What do men do when they have everything? They buy a professional sports franchise. This puts them in the playground of life, with sports now usurping even their business aspirations. It is a small fraternity of men and women who have the privilege of becoming an owner. Unless your name is Rooney (Pittsburgh Steelers) or Halas (Chicago Bears) you had to make a fortune in life to join this club. David Tepper is no exception.
Tepper is the newest member of NFL owners, buying the Carolina Panthers professional football team in 2018 for $2.3 billion. So where did his money come from? David Tepper, arguably the greatest hedge fund manager of his generation, runs the Appaloosa Management hedge fund firm, which now manages $15 billion and is based in Miami Beach, Florida.
How does one get to the top of the hedge fund business? Tepper had a relatively standard resume for such. He was born in Pittsburgh, Pennsylvania in 1957. He graduated from the University of Pittsburgh in 1978 with a degree in Economics. He earned his MBA in 1982 from what is now known as the David A. Tepper School of Business at Carnegie Mellon University. The business school was originally known as the Graduate School of Industrial Administration (GSIA). Like others in the industry, his expertise was in bonds, particularly distressed and high yield securities. He started his career as a credit and securities analyst with Equibank. He moved on to work for Republic Steel as a financial analyst. It was at this juncture that Tepper got firsthand experience of the credit structure of a distressed company when the steel company ran into financial troubles. Tepper began his career with Goldman Sachs in 1985 as a credit analyst. He soon progressed to the high-yield desk as a head trader where he dealt in junk bonds.
His metamorphosis to the hedge fund by the numbers. In 1993, Tepper co-founded Appaloosa Management L.P. with a former Goldman Sachs colleague, Jack Walton. Appaloosa Management started with $57 million in capital. In its first six months, Appaloosa delivered 57% returns on its assets and the fund grew to $300 million in 1994, $450 million in 1995, and $800 million in 1996. According to Institutional Investor, $1 million invested in Appaloosa at its inception date would be worth $181 million just over 20 years later. The fund hit some grand slams along the way. In 2003, he was up 148 percent after purchasing distressed debt in Enron, World Com and Conseco, three of the largest bankruptcies at the time. As did most, he took a major hit in 2008, but in 2009, his flagship fund gained more than 130 percent when he bet the government wouldn’t let big banks fail and loaded up on preferred shares and bonds of the big banks.
It doesn’t appear that philanthropy runs deep in Tepper’s veins. Instead, in 2010, he famously bought a 6,165 square foot property in Sagaponack for $43.5 million and then tore the house down to build on twice as big. Oh, I did forget one act of kindness. His generous gift of $55 million in 2003 to Carnegie Mellon to have the business school named after him. I wonder if they haggled over the amount.