The Apotheosis of David Tepper
- Joshua M Brown
- May 15th, 2014
Exaltation to divine rank or stature; the elevation of a person to the rank of a god; deification
Late Latin, from Greek apotheōsis, from apotheoun to deify, from apo- + theos god
The grand ballroom at the Bellagio Hotel and Casino in Las Vegas is dark, apart from the massive wall-to-wall video screens behind the stage. In the audience, there are over 2000 hedge fund and brokerage firm movers and shakers, most of them slightly sunburnt owing to the endless winter they’ve endured back in New York and Connecticut. The room is filled, nearly every seat occupied for the speaker we’re all really here to see: David Tepper of Appaloosa Management LP.
In every market moment, there is one man – and it is always a man – who is deified by his peers and the media; an anointed one in every sense of the term. His every word is hung on, his pronouncements are the day’s discussion, his off the cuff remarks become the business press’s front page headlines the following day.
David Tepper now occupies this place in the firmament, wholly and completely. He’s earned this position in the monetary-industrial complex by virtue of the following three attributes, likely in this order:
1. His big returns
2. His even bigger personality
3. His well-known reputation for philanthropy
We’re all in our seats and quiet as Anthony Scarammucci takes his place behind the podium.
Scaramucci is the Zelig-like industry figure who puts on the SALT Conference each year, summoning the financial faithful to this western mecca of capitalism and casinos. It’s impossible not to like the guy personally and it’s even harder not to admire the empire he’s built for his fund platform, Skybridge Alternatives. He is everyone’s contact, confidant and counselor. His magnetism is the mortar that this enormous annual event is built with, it’s the cement holding it all together. This week I’ve heard Magic Johnson, former British Prime Minister Tony Blair and retired four-star general David Petraeus all refer to him amiably as “the mooch.” David Tepper doesn’t typically speak at conferences or to the media – the only reason he’s here is that Anthony asked him to come.
Scaramucci wastes little time in introducing Tepper. He spares us the perfunctory biographical details that everyone here is already familiar with. He tells us instead that “If you had put a million dollars with David Tepper when he started Appaloosa 20 years ago, it would now be worth $149 million net of fees.” There’s an audible gasp at that figure. Whenever you’re surprised at the massive AUM of the hedge fund industry, given its lackluster performance, remember that this is the exact dream scenario all of that money is chasing in the first place.
Tepper joins Scaramucci on the stage and the video screens project the two of them in black leather chairs, at a scale of ten times their actual size. Glancing down at my laptop, I see the streams of financial Twitter explode across my Tweetdeck with mentions of the discussion that’s about to begin. It is at this moment that I realize what’s taking place – David Tepper is becoming today’s Hedge Fund God. He’s younger than Soros and Cooperman, less cantankerous than Loeb and Icahn, can claim higher returns than Einhorn and Ackman, carries none of the regulatory taint of Steve Cohen and has all of the garrulous authenticity that almost none of his peers possess when in a public setting.
This is his moment, whether he wants it or not. The apotheosis of David Tepper is now complete.
Scaramucci’s questions guide us through the gospel of Dave, which roughly follows the narrative arc of the New Testament:
David Tepper comes from humble origins
He started as a junk bond analyst at Goldman Sachs , which lasted for only six months before his trading ability was discovered. He became the head junk bond trader by default, “the guy they had before me was no good, so I was in charge right away.” Even though Goldman was always Goldman, he began in a backwater at the firm – junk bonds weren’t exactly a sexy line of business at the time. “At 85 Broad Street they put the junk bond department next to the ladies room because they wanted to hide it.”
Even the origin of his firm’s name has a folksiness to it – “Everyone was doing Greek gods back then. ‘Pegasus’ was taken, they wanted $300 to sell it to me, I said no way.” Looking for other equine names, he settled on Appaloosa. The “A” name was strategically brilliant: “Information used to be sent out from the brokerage firms by faxes, so if you were at the beginning of the alphabet, you got it 15 minutes faster.”
David Tepper trekked out into the wilderness to find his purpose
We’re told about how David left Goldman Sachs with nothing but his own money. He was sick of the culture and there is still no love lost for his alma mater. He had invested $3 million of his own money in the market prior to leaving, that money doubled very quickly to $7 million, which allowed him to found his own shop.
He next goes out and finds a following, raising another $50 million in outside capital to get started. “I had no family connections, someone like me leaving and starting up a fund was Goldman’s worst nightmare.”
David Tepper faces trials and tribulations
Tepper tells us his fund has been down 20 percent or more on three different occassions. This includes the episode in 1998, where he was blown out because of the Asian Contagion and subsequent Russian currency devaluation. Tepper was heavily exposed to emerging markets and Russia, the combination crushed the fund. But then he made it all the way back to Appaloosa’s high water mark within 6 months.
“We did it two more times – people started flooding us with money whenever we were down big because counter-intuitively they knew it was good timing to get in.”
David Tepper’s mission becomes clear
David’s in the performance game, not the assets under management game. After almost every profitable year, he kicks principal and profit back his investors. “We do this to make money and send it back to people, not to collect assets. I love the game.”
Performance is what liberates him from having to manage people issues – it allows him to focus on the only game that matters to him. “I like most of my investors, I don’t like them all. But when you give them back twice what they gave to me, what are they gonna say? It’s freedom.”
He is not big on bureaucracy or committee decision-making. “We have $20 billion in assets and we run it with 33 people.”
David Tepper wants us to repent
He thinks that the global economic risk is mostly from central bankers who are way too complacent. He thinks Europe (ECB) actually needs to ease by June. The risk there is deflation and if they’re serious about targeting 2% inflation, they need to act now.
As far as the US markets, he is not as confident as he was a few years ago in predicting the now-infamous “Balls to the Wall” rally – a call that played out immediately and exactly to his expectations. This time feels different and he is concerned.
“Now is the time to have some cash. If you’re 120% long here, it’s probably not a good idea. I am nervous, it’s probably nervous time. We’ve been in this stupid trading range for awhile. I’m not saying be short, I’m saying don’t be too frickin’ long.”
He prefers fearful environments and the complacency of this one is not to his liking. “We have this saying: The worst things get, the better they get. When things are bad, they go up.”
David Tepper’s business philosophy is a spiritual one
He believes in doing good in order to do well. At Scaramucci’s behest, Tepper tells a story about being down over 20 percent in 2008 and making the decision to backstop every single soup kitchen in the state of New Jersey with his own money. He’s not just writing checks; he’s involved in making sure the money goes to where it’s need as the economy collapses. The moment he made this decision marked the low for his fund’s assets, performance exploded to the upside from that day forward.
Anthony asks if he believes in good karma. Tepper shouts “Are you fucking kidding me?” As though the question were utterly absurd.
David Tepper brings a message of hope
This is a man who is doing exactly what he was put on earth to do. When he’s asked about what advice he has for the assembled acolytes in the ballroom, he simply says “Do what you love.”
Thunderous applause accompanies his exit from the stage. Any doubt about whether he’s “the real deal” melts away. In its place, there is only awe and admiration.
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The Reformed Broker is a blog about financial markets and the economy. Joshua Brown is a New York City-based investment advisor for high net worth individuals, charitable foundations, retirement plans and corporations... More.