Billionaire feels 'lucky' he didn't buy Steelers
On Oct. 5, philanthropist and hedge fund billionaire Stanley Druckenmiller sat in his New York den, watching the Steelers play in Jacksonville.
Two weeks before, he yanked an offer worth more than $800 million to buy the fabled Pittsburgh franchise, and now the quarterback of his beloved Black and Gold was scrambling to escape the clutches of the Jaguars, en route to a narrow 26-21 victory in Florida.
But during every commercial, Druckenmiller scrambled to a nearby room, where computer screens tracked the daytime tumult of Asia's financial markets -- Tokyo's Nikkei 225 average crashing more than 11 percent, Hong Kong's Hang Seng index tanking, the Bombay Sensex plummeting.
Back in his den, Druckenmiller watched the TV camera pan across the stadium suite reserved for Steelers Chairman Dan Rooney. Druckenmiller called it his "epiphany."
"He was there, in Jacksonville, in that box. And then it hit me," Druckenmiller said Sunday before the Steelers-Chargers game. "I would've been expected to be down there. I couldn't run back to the computers during commercials. It was like having buyers' remorse, without buying the team.
"I guess I'd never really counted what some people might call the 'distraction factor.' It's a really lucky thing that I didn't buy the team. If you came to me now and offered the Steelers for substantially less than $800 million, I wouldn't buy it because it would be hard to divide my time between the team, my charities and managing risk in the worst economic conditions I've ever seen."
When four of the five sons of deceased Steelers patriarch Art Rooney Sr. couldn't decide immediately on selling their controlling interest in the franchise on Sept. 18, Druckenmiller exited negotiations. Wall Street titan Lehman Brothers had just filed for the largest bankruptcy in U.S. history, and financial markets worldwide were reeling from bad loans, shriveling lending between the largest banks and causing investor confidence to nose-dive.
"I kept my offer to the Rooney brothers because that was the honorable thing to do. And when they said 'no' to my offer, I have to admit that it hurt. But within a week, I didn't share that feeling anymore," said Druckenmiller, who frequently attends Steelers home games.
Making money, even now
Druckenmiller's signature Pittsburgh firm, Duquesne Capital Management, has more than $10 billion under management. Like other hedge funds and wealth management firms, during the past five months Duquesne Capital has bolted from the tumbling U.S. stock market, moving money away from long-term holdings in large publicly traded companies. According to mandated filings with the U.S. Securities and Exchange Commission, he's moved more than $3.5 billion out of domestic stocks since late June.
Druckenmiller told the Tribune-Review he's put more than half of Duquesne Capital's reserves into cash and he's playing a "defensive game" with a small amount of the rest, earning large profits through bets on commodities and currencies. Led by Druckenmiller since 1981, Duquesne Capital's funds have never posted an annual loss.
He told the Trib that Duquesne Capital's lowest performing fund was up 5.2 percent for October and through today, after fees are deducted. His top performing fund is up 10.3 percent, returns he characterized as "modest."
"They're not great numbers relative to our historical performance, but they're very good numbers compared to the rest of Wall Street," Druckenmiller said.
Duquesne Capital's recent and long-term performance was confirmed by Jimmy Dunne, senior managing partner of Manhattan's Sandler O'Neill investment house.
"I've been in Stan's funds for a long time. I get the reports along with everyone else. We talk on a daily basis, and I can figure out how well he's doing 10 seconds into the conversation, just by the tone of his voice," Dunne said.
"Listen, I'm in about 10 funds now. Every one of them is down except Stan's. Almost every hedge fund in the world is down but his."
Hedge Fund Research's Equity Hedge Indices would agree. HFR's Global Fund Index has dipped nearly 21 percent over last year.
"Stan Druckenmiller could write a bigger check today for the Steelers than he could in September. He's the only guy in the world who could do that now," Dunne said.
'Swimming in cash'
Hedge funds are private pools of money. Investment managers use the cash to water investments around the globe, speculating in everything from currency fluctuations to bonds to high-end antiques. Much of Druckenmiller's stock income didn't necessarily come from long-term holdings but rather by selling an asset "short" -- betting that an instrument will trade lower than others predicted and reaping a profit later on the analysis.
"We've brought our longs down dramatically," Druckenmiller said. "But we've also cut our shots. So we're swimming in cash. The way I play the game, if it looks like the markets are becoming less analyzable, you just don't play. Well, this has been a very toxic and hostile environment, so we're not playing that much."
An exception: Druckenmiller said he "called an audible in mid-year" that made mucho moolah. In July, while the Rooneys were debating selling him the football team, he bet that the U.S. dollar would rise against other currencies, especially those in Europe, over a four-month span.
"That was a good call," he said.
One of the few companies that Druckenmiller plans to ride over the long run is PNC Financial Services. The Rooney brothers said Friday that PNC is orchestrating a $280 million loan to Dan Rooney and his son, team President Art Rooney II, to buy them out and become majority owners.
That will remove Chairman Dan Rooney from the family's increasingly lucrative casino gambling holdings -- operations banned by the National Football League -- but it will put the Steelers up as collateral against the bank loans and investments of an as-yet unnamed roster of outside partners.
Druckenmiller said he bought PNC at $74 per share. It closed Friday at about $62, down 5.7 percent from the previous day's trading.