David Tepper’s Appaloosa Is Latest Firm to Return Investors’ Money

December 04, 2013   Stephen Taub

Tepper’s firm will return up to $2 billion in an effort to keep the firm’s funds at an optimal size.

   Appaloosa founder David Tepper. Photo: (Bloomberg News)
David Tepper’s Appaloosa Management is the latest high-profile hedge fund firm planning to return money to investors.

The Short Hills, New Jersey-based firm expects to give back between $1.5 billion and $2 billion, according to people with knowledge of the firm. Both limited partners and general partners will probably be affected, according to these people.

We reported yesterday that Seth Klarman’s Baupost Group plans to return about $4 billion at the end of the year. And earlier this year Daniel Loeb’s Third Point disclosed that it plans to return about 10 percent of its assets to investors.

Unlike Baupost, which is planning only its second-ever return of capital, Appaloosa regularly gives back money to investors when it feels it is getting too big. This will be the third straight year Appaloosa has returned capital to investors. Tepper has already returned about $8 billion to investors since starting the firm in 1993. The Pittsburgh native’s goal is to keep the fund size at a level he deems optimal at any given time.

The firm now manages more than $20 billion. Tepper recently told Bloomberg Television he is up more than 40 percent gross this year. Last year Tepper made $2.2 billion — which ranked him first on Alpha’s Rich List for the second time in the past four years — after posting a net 30 percent gain.

At the start of 2013, Appaloosa was only the 25th largest hedge fund firm in the world. This is remarkable since Tepper could probably be managing two to three times as much money if he wanted given that Appaloosa is probably the most successful hedge fund firm of all time among those not reliant on a black box or algorithms for trading. Since inception, it has posted a net annualized return of 28.44 percent.

What’s more, Tepper has bucked a common problem in the money management world, which is that firms’ returns often decline the more assets they manage. In the most recent five-year period, Appaloosa’s net return was even higher — 30.54 percent. And this does not include 2013, which looks to beat his long-term record. So it was no surprise that Tepper was recently inducted into the Alpha Hedge Fund Hall of Fame.

Tepper’s decision to return money this year certainly does not suggest he is turning negative on equities. Tepper recently told Bloomberg TV he thinks the stock market will be higher six months from now, disputing the growing notion there is a bubble building in the markets in general. He explained that unlike during the 1995-to-2000 bubble period, price-to-earnings multiples have barely budged in the past five years. Since then, fears of the end of the financial system, Europe and China have abated.

Rather, Tepper predicted that long-short managers with sizable short portfolios will miss out on some upside gains. He also said you can’t go wrong being long an S&P 500 index fund or exchange-traded fund in this environment, although he thinks hedge funds like his will pick better stocks. His favorite stock group: airlines, which have already delivered big gains for him but still account for more than 10 percent of equities.

Related Articles

Latest Poll

How will hedge funds finish 2017?

 - 72%
 - 11%
 - 17%

View previous results