Hedge Survivor - \"Regular Joe\" Tops Two Ivy Leaguers

Date: Monday, November 3, 2008
Author: Teri Buhl, New York Post

Look who's sitting atop one sector of the hedge-fund world.

Joe Wolnick, 53, the head of Halcyon Asset Management's $850 million Asset Backed Securities hedge fund, is up 3 percent through Sept. 30, making him one of the only ABS funds with a positive return through the first three quarters of 2008.

The top-of-the-heap position is especially sweet for Wolnick - who started running his first hedge fund just three years ago after a career spent working as a credit risk executive in the distressed consumer and corporate debt business - because he relishes using his street smarts and gut instincts to beat his Ivy League rivals at other firms.

Wolnick, who proudly trumpets his 1977 graduation from Central Connecticut State University on Halcyon's Web site, held back from buying senior subprime mortgage-backed securities earlier this year despite their high yield. The trader, people familiar with his thinking say, expected the bonds to fall from their lofty prices in the high-60-percent and low-70-percent range.

While others were buying, Wolnick was out soliciting investor cash, waiting for prices to drop and his chance to pounce. This summer, Wolnick beat out 70 other funds to manage a piece of California's San Bernadino pension fund.

At that point, the market started to notice Wolnick.

By September, prices indeed came down below 50 and Wolnick started buying. Although just a portion of his portfolio, the index of senior tranche of subprime MBS closed the month at 52.08, helped him achieve his 3 percent gain and his prized place atop the heap.

In contrast, two of the most successful hedge-fund traders of recent years, Michael Novogratz and his protegeAdam Levinson, who run Fortress Investment Group's $9 billion Drawbridge Global Macro fund, which also invests in asset-backed securities, find themselves in an unusual spot - down 13.76 percent through Sept. 30.

The Ivy League-educated duo's sub-par performance is the result, in part, of buying into senior subprime mortgage-backed securities last winter, when prices were in the mid-70s, thinking the market had bottomed.

This is one case where the early bird certainly didn't get the worm.

"It was too early to buy any distressed ABS until last month," said Scott Minerd, a CNBC commentator and chief investment officer of Guggenheim Partners Asset Management. It wouldn't surprise other fund traders if Levinson, 38, who got $400 million in Fortress stock last spring to stay with the company after rival funds wooed him, and Novogratz, the former Goldman Sachs star who became co-president in his early 30s, were lured in by the high yield attached to the mortgage bonds.

That Levinson, who graduated from Cornell, and Novogratz, a Princeton alum, didn't see the weakening of the housing market and Wolnick, with his 20 years in the commercial mortgage business did, is sweet.

He has beaten two of the industry's glamour boys. Levinson was the subject of a page one profile in the Wall Street Journal, and Novogratz, 43, had been in the news in 2005 for buying Robert DeNiro's downtown duplex - which he turned into a triplex by buying the unit below his.

Both earned $75 million last year and were made billionaires when Fortress went public in 2007.

Wolnick, who is said to fly coach when he goes to meet clients, is using his leader-of-the-pack status to raise more money. The word is that he is planning to take the $800 million he manages to over $1 billion by attracting European, endowments and pension money.

If beating his Ivy-League rivals is not satisfaction enough, Wolnick can certainly turn to his fancy new set of wheels.

Wolnick, people familiar with the matter say, recently flew down to Miami and bought a 2008 Aston Martin Vantage at a repo auction for $85,000 cash. The car carries a sticker price of about $133,000. Such a bargain.