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Hedge fund manager in line for $2.5bn payday

Date: Tuesday, December 22, 2009
Author: Times Online

David Tepper, who runs the US hedge fund Appaloosa Management, is in line for a profit share of around $2.5 billion (£1.5 billion) this year after betting heavily on a recovery in the stocks of banks including Citigroup and Bank of America.

Appaloosa has made about $7 billion profit so far this year, according to the Wall Street Journal, with Mr Tepper set to gain about $2.5 billion of this, one of the biggest personal annual pay rewards of recent years.

Mr Tepper, whose fund specialises in the bonds and shares of troubled companies, bought battered bank shares in February and March after the US Treasury announced its plan to prop up banks by buying preference shares. Most investors were running for the exits, fretting that the Government would eventually have to nationalise banks such as Citigroup.

The rapid recovery of these shares meant his fund had grown 120 per cent by early December since the start of the year, bringing its total funds under management to about $12 billion and making it one of the world's largest hedge funds.

Mr Tepper, a former Goldman Sachs junk bond trader who keeps a brass replica of a pair of testicles on his desk and is said to rub the gift for luck during the trading day, has now invested in mortgage backed bonds, investing in bonds backed by debts of two big New York developments.

Back in 2003 another fund Appaloosa advises, Palomino, made hundreds of millions of pounds buying bonds in the British companies Marconi and NTL.

Though Mr Tepper's wins have been large, so have his losses. Last year he lost more than $1 billion after selling large chunks of his holdings in the mistaken belief that the losses of Sociètè Gènèrale trader Jèrôme Kerviel would hurt the market. He also turned bullish on large company stocks too early in the spring of 2008 and suffered as markets continued to fall.

He also lost out by investing in Delphi, the auto parts supplier in 2006. He later pulled out of a deal to rescue the company from bankruptcy but lost almost $200 million as a result. His largest fund dropped 25 per cent in 2008, worse than the industry's 19 per cent average decline.