Investor David Tepper goes where others don't dare
David Tepper boils his hedge fund's success down to this: "We don't freeze."
The billionaire fund manager who hails from Pittsburgh will probably close out 2009 with a roughly $7 billion — yes, "billion" — profit, he said in an interview yesterday.
While others on Wall Street often panicked in the past year or so, Tepper, 52, stuck to his strategy at Appaloosa Management. He is president and founder of the Chatham, N.J., firm, which has more than doubled in value this year to about $12 billion.
"We won't stop if we're down a little bit. We don't freeze," he said. "We keep investing with a disciplined, logical approach."
And a courageous one, most would say. Appaloosa bought lots of stock in big, beleaguered banks early this year at a time most professional fund managers were either sitting still or cashing out at a loss.
For instance, the firm purchased preferred shares of Citigroup when it was trading below $1. Tepper's firm also bought Bank of America when it was trading below $3 a share. He figured it was only "logical" that the government would never let such major banks fail, Tepper told The Wall Street Journal.
Nowadays, Bank of America stock is trading above $15, and Citicorp is selling for well over $3. Tepper's new target: commercial mortgage-backed securities. Appaloosa recently bought about $2 billion worth of the risky paper, whose current value has shrunk because of commercial real estate troubles.
"It's not as risky as people make it out to be," said Tepper, who grew up in Stanton Heights and graduated from Peabody High School. "We invest in a lot of bonds and preferred (stock), which we can convert to equity."
Tepper's contrarian but winning ways enabled him and his wife, Marlene, in March 2004 to give Carnegie Mellon University a record $55 million, which established the David A. Tepper School of Business.
In September, Tepper and the Steelers finalized the native son's minority investment in the football team. He joined three other outsiders who invested in the Steelers when the Rooney family restructured the team's ownership.
"I still come in for Steelers' games all the time and get back to the city quite often," including visits to CMU, Tepper said yesterday by phone between meetings. "I also give money to Pitt and to (food) pantries around the city."
Tepper obtained his bachelor of arts in economics from the University of Pittsburgh in 1978, and his master of business administration degree from CMU in 1982.
After stints at Equibank here and Republic Steel in Ohio, he joined Goldman Sachs in the late 1980s, helping run the New York investment bank's high-yield bond trading. He left there to start Appaloosa in 1993.
His contrarian bets often pay off. Appaloosa plugged into steel and coal in 2007, and profited handsomely the next year when commodities prices soared.
So what does Tepper see for 2010?
"The year ahead is going to be boring," he said. "The economy is OK, and things will be fine. But it will be a slow-growth economy."