Billionaire Bio: David Tepper’s Path to the Top of the Heap
David Tepper doesn’t exactly relish the spotlight. But when he has something to say, he says it — and his statements are often quite bold.
In December, the billionaire at the helm of Appaloosa Management commented in an email to CNBC that 2015 was shaping up much like 1999. “This year rhymes with 1998. Russia goes bad. Easing [is] coming from Europe,” he wrote. “Sets up 1999 … [oops] I mean 2015.” In a separate interview just a week later, Tepper said he believes the S&P 500 is “fairly valued” and could rise another 8–10% from current levels.
Contradictory statements? Not exactly. But it’s clear that in David Tepper’s mind, things are about to get interesting. “It’s not the time to be careful now. Enjoy the ride,” he told CNBC’s Melissa Lee in late 2014. “Don’t get too comfortable when the ride starts. The ride hasn’t started yet.”
Before the ride begins, a look at Tepper’s career in investing.
Life and Education
David Tepper was raised in Pittsburg, Pennsylvania and came from a relatively humbled background. His father worked as an accountant and his mother an elementary school teacher.
The now-billionaire graduated from Peabody High School, after which he attended the University of Pittsburgh as an undergraduate. He received a Bachelor of Arts degree in economics and, after spending a few years in the workforce, enrolled at Carnegie Mellon University’s business school to pursue a Master of Science in Industrial Administration — the institution’s equivalent of an MBA.
Career
Right out of the University of Pittsburgh, Tepper had a short stint working for Equibank as a credit analyst in the treasury department — after which he decided to go back to school. He graduated from Carnegie Mellon in 1982 and accepted a position at Republic Steel in Ohio. In 1984, he was recruited by Keystone Mutual Funds.
Goldman Sachs came knocking in 1985, and Tepper joined the firm as a credit analyst in New York City. Within six months, he became the head trader at the firm’s high-yield desk. He remained at Goldman for eight years, focusing on bankruptcies and special situations. He left made the decision to depart in 1992 and launched his own firm, Appaloosa Management, in 1993.
Investment Philosophy
Tepper started Appaloosa with $57 million and has grown the fund to an estimated $20 billion as of the end of 2014. According to Forbes, his net worth stands at $10.4 billion.
David Tepper’s expertise lies in distressed equity and debt investing. He pinpoints in “the diciest of companies” and those that have most other investors running. “I’m not afraid to lose money, that’s what makes us different,” he told the Wall Street Journal.
The billionaire often buys into companies that are near bankruptcy to later sell their debt once it matures or sell the stock once it recovers. He has a penchant for high-revenue firms as well.
Tepper’s investment strategy has proven incredibly lucrative. He closed 2013 with what Forbes has described as “one of the greatest five-year performance stretches the hedge fund industry has ever seen.” And though he cooled off quite a bit in 2014 (Appaloosa’s Palomino fund returned 2.2% net of fees), his long-term track record is proof of his staying power and prowess.
Notable Plays
David Tepper has made billions betting on companies in the direst of straits.
In 2001, Appaloosa generated a 61% return by investing in firms like Pacific Gas and Electric (NYSE:PCG) and Edison International (NYSE:EIX), both of which were near bankruptcy. In 2002, he bought $1 billion in debt from Enron and subsequently made a fortune on its reorganization. Bets like these and others on distressed companies like WorldCom, Conesco, Marconi, Mirant and MCI pushed Tepper into the billionaires’ club by 2003.
David Tepper made an especially bold move — and big profit — in 2009, making large investments in some of the biggest banks in the United States. Sure that the government wouldn’t let the firms fail, he picked up major stakes in institutions like Bank of America (NYSE:BAC) and AIG (NYSE:AIG). The result: a $7 billion profit for Appaloosa.
In the years that followed, Appaloosa enjoyed an incredible run. Tepper is among the highest earning hedge fund managers in the world, bringing in $3.5 billion in 2013 alone.
The billionaire returned capital to investors at the end of 2014 — something he’s done five times since Appaloosa’s inception. Most recently, Tepper has set his sights on General Motors (NYSE:GM), as his firm is part of a group of hedge funds backing Harry Wilson’s push for a major share buyback program from the automaker. In February, the fund released a statement on the issue:
Appaloosa supports the shareholder proposals from Harry Wilson as the Company’s best means of enhancing shareholder value and addressing an excess accumulation of unproductive cash on its balance sheet. We have in the recent past discussed a number of critical issues with GM’s management team, including the need for greater discipline and efficiency in allocating the shareholders’ capital. In addition, we highlighted the lack of transparency in GM’s executive compensation program and questioned whether it properly incents effective capital deployment. Finally, we pointed out the need for greater shareholder-oriented representation on its Board of Directors.
We believe that Harry Wilson will be a highly effective advocate for shareholders on the Company’s Board of Directors. We invite and encourage GM to address these issues productively and refrain from acrimony.
Quotes
“This company looks cheap, that company looks cheap, but the overall economy could completely screw it up. The key is to wait. Sometimes the hardest thing to do is to do nothing.”
“I am the animal at the head of the pack. … I either get eaten, or I get the good grass.”
“Those who keep their heads while others are panicking do well.”
Videos
David Tepper on Bill Gross Leaving Pimco: Who Cares?
Tepper: Not Much Downside in Markets
Tepper: The Market Is Not in a Bubble
David Tepper is one of the billionaires contemplated in the iBillionaire Index. Learn more at www.iBillionaireIndex.com.
