Avik News Stories of Note

Wednesday, March 01, 2006

3 Articles on Hedge Funds and Big Pay Days

David Tepper / Appaloosa Management

Known as one of the country’s most successful hedge-fund managers, David Tepper initially became interested in the stock market as a young boy watching his father trade stocks in his hometown of Pittsburgh. Today, as president and founder of Appaloosa Management, Tepper has earned an international reputation for producing some of the highest returns amongst fund managers on Wall Street. One expert has referred to him as "the best trader in his space."

Tepper, age 46, was raised in the East End of Pittsburgh in the city section known as Stanton Heights. He graduated from Peabody Senior High School in 1975 and attended the University of Pittsburgh, earning a bachelor of arts with honors in Economics in 1978.

Upon graduation, Tepper became a credit and securities analyst at Equibank in Pittsburgh. In 1980, he enrolled in graduate school at Carnegie Mellon University’s Business School. After earning his MBA in 1982, Tepper accepted a position in the treasury department of Republic Steel in Ohio.

In 1984, he was recruited to Keystone Mutual Funds (now part of Evergreen Funds) in Boston, and in 1985, Tepper was recruited by Goldman Sachs, which was forming its high yield group. He joined the firm in New York City as a credit analyst.
Within six months, Tepper became the head trader on the high-yield desk at Goldman where he worked for eight years. His primary focus was bankruptcies and special situations. He left Goldman in December 1992 and started Appaloosa Management in early 1993.

Appaloosa Management is a $3 billion hedge fund investment firm based in Chatham, N.J., just west of New York City. Founded with Jack Walton, a former senior portfolio manager for Goldman Sachs Asset Management, the firm is a general partner of Appaloosa Investment Limited Partnership I and invests in debt and equity securities on behalf of individuals, foundations, universities and other organizations. Appaloosa Management also advises Palomino Fund, Ltd.

Tepper and his wife Marlene are the parents of three children. His personal interests include coaching his children’s baseball, softball and soccer teams. Tepper currently serves as a member of the Business Board of Advisors for the Tepper School of Business at Carnegie Mellon and serves on various boards and committees for charitable and community organizations in New York and New Jersey.

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The Next Warren Buffett?
Financier Eddie Lampert turned once-bankrupt Kmart into a $3 billion cash cow. Will he build it into a new Berkshire Hathaway?


Security is tight at Eddie Lampert's office. That's no surprise: Last year he was kidnapped at gunpoint while leaving work and held for ransom for two days before talking his way free. In fact, there is no sign on the low-rise building in Greenwich, Conn., that his $9 billion private investment fund, ESL Investments Inc., is even there at all. There's also no sign on ESL's door upstairs -- and certainly no indication that the man sitting there might be the next Warren E. Buffett.

If anyone is destined to inherit Buffett's perch as the leading investment wizard of his day, it just might be Edward S. Lampert. Since he started ESL in 1988 with a grubstake of $28 million, he has racked up Buffett-style returns averaging 29% a year. His top-drawer clients range from media mogul David Geffen and Dell Inc. (DELL ) founder Michael S. Dell to the Tisch family of Loews Corp. (LTR ) and the Ziff family publishing heirs. Only 42, Lampert has amassed a fortune estimated at nearly $2 billion. So focused is he on his goals that he was back at work negotiating a big deal two days after his kidnappers released him. Says Thomas J. Tisch, son of Loews's founder Laurence Tisch: "Eddie is one of the extraordinary investors of our age, if not the most extraordinary."

Like the 74-year-old Buffett, Lampert has built his success on some of the least sexy investments around. He searches for companies that are seriously undervalued, and he'll even risk jumping into ones that are reeling from bad management or lousy strategies -- because the potential returns are far greater. Right now, ESL has stakes in a grab bag of retailers. It holds 14.6% of Sears, Roebuck & Co. (S ), whose stock soared 24% on Nov. 5 after real estate investment trust Vornado Realty Trust bought a 4.3% stake. It also owns a big chunk of the No. 1 auto-parts retailer, AutoZone Inc. (AZO ), and the biggest national chain of car dealers, AutoNation Inc. (AN ), as well as a small stake in telecom giant MCI (MCIP ).

The key to his ambitions, though, is a 53% stake in Kmart Holding Corp. (KMRT ). If a fading textile maker in New Bedford, Mass., called Berkshire Hathaway Inc. (BRKB ) provided the launchpad for Buffett, then Kmart might do the same for Lampert. Much like the textile mill when Buffett got hold of it, the once-bankrupt Kmart is now throwing off far more cash -- it has $3 billion on hand -- than it can use in the business. It also has $3.8 billion in accumulated tax credits, which can offset taxes on future income, and a fast-rising stock that is valuable in deal-making. Those advantages make Kmart a perfect vehicle for bankrolling big acquisitions. They give Lampert "the ability to buy a lot of companies and shield a lot of income from taxes," says John C. Phelan, a former ESL principal who is now managing partner of MSD Capital, which also manages Dell family money.

A Key Signal
The first hint Buffett gave of how he planned to transform Berkshire into an investment powerhouse was in regulatory filings in the late 1960s. In an echo of that move, Kmart disclosed in August that the board had given Lampert authority to invest Kmart's "surplus cash" in other businesses. Wall Street is reading that move as a signal that Kmart may be on the way to becoming Lampert's Berkshire Hathaway. "There is no question he will turn Kmart into an investment vehicle like Warren Buffett's," says legendary value investor Martin Whitman. He runs Third Avenue Management LLC, which teamed up with Lampert when Kmart was in bankruptcy court and now owns a 4.6% stake in the retailer. "That's what I am valuing into the stock."

For Lampert, more than just superior investment returns are riding on Kmart. In a series of lengthy interviews with BusinessWeek, he makes clear that he also wants to earn respect as a businessman who provides expertise in how a company is run. Like Buffett, he wants chief executives to open their arms and partner with him. Dressed in a hand-tailored suit with a subtle pinstripe and an open-collared blue-striped shirt, he acknowledges that his role model is a tough comparison. Berkshire Hathaway has earned 25% a year since Buffett gained control in 1965 -- not quite as much as ESL's 29% average return but over a far longer period. "Buffett's investments have stood the test of time," he says, noting that the same test will be applied to him. Buffett, for his part, declined to comment on Lampert.

From the start of his career, Lampert has sought out high-powered mentors. At various stages he worked with former Goldman Sachs & Co. (GS ) head Robert E. Rubin, economics Nobelist James Tobin, and investor Richard Rainwater. Rubin, now at Citigroup (C ), was taken by his self-assurance, independence, and discipline when Lampert worked for him at Goldman after graduating from Yale University. When Lampert, then 25, told him he was leaving to start his own fund, the future Treasury Secretary argued that he was forfeiting a golden career. "He had a clear-eyed view of the risk he was taking and the likelihood he would succeed," Rubin recalls. "I'd say it worked."

Kmart is a classic example of how Lampert works. He got control of a $23 billion retail chain -- the nation's third-largest discounter, behind Wal-Mart Stores Inc. (WMT ) and Target Corp. (TGT ) -- for less than $1 billion in bankruptcy court. He emerged as the largest shareholder and became chairman 18 months ago as part of a reorganization in which virtually all of its debt was converted into shares. Lampert's goal is to keep Kmart humming so it can continue throwing off cash. Even if Kmart eventually fails, keeping it going as long as possible lets him extract top dollar for its valuable real estate by selling the stores over time. "We are going to have to generate traffic [in the stores]," says investor Whitman. "Even to this day, it is no slam dunk."

So far, Lampert has been milking Kmart for cash. Although same-store sales continue to sink, the company has been in the black for the past three quarters because cash flow has surged. A favorite Lampert gripe: Retailers are too willing to chase unprofitable sales. Instead, he has imposed a program of keeping the lid on capital spending, holding inventory down, and stopping the endless clearance sales. And he pushed for Kmart to sell 68 stores to Home Depot Inc. (HD ) and Sears to raise a total of $846.9 million. That's nearly as much as the $879 million value placed on all of Kmart's real estate -- 1,513 stores, 16 distribution centers, and the fixtures -- in bankruptcy proceedings. Thanks to the measures Lampert has put in place, says ubs analyst Gary Balter, Kmart could have as much as $4.2 billion of cash in hand by the end of next year's first quarter.

Lampert is also angling to boost profits at a smaller, more focused Kmart. He has quietly consulted former Gap Inc. (GPS ) Chief Executive Millard Drexler on apparel strategy and hired two former Gap merchandising and design executives as a result. One of their first moves was to add four upmarket brands to Kmart's clothing lineup, which will widen margins. And Kmart is beefing up its consumer electronics selection, adding such brands as Sony. Lampert has also retained the architectural firm Pompei A.D. LLC, which designs interiors for teen retailer Urban Outfitters Inc. (URBN ), to start testing a much-needed redesign of Kmart's stodgy outlets. And on Oct. 18 he named a new CEO, Aylwin Lewis, a PepsiCo Inc. (PEP ) veteran who's expected to sharpen the chain's operations and marketing. Even before that move, Kmart resumed TV advertising and for the first time ran apparel ads in Vogue and Vanity Fair in a bid to outdo rival Target and present a hipper image.

But investors aren't thinking about Kmart's trendier clothes or blue-light specials as they snap up its soaring stock. Indeed, after climbing from $15 a share to $96 in 18 months, Kmart's stock sports a Buffett-like premium. The company now boasts a stock-market capitalization of $8.6 billion, on a par with Federated Department Stores Inc. (FD ), the No. 1 department-store company and owner of Bloomingdale's and Macy's. "Why would it reflect that kind of value?" asks Robert Miller, a principal at Miller Mathes, a New York-based restructuring advisory firm. "Because Lampert is a smart cookie. Essentially he is transforming the assets into a more valuable state."

Studying the Sage
If Lampert does turn Kmart into the next Berkshire Hathaway, he could simply follow Buffett's blueprint. Buffett started with an investment fund he founded at age 25, the same as Lampert when he started ESL. Then in 1962, Buffett started to buy shares of the textile company and by the late 1960s he was using the mill's excess cash to invest in other businesses -- first a Nebraska insurance company and then an Illinois bank. By 1970 he had dissolved the fund, selling off its investments and giving the partners a choice of cash or shares in Berkshire Hathaway. Many investors believe that Lampert is poised to do the same: using Kmart to make new investments while keeping ESL for his earlier investments, or alternatively dissolving it at some point by selling its assets.

Lampert has carefully studied Buffett for years. He started reading and rereading Buffett's writings while working at Goldman after college. He would analyze Buffett's investments, he says, by "reverse engineering" deals, such as his purchase of insurance company GEICO. Lampert went back and read GEICO's annual reports in the couple of years preceding Buffett's initial investment in the 1970s. "Putting myself in his shoes at that time, could I understand why he made the investments?" says Lampert. "That was part of my learning process." In 1989 he flew out to Omaha and met Buffett for 90 minutes, peppering him with questions about his investing philosophy.

Like the Sage of Omaha, Lampert targets mature and easily understandable businesses that have strong cash flows. Both focus on a company's ability to generate large amounts of cash over the long haul, so neither is particularly fazed by sharp ups and downs in profits and stock prices. In fact, says ESL President William C. Crowley, "Lampert would rather earn a bumpy 15% [return] than a flat 12%." And just as Buffett progressed from minority stakes, where his influence isn't guaranteed, to majority stakes, where he has control, Lampert is currently following the same path. Kmart marks his first majority play, and Lampert says it is the type of investment he plans for the future. "In a control position, our ability to create value goes up exponentially," he explains.

Watch the Pennies
There is nothing Lampert likes to control more than how money is spent. He is probably even more obsessed than Buffett with making sure that every dollar he invests in a company earns the highest return. That means his companies have often used cash to buy back shares rather than boost capital spending. The CEOs of his companies, who are reluctant to talk without Lampert's permission, say a big part of their conversations with him focus on discussing how best to allocate capital. "He will always want to work through, at a pretty high level of detail, what we are going to spend our money on and what the business benefits will be," says Julian C. Day, who was Kmart's CEO until October and now is a director. Adds Richard Perry, who worked with Lampert at Goldman and whose hedge fund owns a major stake in Kmart: "Eddie doesn't waste money -- ever."

For all their similarities, Lampert is no Buffett clone. For one thing, he can be much more assertive with management. He played rough at AutoZone, where he started amassing shares in 1997. After his stake reached 15.7% he got a board seat in 1999. The management tried to crimp his power, but Lampert ran rings around them. CEO John C. Adams Jr. left shortly afterward. Adams says he voluntarily retired.

Lampert runs a tight ship at ESL, too. Not a penny gets invested without his approval, say former employees. His analysts either research Lampert's ideas or bring their own to him. Gavin Abrams, an ESL analyst in the second half of the 1990s, says Lampert has an uncanny ability to see how the pieces of an investment fit together. "When an art critic looks at a piece of art, he can talk to you not just about the color and technique but the history and where it fits into art in general," he says. "Eddie talks about an investment the same way." Consider Sears' recent purchase of 50 Kmart stores. The deal will both jump-start Sears' strategy to move outside of malls and build stand-alone big-box stores and add hundreds of millions more to Kmart's growing cash pile. "Great investors see deals within deals," says William E. Oberndorf, general partner of the SPO Partners & Co. value fund. "He's in rarified company."

What struck former ESL analyst Daniel Pike was how well Lampert understands risk. "He's obsessed with protecting his downside," he says. Lampert does this by holding just seven or eight major investments at a time -- investments he knows intimately after intensive research. Pike recalls getting a taste of Lampert's methods when he applied to work there after quitting an investment-banking job at about the time ESL was investing in AutoZone. Before hiring Pike, Lampert sent him on a grueling, all-expenses-paid field trip to visit auto-parts retailers throughout the country for a month to test his smarts.

Once ESL has invested, it stays in close touch with the company. ESL President Crowley, 47, a former Goldman Sachs banker, is Lampert's main point person. He also sits on Kmart's board and oversees the chain's finances. Former Kmart CEO Day says he got calls daily from Crowley on operational issues and discussed strategy with Lampert two to three times a week. At AutoZone, where ESL holds a 26.8% stake and Lampert sits on the board, Chairman and CEO Steve Odland says he talks to Lampert about three times a month.

One former employee notes that Lampert's annual letters to investors have gotten shorter over the years. These days, they're about two pages long. In each, he makes the standard Buffett point: That year's performance will be hard to match in the future. Given the outsize returns he achieves, investors aren't inclined to bug him for more details. "Based on the way he thinks about investments, I trust Eddie," says Tisch.

Lampert runs his fund with just 15 employees, mostly research analysts. As Lampert walks the floor, Crowley is locked on the phone in his office. Lampert's is next door, a corner suite whose central focus is a dual set of black, flat-panel computer screens perched on his desk. Most of the room is lined with books, but on one wall hangs a picture of Lampert with former President George H.W. Bush. Outside, several people work silently in neatly kept cubicles. Lampert notes how quiet and unlike a trading floor the office is. "It's a more studious atmosphere," he jokes.

Friends trace Lampert's intense drive to succeed to the shock of his father's death from a heart attack at 47. Overnight, young Eddie became the man of the house at just 14. The family lived in the prosperous suburb of Roslyn, N.Y., and his father, Floyd, a lawyer in New York City, had been deeply involved with both Lampert and his younger sister, Tracey, coaching Little League and teaching them bridge. His stay-at-home mother had to go off to work as a clerk at Saks Fifth Avenue, and financial security was a big issue. "Eddie really assumed the responsibility, knowing that life had changed and we had to accomplish something by ourselves now," says his mother, Dolores.

It was Lampert's grandmother who sparked Lampert's interest in investing. She would watch Louis Rukeyser's Wall Street Week on TV religiously and invest in stocks such as Coca-Cola Co. (KO ) that paid large dividends. From the age of about 10, his mother recalls, Eddie would sit at his grandmother's knee as she read stock quotes in the paper and they would talk about her investments. By the ninth grade, while he was watching sports on TV with his buddies, Lampert would also be reading corporate reports or finance textbooks, says Jonathan Cohen, Lampert's closest childhood friend. "He would mark things with a highlighter," says Cohen, who believes the death of Lampert's father must play some role in "his need for financial success." Surely, his father's death left a big hole in his psyche. At his wedding in 2001, held outdoors on his Greenwich estate, he looked up into the sky and made a toast: "How am I doing, Dad?" Dolores recalls him saying.

"A Light Burning"
Cobbling together financial aid, savings from summer jobs, and student loans, Lampert enrolled at Yale University, where he majored in economics. There, he served as Phi Beta Kappa president for his class, joined the elite Skull & Bones secret society -- and began to seek out the mentors who would propel his career. Says Earl G. Graves Jr., president of Black Enterprise magazine, who was in Skull & Bones with Lampert: "I remember telling my girlfriend there is a light burning in this guy that doesn't burn in many people." In his last three years at Yale, Lampert worked as a research assistant for Professor James Tobin, who had just won the Nobel prize in economics in 1981. Lampert also was a member of the Yale student investment club, a group on campus that invested donations from alumni that eventually became part of Yale's endowment. Joseph "Skip" Klein, student chairman of the group, says Lampert would suggest complex investments such as risk-arbitrage plays: "Most of us [wondered]: 'How the heck does he know about this?"'

Lampert parlayed a summer internship at Goldman Sachs into a full-time job upon graduation in 1984. But he didn't start on the ground floor. Instead, he persuaded Rubin, who oversaw the fixed-income and arbitrage departments, to allow him to work directly for Rubin on special projects. Within months, that translated into a job in Goldman's high-powered arbitrage department. Lampert thrived on the work, which entailed analyzing whether a just-announced transaction, such as a takeover, would succeed and then betting millions on the outcome -- all in minutes. He says the experience taught him how to evaluate risk quickly in a situation, often with incomplete information. Doing this day after day as news events broke offered the best investment training possible, he adds. "It's like shooting layups or foul shots."

Even in a department filled with hotshots, Lampert stood out, says Frank P. Brosens, who became Lampert's boss when Rubin became co-CEO of Goldman. He remembers how Lampert argued during the summer before the October, 1987, market crash that stocks were overvalued, given that long-term interest rates were so high. As a result, the department cut its stock holdings by 30% before the crash. "Eddie was the most independent thinker in our area," Brosens says.

At a time when most people his age are just getting started at Goldman, Lampert quit and moved to Fort Worth in 1988. He had met Richard E. Rainwater, the fund manager for the Bass family and other well-heeled clients, the summer before on Nantucket Island. Rainwater invited him to use his offices and gave him a chunk of the $28 million in seed money for a fund, which Lampert named ESL -- his own initials. Rainwater also introduced him to high-powered clients such as Geffen. But Lampert and Rainwater later had a falling out, which neither will discuss. Shareholder activist Robert A.G. Monks, who temporarily worked in Rainwater's offices with Lampert, says it was over control of the fund's investments. Rainwater pulled his money out of ESL, but most other clients stayed.

The audacity of his Kmart investment put Lampert on the map. With Kmart in Chapter 11 in 2002, he scooped up its debt as creditors fled. But his investment swooned as the retailer got even sicker. So Lampert doubled down and bought yet more debt, enough to give him control of the bankruptcy process. Then in January, 2003, at the height of the negotiations, Lampert was leaving ESL on a Friday night when he was kidnapped in the parking garage. Four hoodlums, led by a 23-year-old ex-Marine, had targeted Lampert after a search for rich people on the Internet. They stuffed him into a Ford Expedition, took him to a cheap motel, and held him bound in the bathtub. They called Lampert's wife, Kinga, playing a tape of his voice. Court documents are sealed, but one person close to the case says the men told Lampert they had been hired to kill him for $5 million but would let him go for $1 million.

Lampert was convinced he was going to be killed, he says in his first public comments on the kidnapping case. "Your imagination goes absolutely wild. I was thinking about my mother and my son and my wife. What would their lives be like? Would it be painful when they shot me?" In the adjoining room, he recalls, the television was switched on to the news about the search for the body of Laci Peterson. But as the kidnappers became increasingly nervous, Lampert convinced them that if they let him go, he would pay them $40,000 a couple of days later, the source says. The hoodlums let him off on the side of a road in Greenwich early on that Sunday morning and were later arrested and convicted. Lampert arrived home to a house full of friends who had been camping out, waiting for news. "It was very much like going to your own funeral," he says. He was soon back in Kmart negotiations.

So far, Kmart has proved to be a big success. But the track record of ESL's Sears investment has been spotty. Lampert won't discuss the company, where he isn't on the board, but notes that he hasn't sold any shares. In a move that Lampert supported -- some say influenced -- Sears sold its $28 billion credit-card business last year to raise cash. Initially, the stock jumped but then fell back because of deteriorating results, until recently. So the jury is out on whether Sears is better off without credit cards, once its biggest source of profits. As with Kmart, Lampert's probable safety net is Sears' real estate. Vornado -- which bought the big Sears stake this month -- evidently agrees. As Sears scrambles to develop new big-box stores, its traditional mall-based department stores could prove more valuable to others.

On the other hand, ESL's 26.8% stake in AutoZone continues to be a big winner. Although the shares are down 17% from last year's peak of $103, they're up 320% from 1997, when Lampert started buying. Its margins remain the envy of other auto-part retailers. Still, weakening same-store sales and recent quarterly profit misses have led some analysts to contend that the retailer has underinvested in its business and kept prices too high while spending too much on share buybacks.

Lampert and Buffett crossed paths in dealmaking in the early '90s. In 1989 and 1990, Buffett bought a 19.9% stake in PS Group, which ran a stagnant aircraft-leasing business. Buffett made that investment -- which caught Lampert's eye -- because of a promising new division that would recycle industrial metals, but that unit ran into trouble. As PS Group's stock sank, Lampert jumped in, attracted by the value of the PS aircraft, and began amassing a 19.7% stake at bargain-basement prices in 1993.

Buffett stayed on the sidelines, recalls Larry Guske, PS Group's vice-president for finance, but Lampert -- convinced PS had no future -- kept prodding management to sell assets and pay dividends. In the end, Lampert doubled his money while Buffett lost about a third of his -- because he had paid much more for his shares, Guske calculates. Buffett's overall record will be extremely hard to beat. But at least in this instance, the pupil had outperformed the master.

By Robert Berner with Susann Rutledge in New York


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Up, Up and Away From Wall St.
Business/Financial Desk; SECTC
The Riskier, but Far Richer, Payoffs From Running Investment Firms
By LANDON THOMAS Jr.
1893 words
4 February 2006
The New York Times
Late Edition - Final
1
English
Copyright 2006 The New York Times Company. All Rights Reserved.


On Wall Street, where the size of an executive's bonus is often the ultimate measure of success, a new status symbol has emerged: the $500 million cash payout.
While the Securities and Exchange Commission is seeking greater disclosure of soaring executive compensation, top executives at hedge funds and private equity funds are collecting much larger amounts beyond the prying eyes of regulators and shareholders.

For two men in particular, this new level of supercompensation has resulted in contrasting personal styles. Steven A. Cohen, a publicity-shy hedge fund magnate in Greenwich, Conn., who made more than $500 million last year, rarely gives interviews and remains rooted to his trading floor.
By contrast, Stephen A. Schwarzman has assumed a more public profile as a prominent private equity executive. He still closes the big deals, but finds ample time for forums in Davos and White House dinners. He is estimated to have earned as much as $300 million.

The Wall Street establishment did very well last year, reporting record financial results and doling out $21.5 billion in bonuses to thousands of investment bankers, traders and other professionals.

Mr. Cohen and Mr. Schwarzman, however, lead an exclusive crop of traders and investors who have become multibillionaires by abandoning traditional Wall Street playing fields for the richer -- and riskier -- pastures of running their own investment firms. And in doing this, they are being paid amounts that most chief executives only dream about.

Unlike the chiefs of publicly held companies, these men run their own private partnerships and are under no obligation to disclose either their returns or their compensation. There are no pesky shareholders or watchdogs to complain about their pay.

Their sole constituency is a small circle of well-heeled investors and institutions that care little how much their managers are paid as long as the returns -- from trading stocks, currencies and commodities, or from buyouts and other investments -- are there. If the magic touch suddenly disappears, so will these big investors with their billions in tow.

Indeed, managers like Mr. Cohen and Mr. Schwarzman are being rewarded for being owners, putting their own interests ahead of their clients and taking a large cut of the profits before investors are paid.

Mr. Cohen, a former trader at a midtier investment firm who started SAC Capital in 1992, takes home up to 50 percent of his hedge fund's profits; at the Blackstone Group, Mr. Schwarzman and his team divide 20 percent of the year's gains before returning the rest to their investors.

In effect, Mr. Cohen and Mr. Schwarzman have reaped outsize profits by institutionalizing Adam Smith's dictum that self-interest, not benevolence, puts bread on their and their clients' groaning tables. ''These big paydays are based on performance,'' said Andy Kessler, a hedge fund manager. ''For capitalism, it's great these guys are taking a piece of the upside and saying we took the risk, so we get the reward.''

For Wall Street, such a risk-reward relationship can be intoxicating. Many of the Street's best bankers and traders have left comfortable posts at Goldman Sachs and Morgan Stanley to either join established funds or start their own.

The rapid accumulation of such wealth has been felt in New York's political, society and charity circles. Mr. Cohen, 49, a member of the board of the Robin Hood Foundation, has bought more than $700 million worth of art in recent years and has established himself as one of the most aggressive buyers on the art scene. Mr. Schwarzman, 58, who is on the board of the New York Public Library and is a trustee of the Frick Collection, was an early and avid financial backer of President Bush and has recently written checks for William F. Weld, a Republican candidate for governor of New York. Mr. Schwarzman and Mr. Cohen declined to comment for this article.

The lush payday has always been central to Wall Street's lore. The canon includes the $500 million that Michael R. Milken received during his best years as a junk bond executive and the $20 million earned by he takeover lawyer Martin Lipton for two weeks of work in 1988 advising Kraft. But, as hedge funds and private equity funds have moved from finance's periphery to becoming critical cogs in the Wall Street money-making machine, such levels of pay are becoming the norm rather than the exception.

Strange as it may seem, Mr. Cohen's annual payday of half a billion dollars carries less shock today than it did in an earlier era. When Mr. Milken's $500 million takings was disclosed, the public reaction was one of disbelief and certainty that such a gain must have been ill gotten.

The performance of Mr. Cohen's and Mr. Schwarzman's funds has been stellar, especially in light of the stock market's pedestrian gains.
Mr. Cohen, who manages more than $6.5 billion in assets, produced a return of 16 to 19 percent last year, outpacing the 8 percent average of 1,500 hedge funds, as calculated by the MSCI hedge fund index.

In 2004, when his funds returned 23 percent, he was paid $450 million, according to a yearly compensation review of hedge fund managers undertaken by Institutional Investor magazine. He tends to reinvest his earnings back into his funds.
At Blackstone, Mr. Schwarzman's $6.5 billion fund returned 70 percent, driven by $3.4 billion in asset sales last year, the best year the buyout firm has had since Mr. Schwarzman and his co-founder, Peter G. Peterson, left Lehman Brothers in 1985 and hung out their own shingle.

Hedge funds are lightly regulated pools of capital that typically use borrowed money and rapid-fire, short-term strategies of trading in stocks, commodities, currencies or derivatives to seek the largest possible gains.

Private equity funds are different from hedge funds in that they buy out public companies or take large stakes in private companies, revamp operations by cutting costs and then sell their positions through public offerings or sales to other companies. As opposed to the approach of most hedge funds, investments in buyout funds tend to bear fruit over a longer stretch of time.

As with Mr. Cohen's pay, calculating Mr. Schwarzman's compensation is an inexact science. Both SAC and Blackstone are closely held partnerships and little is disclosed. But what is known is that Blackstone takes 20 percent of the $3.4 billion, before investors get their share (the Blackstone partners will also share in $1.8 billion from their real estate investments). That $1 billion is then apportioned among the firm's 48 partners. Blackstone does not disclose how ownership breaks down, other than admitting that it once was 50-50 between Mr. Peterson and Mr. Schwarzman 20 years ago and that that ratio no longer holds true today.
Guessing Mr. Schwarzman's stake has been a favorite parlor game on Wall Street, and current and former Blackstone employees say it could be as low as 20 percent and as high as 35 percent (the guesswork tends to focus on the higher end). Depending which figure you use, the return to Mr. Schwarzman would range from $210 million to $360 million.

What also distinguishes their pay from chief executives of public companies is that it comes mostly in cash. By comparison, Henry M. Paulson Jr., the chief executive of Goldman Sachs, was paid $29.8 million in 2004. Only $600,000 of that will hit his bank account, with the rest coming as Goldman Sachs stock.
Both men took different routes to securing their returns. In an industry that puts a premium on abstruse theories and complicated financial instruments, one of Mr. Cohen's bets last year was a surprisingly conventional, straightforward one: he accumulated a large share of Google in the months after its public offering in 2004, accumulating 3.4 percent of the stock by February, when the stock was trading for $100 to $200.

People who invest with Mr. Cohen say that at the root of his success is an uncanny ability to pick the perfect time to buy and sell a stock. If a stock is going up, he holds on; if he gets the sense that a stock will drop 5 percent one day, even if its long-term prospects remain solid, he will sell, knowing that he can re-establish a position at some later point. Google would seem to be a case in point. He rode the stock up, but bailed out as it hit higher, more volatile levels. Recent filings show that he owns just 0.02 percent of the stock.

At Blackstone, last year, it seemed as if Mr. Schwarzman took a page out of Mr. Cohen's playbook. Returns last year were propelled by large sales of companies like Celanese, Foundation Coal and New Skies Satellites that in some cases came a little more than a year after the firm had bought stakes in them. In an industry known for its tortoiselike patience -- Henry R. Kravis, Mr. Schwarzman's main competitor, once waited 17 years before profitably cashing in his stake in Safeway -- such rapid turnover is unusual.

To be sure, stellar investor acumen lies at the root of their bountiful returns. But it is their size and increasing sway over Wall Street proper that must also be considered when evaluating their success. Combined, the two men shower investment banks with an estimated $1 billion in commissions and fees every year.
Both Mr. Cohen and Mr. Schwarzman are moving quickly to cash in on their good years. Mr. Cohen is currently raising money for a $2 billion fund, his first new offering since he opened his door to investors in 1992. And Mr. Schwarzman is on the verge of closing his own $13 billion fund, which will be the largest private equity fund ever.

But their rush to raise more money could be seen as a harbinger of darker times to come. ''It's easy to raise money at a time like this because there is a bubble in both these asset classes,'' said Roy C. Smith, a former Goldman partner and a professor at the Stern School of Business at New York University. ''The magnetism is so strong its like a hot-money stampede. It's a measure of how things have become distorted. Remember, however, Wall Street is nothing but a history of distortions. ''

Chart/Photos: ''A Year's Pay''

The incomes of a hedge fund manager and a partner in a private equity firm dwarf the compensation of most chief executives, even those on Wall Street. And their compensation is all cash.

Graph tracks annual compensation, in millions
(Estimated shares in cash or 'other')
Steven A. Cohen (SAC Capital): $500
Stephen A. Schwarzman (Blackstone Group): $300
Henry M. Paulson (Goldman Sachs): $29.8
Sidney Taurel+ (Eli Lilly): $8.7

*2004 figures because 2005 are not yet available.
+Mr. Taurel was selected for comparison purposes because his compensation in 2004 was close to the median of $8 million for chief executives in the Fortune 200.
(Source by New York Times estimates; Pearl Meyer & Partners)

Saturday, January 14, 2006

Label Removal

Wine Bottle Label Removal Instructions

Monday, December 05, 2005

The Seattle Times: Arts -- "First Descent": Snowboarders flying high

Movie Review
"First Descent": Snowboarders flying high

By Tom Keogh

Special to The Seattle Times

It doesn't get gnarlier than this.

A dynamic sports documentary, "First Descent" is essentially a history of snowboarding with a wraparound story about several generations of star snowboarders (or "riders") coming together to take on steep peaks in Alaska.

Fans of the startlingly gorgeous and suspenseful snowboarding footage found in such Warren Miller films as "Impact" and "Journey" might find "First Descent" a little flat to look at and alternately pokey and busy in execution. Directors Kemp Curly and Kevin Harrison lack the Miller team's longstanding sixth sense for finding the one, mind-blowing money shot in extreme snow-sports scenes. Instead, they cut too much footage and too many angles together, wearing a dramatic moment down rather than building it up.

But they do make "First Descent" a persuasive celebration of snowboarding, which was once reviled, inside and outside the ski industry, as an obnoxious fad. Toward that end, Curly and Harrison line up plenty of interviews with snowboarding's 1970s and early-'80s pioneers, the guys (mostly guys) and gals whose experiences in surfing and skateboarding evolved into clunky first efforts to ride on snow using too-long boards with no foot straps.

These were the athletes who were chased off slopes and took heat for promoting what some considered a vagabond sport. But things changed when ski resorts faced dwindling profits in the late '80s, and snowboarders were suddenly welcomed with open arms.

By the '90s, a new wave of riders came of age, and the era of international celebrity snowboarding began. We meet a lot of these folks, too, and it's hard not to be amazed at old footage of professional snowboarder Travis Rice and others getting a rock-star reception in Japan and elsewhere.

The film also discusses snowboarding's inclusion in Winter Olympics events beginning in 1998. Traces of marijuana use were found in the blood of that year's gold-medal winner, a quasi-scandal that still appeals to those who don't want snowboarding to completely lose its rogue beginnings.

Making the point that snowboarding has been around long enough to include creaky, middle-age masters and talented-if-not-quite-consummate young pros, "First Descent" assembles five superb riders for a series of escalating challenges on Alaska mountains.

Over 12 days, Shawn Farmer and Nick Perata, representing the old guard, ascend to dizzying heights by helicopter in the company of younger, cutting-edge superstars. Everyone's intention is to ride down staggeringly steep mountains without getting buried in sudden avalanches or crashing into rock formations.

Farmer and Perata, despite reputations for boldness, are no longer sure they're up to the challenge. Shaun White and Hannah Teter, excellent competitive snowboarders, lack experience in such conditions but are game to try.

Between both pairings, in historical terms, is a fifth member of the group, Norwegian snowboarder Terje Haakonsen, whose deep inner calm is impressive in the face of danger.

"First Descent" ends with visionary questions about snowboarding's future. One thing the film makes clear: There will be no end of new riders to chart the sport's course.

Tom Keogh: tomwkeogh@yahoo.com

Thursday, October 27, 2005

A look at the top 10 search firms in India

Accord Group India: Founded by ABC Consultants' B.P. Agrawal, the search firm is affiliated to the Accord Group worldwide. In India, Accord has 20 consultants working on sectors such as consumer goods, retail, pharma, IT, media and manufacturing.

Amrop Group: This search firm started out in Delhi, and now operates out of Chennai and Mumbai, with four consultants who focus on sectors such as manufacturing, technology, outsourcing, financial services, infrastructure and telecom.

Egon Zehnder International: The top player in pure-play CXO level search, Egon completes 10 years in India this year. It operates out of Mumbai and Delhi with 23 consultants, and has just added private equity to its roster of industries served.

Executive Access: Hong Kong-based Executive Access set up shop in India in 1995, and is now looking at opening its sixth office in Hyderabad after the other metros. Boasts of 50 consultants, and has service lines covering a host of sectors including pharma, telecom, IT, financial services and retail.

Gilbert Tweed Associates: Set up in 1998 in Mumbai, it currently operates out of three offices, manned by 22 consultants. It has service lines in agro-processing, manufacturing, financial services, IT and KPO. It's looking to expand into retail and biotech.

Heidrick & Struggles: World #1, H&S came to India pretty late-in 2001. Its offices in Mumbai and Delhi have just five consultants covering sectors like aviation, financial services and real estate. It plans to hire consultants for media, consumer goods and IT.

Hunt Partners: An international firm with just one office in India, Hunt was set up locally by a breakaway faction from Horton International. Its three consultants focus on banking, financial services, FMCG, telecom and healthcare.

Korn Ferry International: A top three player globally, Korn Ferry came to India a year before Egon did. It has offices in Mumbai and Gurgaon, and has 22 consultants, three of them recently hired for consumer markets, industrial markets and IT.
Stanton Chase: Another global player, it's been in India for the last six years, and has 40 consultants catering to various industries such as pharma, financial services, IT and manufacturing.

Transearch India: Launched in 2004 by Atul Vohra and Uday Chawla after they broke away from Heidrick & Struggles, it has ramped up from 10 people in Gurgaon to 24, with offices in Mumbai and Bangalore. Media, automotive and insurance are some of the industries it focusses on.

Thursday, September 01, 2005

The Leveraged Sell-Out: Adult On-Demand Viewing Statistics

Wednesday, July 06, 2005

Flying the Coop / New Distressed Debt Funds

Flying the Coop
Matthieu Wirz
July 4, 2005

Defaults in corporate America hit an eight-year low of 2.2% in May, but chief financial officers should not get too comfortable with this state of affairs. Some of the brightest lights in the vulture fund business predict a surge in distressed situations by mid-2006, and are repositioning themselves accordingly.

Brand name personnel at several top shops on the Stamford-to-Midtown corridor consider the timing perfect to start their own funds in order to capitalize on the expected restructuring wave, and turn a tidy profit in the bargain. Veteran vultures at Angelo Gordon & Co., The DE Shaw Group, Elliott Associates, Och-Ziff Capital Management, Ramius Capital Group, Sagamore Hill Capital Management, Satellite Asset Management and WR Huff Asset Management have all flown the coop recently to set up distressed or event-driven shops of their own.

"They're preparing themselves for what they have coming up, and rather than generating returns for Elliott or Angelo Gordon or what have you, they'll be generating them for themselves," said Jonathan Rosenthal, head of corporate restructuring at Saybrook Capital, an investment bank specializing in workout situations.

A recent surge of easy money into hedge funds hasn't hurt either. Capital flows into hedge funds reached $27 billion in the first quarter of 2005, roughly 37% of the total assets allocated to the sector last year, according to Hedge Fund Research Inc. (HFR), a Chicago-based independent research provider.

Distressed hedge funds make money shorting troubled companies on their way down, buying back in at the bottom and then collaborating-or fighting-with management to unlock value through restructuring. The strategy accounted for only 4.73% of the hedge fund universe in the first quarter of 2005, according to HFR. Nevertheless, returns on distressed outperformed HFR's market index in each of the past four years by 6.73%-10% and beat the average last quarter by 1.9%.

"From a macroeconomic standpoint, there's a great deal of capital looking for a home, and a lot of that is being allocated to hedge funds," says one of the start-up fund managers. "But it's also a function of some of the longer-standing funds being closed to additional capital from even existing investors."

The search for returns sent hedge fund assets under management over the $1 trillion mark in 2004, according to HFR, but many larger funds have started capping investments from their existing clientele to reduce redemption risk. "If you're a fund with over $1 billion, you don't want to take any risk to mess up your 10%-15% in management fees," says Joe Aaron of Wood, Hat & Silver LLC, an investment adviser that allocates to hedge funds. "If you have a client with a particularly large investment that says it wants out, that could send you into a death spiral."

That pent-up demand from fund-of-fund managers who have maxed out at pre-existing funds represents a golden opportunity for top-rung distressed specialists eager to become principals at their own shops and, at long last, get equity. Says one of the new crop of distressed managers: "I left because [my previous fund] has no employee ownership program. It's that simple."

Counterculture

The prospect of autonomy also plays a big part in the rash of recent start-ups. The next generation of principals are all middle-aged graduates of firms run by founding partners who show no inclination to pass on the reins of power. "There's a big difference between having an equity-like participation and actually running your own fund," said Peter Lupoff, who left Eagle Rock Capital this year to form Azura Capital with Mark May of Sagamore Hill Capital.

That counts doubly in a vulture universe full of eponymous shops where brand, ego and fear of competition often create insular, top-down investment organizations.

WR Huff, named after founder William "Bill" Huff, epitomizes the domineering imprint principals can stamp on their funds. Based in suburban New Jersey, well away from the hedge-fund hubs of Manhattan and Stamford, Conn., Huff rarely speaks to the press and avoids using office e-mail for security reasons.

The secretive bargain hunter built up a $20 billion fund over two decades by pursuing an activist-and litigation heavy-investment strategy, particularly in telecom and cable situations around the world that include NTL Inc. and Telewest Communications Plc in the U.K., Adelphia Communications Corp. in the U.S. and Alestra (owned by conglomerate Alfa SA de CV) in Mexico.

Huff's hard-nosed negotiation tactics earn him respect from investors and bankers alike, but his Big Brother management style rubs some the wrong way. "Every decision went through Bill-at the end of the day, you can't make a decision on your own," says a restructuring banker who sat across the bargaining table from Huff in past restructurings. "Frankly, I'm surprised more people haven't left."

Joe Thorton did. He took off late last year after serving as counsel for Huff for 12 years, most recently taking point for the firm's participation in the Adelphia bankruptcy. Thorton set up a new firm called Pardus Capital Management with Karim Samii, an analyst at Huff who played a key role in many of the fund's international cable investments. He denies, however, that Huff's culture influenced their decision to leave.

Ed Banks, a senior portfolio manager at Huff, says the fund is no autocracy, but he acknowledges a rigid approach to management. "Bill constructed an investment framework, and we use a team approach to work within that framework," Parks says. "We all have to adhere to that, and if someone like Karim wants to do something different, this is not the place." He adds that neither Thorton nor Samii made investment decisions for the firm.

A dark horizon

Regardless of the impetus for their departures, the new crop of vulture investors all see a new wave of defaults and restructurings on the horizon. Those expectations have grown out of the boom in junk bond sales in 2003 and 2004, notable both for its size and for the low quality of the borrowers.

"Many of the power companies were in the penalty box a couple of years ago and were able to stave off bankruptcy by doing creative financings-Calpine Corp. is a poster child for that," says Mark Brodsky a former portfolio manager at Elliott Associates who is now launching Aurelius Capital. Energy producer Calpine announced a massive $3 billion asset sale and debt reduction program in May after multiple downgrades and diminishing investor confidence limited its access to the capital markets.

"The way the credit markets looked at them [in recent years] was that their survival was a question of how much runway they were buying themselves, and whether it would be enough," Brodsky says. "Many investors figured they could clip an attractive coupon for that period, and hoped that operations would pick up dramatically in time to refinance the debt, but the needed improvement isn't happening."

Teetering under an $18 billion debt load, Calpine benefited more than most from a heady new issues junk market fueled by yield-hungry investors and low interest rates. But bond buyers-many of them hedge funds-allowed a host of problem credits to refinance themselves.

High-yield bond sales surged in 2004 to $147.2 billion, slightly more than issuance in 1998, the last banner year for primary markets, according to data from distressed guru Edward Altman, a professor at New York University. While the two bond booms square off in terms of quantity, deals executed in 2004 were of significantly lower credit quality. Bonds rated B- or lower by Standard & Poor's accounted for 42.5% of the new speculative-grade transactions completed last year, according to Altman's research, well above the 31% in 2003 and 38% in 1998.

The proverbial chickens will come home to roost in 2006 or 2007, judging by the historical two- to three-year lag between periods of high issuance and restructuring booms. Moody's Investors Service reported a 1.9% global speculative-grade default rate in May, down from 2% in April and the lowest rate since 1997. That trend should reverse slightly by the end of this year before spiking to 3% by the end of May 2006, the agency said.

As of June 22, high-yield issuance was 38% lower in volume and 39% lower in issues than during the same period last year. Meanwhile, the par amount of distressed debt-trading at more than a 10% spread over the underlying Treasury rate-shot up 79% this year as of mid-May, according to data from Martin Fridson, the former Merrill Lynch & Co. high-yield analyst who now runs high-yield research firm FridsonVision LLC.

As investors lose their risk appetite, the bottom rung of the credit spectrum suffers most. When the market hit a recent low in mid-May, triple-C credits underperformed dramatically, with year-to-date total returns down more than 9% compared with a roughly 2% loss for single-B and double-B names, says UBS strategist Stephen Antczak. "It's typical to have triple-Cs underperform, but this magnitude is rather unusual," Antczak says.

Sectors with high leverage and expenses face a clear risk in this environment. "I don't think that cable and telecom are by any means out of the woods," Brodsky says. "Charter Communications remains incredibly over-leveraged, with a complex capital structure and a spotty history. Cable companies are now spending to get into telephony, and telecoms are spending to get into video."

Cutting both ways

While tightening liquidity provides a growing supply of distressed investment opportunities, many of the fledgling vultures acknowledge that it can also hurt their ability to raise funds. Concerns about losses in convertible bonds and bets on auto makers General Motors Corp. and Ford Motor Co. cooled the investment rush in hedge funds in the second quarter. If redemptions in June spark a vicious selling cycle, that chilling effect could turn into a deep freeze.

The key to hitting commitment targets depends on the start-ups' name recognition and their ability to communicate expertise in multiple strategies. "I think the reality is that last year, if you could walk, you could raise money," said one fund manager currently pitching investors. "I accept that we are not in that reality anymore, but what that does mean is that people are going to differentiate between capable, quality managers and people who can carry a calculator."

Convincing seed capital that you are the former rather than the latter depends a lot on where you come from, says Wood Hatt & Silver's Aaron. "[For] the guys [leaving brand-name funds], money is going to come into their space no matter what happens to convertible arb," the investment adviser says, referring to a rash of closures by convertible bond funds. Fund managers that lack that type of imprimatur will suffer, he adds.

New funds can also overcome growing nervousness about the hedge fund industry by marketing a diversified investment approach, says Todd Whitenack of BBR Partners, a financial advisory firm for wealthy individuals with average assets of $45 million. "In order to have a business that survives the cycles, funds need to create a business model that allows them to be flexible," he says. Event-driven strategies that combine distressed, merger arbitrage and special situations, such as legislative or regulatory arbitrage, fit that bill, Whitenack adds.

Asset flows into purely distressed funds stood at $749 million in the first quarter of this year, totaling only 11% of total inflows in 2004, according to Hedge Fund Research. In comparison, event-driven inflows amounted to $5.9 billion, or roughly 59% of the previous year's take.

While BBR looks for diversification to mitigate risk, the recent volatility hasn't turned off the advisory firm to distressed. "What we've started to talk about internally is that if you do see a lot of fallen angels like GM, that may make the long-only side more attractive," says Whitenack. "Given the relatively large number of poor credits that got capital last year, there's going to be a lot more junk to weed through."

On their own

And there will be a lot more vultures to do the weeding.

Samii and Thorton were among the first to decamp to start their own shop late in 2004. The pair teamed up with Lutz Stoeber, also from from Huff, and Shane Larson of Credit Suisse First Boston to launch Pardus Capital, a European distressed and special situation strategy that grew out of the international approach Samii brought to Huff from CSFB in 2001.

Large funds like Cerberus Capital Management L.P. and Oaktree Capital Management LLC established beachheads in Europe years ago to purchase nonperforming loan portfolios that were being liquidated by banks to conform with standards from the Basel II accord. Instead of competing with these big fish, Pardus will focus on individual credits in the middle market with an emphasis on control equity stakes. "In Germany, there are a lot of middle-sized companies that need capital, from retail to travel to utilities to telecoms," Samii says.

The pace of departures picked up early this year as more high-profile fund managers took flight. Brodsky left Elliott Associates-the fund famous for beating the government of Peru in court-in February. A member of Elliott's management committee and a former bankruptcy lawyer, Brodsky spearheaded an aggressive and lucrative legal strategy for the fund in Owens Corning's asbestos-related bankruptcy. Daniel Gropper, who engineered another of Elliot's large distressed positions in bankrupt utility Mirant Corp., also left to start up an activist distressed fund.

Brodsky teamed up with Adam Stanislavsky, a portfolio manager at John A. Levin & Co., to form Aurelius, a multistrategy distressed and event-driven fund that borrows a motto from its Roman namesake: "Claim your right to say or do anything that accords with nature, and pay no attention to the chatter of your critics. If it is good to say or do something, then it is even better to be criticized for having said or done it."

Angelo Gordon's head of distressed investing, Jeffrey Aronson, left his fund at roughly the same time as Brodsky. Aronson joined the firm in 1989 and controlled half its assets under management as recently as 2003, making all-in bets on Adelphia, MCI/Worldcom, Owens Corning and Telewest Communications Plc, among others.

In 2004, Aronson began returning funds to investors because of declining supply in the distressed space. Expectations of a pickup in 2006 and the lure of independence spurred him to leave Angelo Gordon in February, although a noncompete agreement will keep him from launching a new venture until October.

The defection epidemic also hit DE Shaw in February when Max Holmes, the head of distressed securities who recently oversaw the acquisition of high-end toy retailer FAO Schwartz Inc., resigned. Holmes is now running a global multistrategy fund with Joseph Bencivenga, who recently left Guggenheim Capital and previously ran global high yield for Barclays Capital and fixed-income strategy at Salomon Brothers.

Holmes will employ the same market-neutral strategy he used at DE Shaw to mitigate risk in his new distressed portfolio, Plainfield Asset Management LLC, utilizing currency and interest rate hedges, among other mechanisms.

Friendly business

Some of the new shops grew from friendships forged at the bargaining table, in the market and even in court during complex restructurings that dragged on for years.

After taking a gardening leave from Satellite Capital, where he ran the distressed investment desk, David Ford is teaming up with David Sabath, the former head of credit proprietary trading at JPMorgan. Stephen Blauner, a former partner in Milbank Tweed Hadley & McCloy's bankruptcy practice, will serve as chief operating officer for the pair's new distressed and event-driven fund, Latigo Partners.

The decision to go into business for themselves follows years of talk about the idea and numerous workouts they tackled together. "Without intending to be comprehensive, all three of us have worked on Owens Corning"-still in bankruptcy after four years-as well as Mirant Corp., working on its third year in Chapter 11, Sabath says. He and Ford also worked on Toys "R" Us Inc., which was recently purchased by private equity investors.

Mark May, a former partner at Sagamore Hill Capital, helped build the fund's assets under management to $2.8 billion from $50 million. Early this year, May cast off to launch Azura Capital with Eagle Rock's Lupoff. Mark Luongo, who worked for four years at George Soros's Quantum Fund as comptroller, will serve as chief financial officer at Azura.

Sagamore's managing partner, Steven Bloom, and then-investor relations manager Gabby Bockhaus introduced Lupoff to May in 2003. Shortly thereafter, the two collaborated in the brawl-cum-restructuring of Mexican telecom Alestra. Through the course of subsequent investments, they mulled starting their own event-driven, multistrategy shop that would allow them to create equity without the cult of personality that characterizes many vulture funds.

In January 2004, Bloom-one of three investment partners with May and Scott Roth-exercised his right to change the management agreement with the other two. Roth decamped immediately while May, who had longer tenure at the fund, cast off last June and began working on Azura Capital earlier this year, once his noncompete had expired.


(c) 2005 Investment Dealers' Digest Magazine and SourceMedia, Inc. All Rights Reserved.

http://www.iddmagazine.com http://www.sourcemedia.com

Monday, June 06, 2005

Best Poker Lessons

MIKE SCELZA AND JOHNNY MARINACCI
347-200-8531
If you're losing money to your friends every week, go straight to the
source of the great 21st-century poker craze: The 1998 Matt Damon film Rounders and its "technical consultants," New York poker scenesters Mike Scelza

and Johnny Marinacci (a.k.a. "Johnny Marino"). When they're not appearing
on Spike TV's Casino Cinema show, the pair give lessons for between $50 and $200 an hour for groups
of three to six ($100 for individuals). They'll teach you why you
shouldn't play like the poker stars on ESPN and show you around the
underground New York poker clubs they've been patronizing, and sometimes
running, for the past quarter-century.