David Tepper’s Appaloosa Management is the latest
high-profile hedge fund firm planning to return money to
|| Appaloosa founder David Tepper. Photo:
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
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
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.