GoldenTree goes for extra credit

March 01, 2012   Britt Erica Tunick


Steve Tananbaum’s GoldenTree applies old-fashioned Graham and Dodd values to new and increasingly complex debt instruments.

  
  Steve Tananbaum: "We're always looking for a margin of safety"  (Photographs by Mackenzie Stroh)

MOST PEOPLE WHO LOOK AT Manhattan's famed Waldorf-Astoria hotel are taken with the building's art deco façade. Steven Tananbaum sees something different. Standing directly across the street from Tananbaum's office, the Midtown landmark is a daily reminder that the building's construction was largely financed by a 1929 bond issuance - one that turned out to be a major disappointment for its original debt holders and only paid off years later as an investment in the secondary market. When Conrad Hilton saw value in the Waldorf's depressed bonds in the early 1940s, he snapped them up for pennies on the dollar and ultimately acquired the hotel, which remains a key Hilton holding to this day.

Some 70 years later Tananbaum spends his days betting on the same premise as Hilton: that there is money to be made from secondary and distressed bond investments. But he does this with a new twist: Tananbaum's New York-based, credit-oriented firm, Golden-Tree Asset Management, focuses on loans and high-yield debt in the corporate market. Tananbaum has created an investment process that determines the risks of individual companies and identifies investments that will generate equitylike returns. Unlike the straightforward bonds that backed the Waldorf's construction, however, Tananbaum's investment portfolio comprises a melange of complex asset-backed securities that bear a strong resemblance to alphabet soup. His holdings include substantial investments in the senior tranches of collateralized loan obligations (CLOs), collateralized debt obligations (CDOs) and residential mortgage-backed securities (RMBSs).

"We feel that we excel at corporate debt and that there are not many firms in the world that do," says the 46-year-old Tananbaum, whose ambition is to build the $15 billion firm he founded 12 years ago into an investment powerhouse that can rival any top credit firm.

  
  

FACT FILE 

GoldenTree Asset Management 

Alternative assets under management: $10.5 billion (February 1, 2012)

Flagship: GoldenTree Master Fund

Founded: 2000

Performance:10.43% annualized since July 2000

Founder: Steve Tananbaum

Offices: Manhattan; London; Luxembourg; Seoul, South Korea 

Tananbaum's value-driven investment approach is being put to the test in Europe, which has become the new ground zero of the seemingly never-ending credit crisis. Despite the announcement in February that euro zone finance ministers had reached a €130 billion ($172 billion) deal to restructure Greek debt, GoldenTree's partners have remained cautious on Europe, slashing their exposure to the Continent by at least 10 percentage points on the premise that it will be difficult to predict just how badly the region's economy will fare in the coming months. But one area where the firm sees promise in Europe is in undervalued structured products and CLOs. It is one example of how GoldenTree looks to find opportunities in complex situations.

For Tananbaum, Europe is just one more proving ground as he strives to build a firm and a corporate culture that are not all about him. Now a 22-member partnership, GoldenTree has grown into a global business with 173 employees and offices in New York, London, Luxembourg and Seoul, South Korea. To foster an atmosphere of teamwork, the firm's founders created a shared bonus pool for the partners, forgoing a compensation system in which portfolio managers are paid based on their individual performances.

It looks so far as if Tananbaum might be on track to realize his dream. The firm has been growing: In the past few months, investors have poured $380 million into a stand-alone CLO opportunities fund that GoldenTree recently launched, a portion of which is in separately managed accounts, and the firm is actively trying to increase assets in its flagship GoldenTree Master Fund. It has been heavily courting the institutional investor community, positioning itself as a one-stop alternative--asset provider by ramping up the non-hedge-fund portion of its business. GoldenTree's efforts have resonated with investors, who praise the firm's commitment to its investment process and the depth of its expertise, frequently citing GoldenTree as one of the industry's best CLO investors.

But some say that for all its efforts, Golden-Tree is still not yet in the same league as some of the firms it often finds itself competing against for deals. These include some of the industry's largest credit shops, such as Canyon Capital Advisors, King Street Capital Management and Oaktree Capital Management. "They're like a Canyon lite," says an executive at one of the firm's competitors, noting that Golden-Tree's investments are fairly similar to Canyon's, just on a smaller scale. (A former Golden-Tree executive says the firm has evolved into more of an absolute-return hybrid and better resembles peers such as Oak Hill Advisors.)



Golden trio: (Opposite and left to right) Joseph Naggar heads up structured investments,Thomas Humphrey oversees marketing, and Robert Matza is the firm's president


Employees and investors say that despite all his efforts to build GoldenTree into a firm that doesn't center on him, Tananbaum wears his obsession with his firm and investing on his sleeve. They say it is hard to talk to Tananbaum about anything outside of investing. And even though the firm doesn't carry Tananbaum's name, it is well known both inside and outside Golden-Tree that he remains the main figure and is the last word on anything involving the firm.

"There's only one name, and it's Tananbaum, and he's at the absolute prime of his career - everything radiates around him," says one fund-of-funds investor who has had money with GoldenTree since the firm's beginning. The investor says that if anything were to happen to Tananbaum, he would withdraw his investment.

Fortunately for GoldenTree, not all of the firm's investors feel that way. "This is not the Steve Tananbaum show; they have a very deep and impressive team," says Joshua Kaplan, who heads hedge fund investing for St. Louis-based Ascension Health, the largest nonprofit health system in the U.S. "Unlike many other hedge funds, there aren't many egos in the room, and they're not arrogant to the point that they're doing things that are beyond their level of expertise."

That doesn't mean the firm has never stumbled. Like many of its peers, Golden-Tree had what one former employee refers to as a "near-death experience" following the credit crisis in 2008, when the firm strayed too far from its expertise and mistimed many of its credit investments. Its flagship fund lost 38.60 percent that year. The fund rebounded sharply in 2009, gaining nearly 70 percent, and added a further 23.61 percent in 2010, but it was down 0.27 percent for 2011.

Although the firm's performance last year was underwhelming, investors applaud GoldenTree's ability to protect capital in a difficult market. "I regard them highly and think they have an excellent team, and they are very careful about doing the fundamental credit work," says Jarkko Matilainen, director of hedge fund investments for Helskini-based Varma Mutual Pension Insurance Co. "Apart from '08, they've been very good at timing the markets. I would describe them as old school when it comes to investing. They typically know the credits and the companies they are investing in."

For Tananbaum, GoldenTree's ability to generate what were essentially flat returns in last year's difficult market validates the firm's investment strategy. "We look to preserve money in a tricky year and make money in most years, delivering double-digit net returns over time - which is our mandate and which we've done over the past 12 years," he says.

Adds Thomas Humphrey, a partner and member of GoldenTree's executive committee who recently took over the firm's marketing efforts: "The reason that we've won a lot of mandates in the past few years is that the firm's unique investment process has been battle-tested in 2008 and again in 2011, and no one has to ask the question, 'Just how good are they at corporate credit?' We think that the firm has been validated." In 2011, GoldenTree attracted a combined $2 billion from 24 first-time institutional investors.

GROWING UP IN MANHATTAN, Tananbaum first gained an understanding of market forces as a young collector of comic books. "Looking at what types of comic books did well and which didn't do well, I learned that the biggest appreciation was with the rare editions," says Tananbaum, remembering a purchase of MAD magazine's second issue for $5 as a particularly good deal. "Discovering what people found desirable was probably the first market I was involved in, and I definitely made a lot of collecting mistakes," he says. "I probably should have pooled all my allowance money to buy the rarest issues instead of buying several others."

When Tananbaum set off for Vassar College in 1983, he had no idea of how he would eventually make a living or even what he wanted to major in. It was practicality that led him to major in economics: Not interested in holding a job as a student, he began investing his bar mitzvah money in options as a way to generate spending money and discovered that he enjoyed finance. After getting hooked on the markets, Tananbaum wound up getting his Series 7 license while still a student and earned his first hands-on experience in the business world when a Vassar alum helped him get an internship at Goldman, Sachs & Co. - experience that upon his graduation in 1987 led to a spot in Kidder, Peabody & Co.'s investment banking training program, where he worked in M&A and high-yield financing.

Shortly after starting at Kidder, Tananbaum realized that he wanted to work for the buy side; he eventually landed a job as an analyst at New York-based investment management firm MacKay Shields in 1989. Business school seemed the next logical step, but when offered the chance to run a $250 million high-yield portfolio at the age of 24, Tananbaum quickly abandoned his MBA plans. By 1991 he had become head of MacKay Shields's high-yield group, which was housed within the firm's equity group - a unique structure at the time that influenced Tananbaum's approach to the credit markets and became the basis for the investment process at Golden-Tree.

"Being out of the equity division, we used a very fundamental, balance-sheet type of analysis, as opposed to fixed income - the idea being that if you got the security right through fundamental analysis, the debt would tend to move higher," says Tananbaum, who considers himself a practitioner of the value investing philosophy pioneered in the 1930s by Columbia University business professors Benjamin Graham and David Dodd. "In equity markets you're looking at what companies might ultimately sell for. You're always looking for a catalyst that will recognize value, whether an earnings catalyst, a sale or a refinancing," he says. By applying this same analysis to his investments in high-yield bonds, Tananbaum was able to identify which portions of the debt structure in each bond offering would generate the highest returns with the lowest risk.

The early 1990s proved to be a great time to gain experience in distressed investing. High-profile companies such as carmaker Chrysler Corp. got downgraded to junk status yet managed to turn things around. It was during this period that Tananbaum honed his investing skills and gained recognition as a top long-only investor. His investment success caught the attention of Highbridge Capital Management co-founder Glenn Dubin, who asked him to join Highbridge and run its debt operation. Tananbaum, who was happy where he was, instead persuaded Dubin to back a $50 million hedge fund portfolio he could manage within Mac-Kay Shields, and in early 1997 he founded MacKay's hedge fund group, serving as the portfolio's lead manager.

 
  Steven Shapiro: "We are better at hedging thanwe were four or five years ago"
A few years later Dubin promised to double Tananbaum's fees if he went off on his own - and he jumped on the offer. "I think they felt that it would give me more focus, and it was a good investment for them," says Tananbaum of Highbridge's encouragement to start his own firm. So in 2000, with the Highbridge account as well as a commitment from Deutsche Bank (which negotiated a five-year profit share as part of its seed agreement), Tananbaum set out to launch his own hedge fund firm. In doing so, he persuaded CIBC World Markets alums Steven Shapiro and Leon Wagner to join his effort, along with Thomas Shandell, who was then at Bear, Stearns & Co. Shapiro was previously a managing director in CIBC's high-yield group, where he headed media and telecommunications research. Wagner had been co-head of CIBC's high-yield sales and trading group, and Shandell was a high-profile analyst who covered companies in a diverse range of sectors. His coverage eventually landed him on Institutional Investor's All--America Fixed-Income Research Team of gaming analysts. Together the foursome launched GoldenTree in July 2000.

Today alternative investments represent $10.5 billion of the firm's assets, with $6.7 billion in hedge funds and separate managed accounts and the remaining $3.8 billion in leveraged CLO vehicles. Introduced in July 2000, the firm's debut product, GoldenTree Master Fund, which has $2.55 billion in assets under management, is the more eclectic of the firm's two hedge funds. GoldenTree Master Fund uses both long and short investments and can invest in equities, but uses very little leverage. The fund has an annualized return of 10.43 percent since inception, including its 0.27 percent decline in 2011, and was up 2.34 percent this year through the end of January. Comparatively, the AR Multistrategy Index was down 0.14 percent in 2011 and was up 0.82 percent through the end of January.

The $1.4 billion GoldenTree Credit Opportunities Fund - which employs 2-to-1 leverage and consequently looks for higher--quality, more liquid investments - was up 0.72 percent in 2011 and 4.23 percent in January. It has generated an annualized return of 8.30 percent since its May 2004 inception. The AR Credit Index was up 1.64 percent in January and has risen an annualized 9.63 percent over the same period.

In the dozen years since GoldenTree got its start, the debt-oriented multistrategy firm has steadily grown into one of the world's larger hedge fund firms. Yet Tananbaum's long-only investing prowess first brought him to the investment community's attention, and it remains a significant component of his firm's operations. Consequently, one of the few complaints investors have about GoldenTree is the fact that the firm hedges less than some of its peers, making it difficult to justify paying traditional hedge fund fees.

Tananbaum says that hedging has always been important to GoldenTree's strategy and that the firm has improved its efforts in recent years. "One area that we have been looking at and getting better at is in understanding the volatility of the underlying assets in the fund and what the appropriate hedges are," he notes.

Hedges at the macro level have included a short position on Germany's DAX index to offset the European-based credit holdings in the firm's portfolio - a hedge used for the second half of 2011 as the European market became more unstable - as well as positions in commodities such as copper to offset other global risks fund managers identified. For hedges specific to an individual holding, GoldenTree's portfolio managers often rely on shorting individual securities. "With something like Dynegy [a Houston-based power supplier that filed for bankruptcy in November 2011], we might be short junior parts of the capital structure and long senior parts," says Tananbaum, explaining that for a distressed company like Dynegy, the junior debt and equity would suffer far more than the senior debt.

Moving into the summer of 2011, Golden-Tree put more hedges on its portfolio because it was looking to remove risk. As 2012 approached, the firm decided it wanted a more neutral stance; it began removing many of its hedges in December and selling some of its holdings to take advantage of the strength of the market recovery and to build up its cash reserves for future investment opportunities.

Bankruptcy laws have influenced the firm's investment activities, keeping its focus almost exclusively on North America, Northern Europe and South Africa. Senior portfolio manager Shapiro says GoldenTree has yet to find investment opportunities with attractive enough risk levels to lure it into Asia. It has shied away from that continent because in countries such as China bankruptcy laws often take a backseat to factors such as who the credit partners are in a deal.

But bankruptcy laws are merely one consideration in Golden-Tree's choice of countries in which to invest. In the case of South Africa, it was analysts' extensive knowledge of the gaming industry that led to the firm's decision to invest there. "We have a lot of experience investing in gaming and lodging, and we are currently involved in a situation in South Africa where we find the risk-reward equation compelling at current prices," says Shapiro, adding that the firm's holdings in its liquidation fund "are part of a larger investment that we believe has good upside from here."

GoldenTree is taking a cautious approach to its European investments given the macroeconomic uncertainty hanging over the Continent. The area now accounts for about 20 percent of the firm's portfolio, down from the 30 to 35 percent allocation to Europe it has historically maintained. Tananbaum and his colleagues think Europe is at an inflection point and that the next two or three months will determine whether the region's economy will stabilize or worsen. Their bet is that Europe is heading into a recession but that it is difficult to gauge how deep it will be. As a result, though the firm doesn't forecast, for companies within its portfolio that have exposure to Europe, GoldenTree is factoring into its model that GDP could contract by as much as 1 percent.

Until things play out and attractive opportunities are clear, GoldenTree has increased the percentage of cash in its portfolio to about 20 percent, well above the 5 to 10 percent cash position it maintains in more-stable markets. In the meantime, the firm is limiting its investments to the top part of the capital structure within the European debt market. Golden-Tree is concentrating specifically on structured products and CLOs - an area, Tananbaum says, where investors are able to benefit from the fact that many of these vehicles are undervalued at the moment, primarily in the U.S. but also in Europe.

"The U.S. is on much more solid footing, and recovery seems to be self--sustaining," says Tananbaum. "So in the U.S. we are somewhat more eclectic, whereas in Europe we prefer to be involved in healthy capital structures and more in the senior part of the capital structure."

Traditional individual bond offerings remain a key component of Tananbaum's investment approach. A block of secondary shares of Harrah's Entertainment lease notes marks one recent investment in GoldenTree's portfolio. Backed by Harrah's Las Vegas hotel and casino, the bonds now trade at about 70 cents on the dollar, but with the prospects in Las Vegas improving on the whole, Tananbaum thinks the bonds are actually worth a full dollar. "We have a good margin of safety and believe that we'll get our money back on that paper," he says.

GoldenTree is also on the lookout for companies that generate a lot of cash. As a result, media and telecommunications, gaming and health care are among the sectors where it has been most active. Businesses within these sectors can require a lot of capital, but they also tend to be more predictable, less volatile and have higher cash flows as a percentage of their revenues than companies in other sectors.

"We've been very good at attacking opportunities when they arise," says Shapiro, pointing to the decision to recruit Joseph Naggar to head up structured investments as an example. GoldenTree brought in Naggar in October 2007, when distressed CLOs became a good investment opportunity. He joined from Morgan Stanley's global credit group, where he had been in charge of CLO trading and high-yield loans.

"Our CLO and CDO investment process is about finding undervalued securities, trying to buy them when they have value and having reasonable horizons and catalysts," says Naggar, who also chairs Golden-Tree's four-member macro committee. He says he was attracted to the firm because of its clear investment approach. "On the high-yield side, there are hundreds of companies, but on the structured side there are thousands of opportunities," he says, emphasizing the attractiveness of the CLO market. At the heart of this process is a complex computer program the firm began developing in 2007 that models the universe of CLOs and rapidly measures each of them against the margin, yield and returns that GoldenTree is looking for, allowing the firm's fund managers to spend their time focusing on deal sourcing and what kind of trading is going on within specific deals.

GoldenTree's involvement in this market extends beyond its hedge funds. The firm also manages five CLOs, with both U.S. and European assets, totaling roughly $3.8 billion. In-house CLO management not only generates additional revenue for Golden-Tree but is something the firm's management says gives it an edge because hedge fund portfolio managers are able to tap the expertise of investors operating on the other side of their own CLO investments.

"Obviously, Tananbaum gets a lot of the credit, but his greatest accomplishment was the team that he was able to assemble," says Robert Matza, GoldenTree's president, who joined the firm in January 2006 from Neuberger Berman, where he was president and chief operating officer. Matza says constant interaction among the different sections of the firm's investing team is key to GoldenTree's ability to identify strong investment opportunities.

Two members of the investment team who are frequently called upon for their expertise are Frederick Haddad and Lucy Panter, who oversee the firm's in-house CLOs. Haddad, head of GoldenTree's bank loans and structured products, joined in September 2000 from Toronto-based Royal Bank of Canada, where he had set up and managed the U.S. leveraged-finance business. Before joining GoldenTree, Panter was a vice president at New York-based P. Schoenfeld Asset Management, where she covered European credit opportunities.

"When we're making these kinds of investments, we're literally using every part of GoldenTree," says Naggar. The firm looks for investments expected to yield between 8 and 15 percent based on anticipated earnings, credit improvements or potential corporate actions. The average position size in GoldenTree's portfolios is about 2 percent.

CLO investments represent about 20 percent of the firm's portfolio. "While everyone says they are unique and have great infrastructure, GoldenTree has really put a lot of time, money and talent into building their systems," says the chief investment officer of a major charitable foundation invested in GoldenTree. "In the CLO world I think that is a huge leg up, and I think their systems are stronger than the other ones I've seen out there. They're able to really use tech in a way that makes them lead the pack."

Investors also applaud the transparency GoldenTree provides on the holdings in its portfolio and the unified message it conveys about its investment process. Longtime investors praise the firm's institutional culture and portfolio managers' ability to clearly communicate the deep fundamental analysis and the reasoning behind their investment choices.

"They're very serious credit people, and they're good at it and very focused on their mission," says Clifford Press, co-founder of $100 million, New York-based activist equity fund Oliver Press Partners, who has had a personal investment in GoldenTree since the firm's early days.

And while some investors were unhappy with GoldenTree's 2008 performance and subsequent decision to put some assets in a side pocket, others appreciated the firm's endeavor to right the wrongs of that year. Not only did GoldenTree tighten its portfolio by returning to its core credit focus, it established a macro committee that meets weekly to discuss the portfolio's holdings, and it brought on marketing head Humphrey to help enhance the firm's institutional culture.

"They've got a lot of strong bottom-up analysis that they apply to their process," says Jason Goeller, who oversees hedge fund investments for the $11 billion Public Employees Retirement Association of New Mexico, an investor in GoldenTree since June 2007. "We get a lot of our exposure in bank loans and CLO debt from Golden-Tree, more than we do from our other credit strategies. Two thousand eight was tough, but they took a bad year and they turned it into a learning experience and bolstered their risk management process and the way they view portfolio construction."

For Shapiro, a portfolio manager who is widely recognized as the firm's second-in-command, the events of 2008 weren't all bad, because they spurred GoldenTree to better position itself. "We've increased our toolbox," says Shapiro, 44, who denounces investor criticism of the firm's minimal use of hedging. "We are better at hedging than we were four or five years ago and are able to use more-narrowly focused hedges to get the protection we're trying to achieve in the portfolio. Hedging has contributed significantly to our returns in the last couple of years."

Tananbaum says the difficult years in GoldenTree's recent past have taught the firm valuable lessons that have strengthened its investment approach. "The one year that we feel we misjudged from a liquidity standpoint was '08," he says. "We did a good job selecting our securities, but we were too early and the liquidity was very tough." He is quick to note that once the firm regained its footing, the financial crisis provided portfolio managers with unsurpassable bargains in the debt markets.

But although GoldenTree has strived to put the events of 2008 completely behind it and to learn from its mistakes, getting some people to forget is proving more difficult. As one of the first firms to suspend redemptions and side-pocket illiquid assets during the crisis, GoldenTree faced such strong investor backlash that it took the unique approach of allowing investors desperate for cash to sell some of their assets in a Dutch auction run by Credit Suisse; GoldenTree covered the cost of the auction. In the end, ten of the firm's investors used the auction to unload assets totaling $41 million. The firm waived management fees for the side-pocketed assets and kept its promise to return capital quickly by refunding 75 percent by December 2009. It has now returned more than 104 percent of the initial value side--pocketed, but some of its legacy investors are irked that their money is still tied up.

"There are investors who don't care that you've returned 104 percent; what they care about is that there's a $50,000 line item on their books because you're still holding on to some asset," says one former GoldenTree employee. "It just pisses people off because it reminds them of '08, when you froze them and they couldn't get out. There are people out there who will say, 'We're not doing anything with you until you get rid of this line item.' But part of Steve's personality is that he'd rather be right about some real estate deal he made than be done with it and maybe get back in the good graces of an investor."

Adds one longtime GoldenTree investor, "They're one of the few credit managers left that still have residual positions while their peers have pretty much cleared out."

But for the most part, the firm's investors say they realize Tananbaum's decision to lock up assets was ultimately in their best interest - something the firm's management strives to reinforce by reminding investors that they will receive more gains from those holdings in the near future.

"Last year was difficult for them, as it was for a large part of the industry. But I think that when you look at firms and how they've come back from the '08 experience, GoldenTree has done as well as anyone," says another former senior employee of GoldenTree's. "Anyone that has stayed with them has ultimately made money notwithstanding the losses in '08, and I think that's a credit to the firm's ability to deliver absolute returns."

WHEN TANANBAUM SET OUT to launch his own hedge fund firm, his investment vision was clear, but he had absolutely no idea what to call his new venture. One thing he was certain of was that he didn't want to name the firm after himself, instead desiring something that would reflect the organization he hoped to build - a firm that was more about its combined parts than about any one individual. Wagner and Tananbaum's wife, Lisa, set out to find a name that would be memorable for investors, ultimately landing on Golden-Tree. The firm's shared compensation system was designed with the overall organization in mind.

"Our culture is very team-oriented, and our model is that we don't have people with individual formulas where they only do certain types of investing," says president Matza. "Everyone works together, and if they do, GoldenTree will do very well." Most of the individuals on Golden-Tree's investment team have been working together since the firm's inception, Matza adds.

Still, GoldenTree has seen some high-profile departures, most notably from the ranks of its founders. Wagner, who was extremely visible among GoldenTree's investors and served as the firm's chairman from its beginning, announced his retirement at the end of 2010.

"Leon and Steve were connected at the hip for much of the founding of the company, and Leon was very much responsible for the family orientation of the firm. He made it less institutional, not more, because of his style," says a former Golden-Tree employee. "At the end of the day, Steve didn't want that. He wanted a big firm like an Och-Ziff [Capital Management Group]."

Even though Wagner, 58, no longer works at GoldenTree, he remains a presence, maintaining the corner office below Tananbaum's, on the lower level of the firm's two-story headquarters. He is still close friends with Tananbaum; the two recently attended the Super Bowl together.

Wagner says his departure was about nothing more than the time finally being right for him to try his hand at something different. "I was looking for an opportunity to get some perspective and think about what I wanted to do at the final stage of my career," he explains, adding that in his heart he is an entrepreneur who likes to build businesses. "Having lived through the credit crisis of 2008, I realized that we only have a limited time on this planet, and though I couldn't very well pack it in during the crash, I was waiting for a time when stability returned to the markets to take some time for myself," he says.

Since leaving GoldenTree, Wagner has joined the board of directors of Satellite Beach, Florida-based Lighting Science Group Corp., a global producer of LED lighting products that is controlled by Cos Cob, Connecticut-based private equity firm Pegasus Capital Advisors. Wagner has a longtime relationship with Craig Cogus, Pegasus' founder and a co-founder of New York-based alternative-investment firm Apollo Global Management.

Shandell left the firm in early 2008 to head the credit strategy at start-up hedge fund firm Fridson Investment Advisors, which was launched in May 2008 by Martin Fridson, who earned a reputation for himself as a top high-yield analyst at Merrill Lynch & Co. before founding his own research group, and Richard Hollander, founder and CEO of Los Angeles-based financial services firm Metropolitan West Financial. But following the financial crisis, in October 2009, Shandell returned to GoldenTree to lead the firm's special--situation investments after Fridson Investment Advisors closed up shop.

Meanwhile, GoldenTree partner and former marketing head Frank Jordan departed at the beginning of this year. "After nine years at GoldenTree, partner and Executive Committee Member Frank Jordan has decided to leave the firm in order to pursue more entrepreneurial endeavors. We will miss Frank and wish him the best of luck in his future pursuits," said GoldenTree's February investor letter of Jordan's departure.

"Frank Jordan was a key part of their business and one of the best things they had going for them," says an executive at one of GoldenTree's biggest competitors. Adds a former GoldenTree employee, "Frank was the one partner who was in a good spot to protect investors, because he told Steve what they want and stood up to him." GoldenTree says Jordan's departure will not affect the strength of its investor relations. The firm says it benefits from the depth of its executive committee and senior management team, which recently has been bolstered by key hires including Humphrey; London-based Kathryn Sutherland, GoldenTree's head of international business development, who joined the firm from J.P. Morgan, where she had been global head of structured syndicate; and Robert Sherman, GoldenTree's head of consultant relations, who formerly was CEO of Upper Saddle River, New Jersey-based fixed-income manager Seix Investment Advisors. "Our ability to manage that aspect of our business is stronger than ever," says Matza.

Some of the firm's notable departures who have gone on to high-profile roles at other places include Oliver Wriedt, a former partner who was Golden-Tree's head of marketing before leaving in August 2008 and eventually joining the capital markets group at private equity firm Providence Equity Partners; David Allen, a former partner who ran GoldenTree's European office and now heads private debt investments for the C$152.8 billion ($153.2 billion) Canada Pension Plan Investment Board; and Thomas O'Shea, yet another former partner, who ran the firm's London office and later joined Charlottesville, Virginia-based specialist credit hedge fund firm Castle Hill Asset Management as a partner. Brian Joseph, a senior research analyst, left Golden-Tree for a senior portfolio manager position at Los Angeles-based Empyrean Capital Partners, while Raul Ramirez, a London-based portfolio manager at Golden-Tree, departed to take a job as a portfolio manager at Avenue Capital Group.

Investors haven't overlooked such turnover, but some say the fact that most of the firm's partners have stuck around is a good sign. However, some institutional investors are concerned about GoldenTree's continuing management of long-only funds alongside its hedge fund business, contending that few firms have been able to successfully run both types of funds and that the only reason for doing so is to generate more fees, with managers likely to keep their best ideas for the funds that pay higher ones. GoldenTree says that there is a limited capacity for its $3.9 billion long-only fund and that it won't be taking any more money for this strategy. Only institutional investors are in this fund.

"When Steve founded GoldenTree, he already had a ten-year track record managing long-only that was in the top 5 percent of performance, and a number of investors asked him to continue managing long-only money," says Humphrey. "When you're in our zone and you have a 20-year record, people view it as part of the DNA of the firm and not a distraction." In fact, institutions now represent the bulk of Golden-Tree's investors thanks to a conscious effort made by the firm to move away from fund-of-funds money as part of the many changes it implemented after the financial crisis.

Having come off yet another difficult market in 2011, GoldenTree's management says the firm is well positioned to generate strong returns from many of the distressed investments it was able to pick up during the past two downturns in credit. "When there's blood running in the streets and it's really bad and the markets are exceptionally volatile, that's when we're at our best in terms of assessing relative value," says senior portfolio manager Shapiro. "We're among the best at doing that, and I think that's been proven. When you look at very volatile years, we have a tremendous performance record in the three or four following years."

Though it is Tananbaum's investment prowess and intensity that investors tend to notice when visiting the firm's Manhattan headquarters, there is another side of him on display as well. A big fan of post-World War II art, Tananbaum has decorated GoldenTree's offices and trading floor with an eclectic mix of pieces from his personal art collection and rotates the works on a whim. A mammoth rendering of NASA's insignia that hung in the firm's lobby in late January had disappeared by early February, replaced by a giant shadow box containing various hair-styling tools that once belonged to James Brown, from curlers to hair spray. Meanwhile, Tananbaum sees a painting from British artist Keith Tyson's history series that hangs on GoldenTree's trading floor as a metaphor. Tyson constructed his painting from 49 identically sized strips covered in red, black or green aluminum powder and determined the color arrangement by spinning a roulette wheel.

"Investing to me is finding things that look like chance and then finding the pattern in them," says Tananbaum of both the painting and his motivation for hanging it on the trading floor. But with Tananbaum and his colleagues digging so deep into the underlying factors for every investment GoldenTree makes, chance seems to be the one thing the firm does everything to avoid.

"We're always looking for a margin of safety when making fixed-income investments," says Tananbaum. "The special sauce is in the execution of our process and the fact that when things change and something no longer fits the process, we'll take a position off."

How that execution will work when applied to such highly fraught situations as the European debt crisis still remains to be seen. But if Tananbaum and his team can stay disciplined, GoldenTree may well discover its own Waldorf-Astoria amid the wreckage.



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