. He rubs the gift for luck during the trading day to get a laugh out of colleagues." While humorous, these brass balls represent his strategy of taking concentrated bets on these companies that the market does not see any value in.

David Tepper has not been without controversy. In his dealings with Delphi, an auto parts maker, his hedge fund along with other investors backed out of their exit financing agreement after Delphi sought additional funding from General Motors. His hedge fund believed accepting money from an automaker would hurt Delphi's ability to win contracts with other automakers. The hedge fund also claimed that this funding arrangement broke their financing agreement. Delphi, in turn sued, declaring that the issue was a "story of betrayal and mistrust." It has since gone into chapter 11 reorganization.

While most hedge fund managers who have made $4 billion in a year during one of the worst recessions since the 1930s would face scrutiny from the press, public, and government, Tepper has largely gone unscathed due to the lack of glitz and glamour of his lifestyle. Tepper lives in a New Jersey suburb in the same house that he bought in the early 1990s and coaches his kids' sports teams. He is a family man is proud of raising three good children. He says, "It was much easier when they were younger. It's harder now when they open the paper and see how much money I make."

Last year, Tepper told the business school magazine at Carnegie Mellon that money should be a secondary goal, while living an upstanding life and pursuing what you enjoy should be the top priority. Tepper does not forget about his roots either. He regularly goes to Pittsburgh to visit his alma mater and to watch the Pittsburgh Steelers (of which he is now a part owner). He also donates money to food pantries and other charities around Pittsburgh. Tepper comes to Carnegie Mellon frequently to talk to students about what needs to be improved at the school. Students describe him as down to earth, friendly, and very candid. While he has been an extremely successful hedge fund manager, he does not lead an extravagant lifestyle and continues to deliver excellent results to investors. His philosophy is very simple: if you treat people right, run your business right, and run your life right, you will create a sustainable business.

[1] http://web.tepper.cmu.edu/tepper/about.aspx
[2] http://www.americanwaymag.com/carnegie-mellon-appa...
[3] http://seekingalpha.com/article/179565-2009-s-bill...
[4] ibid

[5] http://nymag.com/daily/intel/2009/12/david_tepper_...
[6] http://dealbook.blogs.nytimes.com/2009/07/09/appal...Icahn-said-to-mull-bids-for-delphi/#more-85819

[7] http://www.tepper.cmu.edu/news-multimedia/tepper-s...
[8] http://www.independent.co.uk/news/world/americas/2...
[9] http://www.pittsburghlive.com/x/pittsburghtrib/bus...
2010 Top 10 Highest Earning Hedge Fund Managers
Rank Name Firm Name 2009 Earnings
1 David Tepper Appaloosa Management $4 billion
2 George Soros Soros Fund Management $3.3 billion
3 James Simons Renaissance Technologies $2.5 billion
4 John Paulson Paulson & Co. $2.3 billion
5 Steve Cohen SAC Capital Advisors $1.4 billion
6 Carl Icahn Icahn Capital $1.3 billion
7 Edward Lampert ESL Investments $1.3 billion
8 Kenneth Griffin Citadel Investment Group $900 million
9 John Arnold Centaurus Advisors $900 million
10 Philip Falcone Harbinger Capital Partners $825 million

http://leverageacademy.com/blog/2010/12/26/david-t...

Comments (26)

Dec 27, 2010

i wana cut paste this and post it on forums of huffington post, just to rub it in the face of those lefty liberals

Dec 27, 2010
Don Corleone:

i wana cut paste this and post it on forums of huffington post, just to rub it in the face of those lefty liberals

I always read the Huffington Post and the comments on it to make myself mad.

But I recently have met European Liberals, and to hear them makes me fond of Liberals back in the States.

Dec 27, 2010

Silver banana. Thanks for posting. I found this very interesting.

I like the part about him taking "concentrated bets" in companies. As a guy who has a fledgling real estate development company, I see the huge money that I can make in calculated and concentrated risks--that's basically my lifestyle as well. However, one has to think that it's a matter of time before several calculated and concentrated risks blowup in the same year. It's what keeps me up at night--I'm sure this keeps him up at night, too. I bet you the guy is up at 1 am right now, too. It's a tough lifestyle.

Dec 27, 2010

Tepper is the man!

Dec 27, 2010

Good read, thanks for sharing. Good to see someone with such grounded values succeed, it's a bit intimidating to see the moral abscess finance has become.

Also, the writing in that article was pretty pathetic grammatically.

Learn More

814 questions across 165 hedge funds. 10+ Sample Pitches (Short and Long) with Template Files. The WSO Hedge Fund Interview Prep Course has everything you'll ever need to land the most coveted jobs on the buyside. Learn more.

Dec 27, 2010

I don't think the writer was an english major lol...not the point.

Dec 27, 2010

I think all of his income should be redistributed to those who deserve it more. This is horrible. Go Socialism!

Dec 27, 2010

It should be redistributed to people who lie about their income and continue to receive unemployment checks! People who refuse to work for a living!

Dec 27, 2010

It should be redistributed to people who lie about their income and continue to receive unemployment checks! People who refuse to work for a living!

Dec 27, 2010

lol I agree!

Down with evil people who add value and generate proft!

Dec 27, 2010

Good article but is there a reason you're posting this today? It's a little dated.

People tend to think life is a race with other people. They don't realize that every moment they spend sprinting towards the finish line is a moment they lose permanently, and a moment closer to their death.

Dec 28, 2010
rickyross:

Good article but is there a reason you're posting this today? It's a little dated.

It's a pitch for his site

Dec 27, 2010

Why is this guy keeping it incognito? All I got on him is his CNBC interview.

I win here, I win there...

Dec 27, 2010
BankingRUs9:

Soon after, Tepper moved onto Keystone Mutual Funds, and finally to Goldman Sachs. At Goldman, Tepper focused on his original role as a credit analyst. However, six months later, he became the head trader on the high yield bond desk!

Kudos to that move from the mutual fund to GS and then from credit analyst to head trader.

Dec 27, 2010
JimYoung:
BankingRUs9:

Soon after, Tepper moved onto Keystone Mutual Funds, and finally to Goldman Sachs. At Goldman, Tepper focused on his original role as a credit analyst. However, six months later, he became the head trader on the high yield bond desk!

Kudos to that move from the mutual fund to GS and then from credit analyst to head trader.

It's an accomplishment but you also need to look at the times. He joined GS in 1984, it was a different time and he became head trader because GS was probably just building out the high yield desk----of course it just shows that they made the right choice for a desk head.

Dec 27, 2010
Gekko21:
JimYoung:
BankingRUs9:

Soon after, Tepper moved onto Keystone Mutual Funds, and finally to Goldman Sachs. At Goldman, Tepper focused on his original role as a credit analyst. However, six months later, he became the head trader on the high yield bond desk!

Kudos to that move from the mutual fund to GS and then from credit analyst to head trader.

It's an accomplishment but you also need to look at the times. He joined GS in 1984, it was a different time and he became head trader because GS was probably just building out the high yield desk----of course it just shows that they made the right choice for a desk head.

I am with you but I think that it is a huge accomplishment particularly in the 80s. I mean I haven't been around then but I guess that there was a lot less information/opportunities around on where and how to break into a specific place. I mean think about having to cold-call someone back then. First of all: where do you start on which person to call (you couldn't really look sb up on BBG i guess), who's looking for a lateral etc.

Dec 27, 2010
Gekko21:
JimYoung:
BankingRUs9:

Soon after, Tepper moved onto Keystone Mutual Funds, and finally to Goldman Sachs. At Goldman, Tepper focused on his original role as a credit analyst. However, six months later, he became the head trader on the high yield bond desk!

Kudos to that move from the mutual fund to GS and then from credit analyst to head trader.

It's an accomplishment but you also need to look at the times. He joined GS in 1984, it was a different time and he became head trader because GS was probably just building out the high yield desk----of course it just shows that they made the right choice for a desk head.

Yea but at the same time there is less competition in that sort of environment.

Sort of like what would you rather trade: high liquidity and low spreads, or low liquidity and high spreads? tradeoff

Dec 27, 2010

Where did you find the top 10 list?

Dec 27, 2010

The Rich List: Absolute Return just published their annual list of the top hedge fund earners for 2009. Here are the top 25:

  1. David Tepper, Appaloosa Management $4 billion
  2. George Soros, Soros Fund Management, $3.3 billion
  3. James Simons, Renaissance Technologies, $2.5 billion
  4. John Paulson, Paulson & Co, $2.3 billion
  5. Steve Cohen, SAC Capital, $1.4 billion
  6. Carl Icahn, Icahn Capital, $1.3 billion
  7. Eddie Lampert, ESL Investments, $1.3 billion
  8. Ken Griffin, Citadel Investment Group, $900 million
  9. John Arnold, Centaurus Advisors, $900 million
  10. Philip Falcone, Harbinger Capital, $825 million
  11. Paul Tudor Jones II, Tudor Investment Corp, $750 million
  12. Marc Lasry, Avenue Capital, $500 million
  13. David Shaw, DE Shaw, $500 million
  14. Israel Englander, Millennium Management, $475 million
  15. Louis Bacon, Moore Capital, $450 million
  16. Andreas Halvorsen, Viking Global, $450 million
  17. Stanley Druckenmiller, Duquesne Capital Management, $450 million
  18. Michael Hintze, CQS Management, $420 million
  19. Ray Dalio, Brigewater Associates, $400 million
  20. Daniel Och, Och-Ziff Capital, $390 million
  21. Bruce Kovner, Caxton Associates, $375 million
  22. O. Francis Biondi Jr., King Street Capital, $375 million
  23. Brian J. Higgins, King Street Capital, $375 million
  24. James Dinan, York Capital, $350 million
  25. Alan Howard, Brevan Howard, $350 million
Dec 27, 2010

James Simons yearly earnings have been consistently incredible:

2009: 2.5B
2008: 2.5B
2007: 2.8B
2006: 1.7B
2005: 1.5B
2004: 700mm

It's unreal...

Dec 27, 2010

This guy is the epitome of what I'm trying to become in this industry and where I wanna be in life persoanlly. I shed a tear because I love this game so much.

"Kept feeding him dollars 'till it all started to make cents."

Dec 29, 2010

A little off topic but does his fund (Appaloosa Management) have a website? He has a profile on Richard Wilson's blog but that's all I can seem to find.

http://richard-wilson.blogspot.com/2007/08/appaloo...

Jan 1, 2011

is this what he personally made or what his fund made? for some reason, I doubt these amounts are accurate, whats the methodology behind it? they find the AUM, yearly fund return and extrapolate from that 20% is his share?

Jan 3, 2011
Comment
Jan 7, 2011