David Tepper Will Convert Appaloosa to a Family Office, Eventually

The billionaire’s plan is not surprising for a variety of reasons.

David Alan Tepper, president of Appaloosa Management (Victor J. Blue/Bloomberg)

David Alan Tepper, president of Appaloosa Management

(Victor J. Blue/Bloomberg)

David Tepper’s Appaloosa Management plans to return all outside capital to investors and turn his hedge fund firm into a family office, a decision industry observers had been predicting for some time.

Tepper “has not set an exact timetable to return outside capital,” a spokesman for Appaloosa said Thursday, confirming a Wall Street Journal report. He said it could happen soon, or more than a year from now.

The move is not surprising for a variety of reasons.

For one thing, many of Tepper’s contemporaries have taken the same route in the past year or two, including Leon Cooperman of Omega Advisors and Jonathan Jacobson at Highfields Capital Management. And in recent years, the 61-year-old Tepper has gotten divorced, moved from Short Hills, New Jersey to Miami, and bought the Carolina Panthers, the professional football team in North Carolina.

Appaloosa has also been shrinking in size. The firm’s assets stood at $11.6 billion at the end of last year, down 22 percent from the $14.8 billion it reported managing at the end of August, and down 30 percent from $16.5 billion about a year ago, according to regulatory filings.

[II Deep Dive: David Tepper’s Appaloosa Sees Steep Decline in Assets]

Some of the decline was the result of Tepper voluntarily returning capital to investors, something he has frequently done over the years.

Tepper has always preferred to stay small and maximize the returns on his own capital rather than rely on fees for growing his personal wealth. So, Appaloosa has returned capital to investors in eight of the past nine years. The only year in that span it did not return money was at the end of 2017.

It is partly why the eclectic investor — who started as a distressed debt trader — may be the most successful hedge fund manager ever among those relying on human decision-making rather than computers. Since its 1993 inception, Appaloosa has compounded at more than 25 percent per year, net of all fees.

Last year his main funds were down slightly, though they still outperformed the stock market indexes, which were solidly in the red. The small loss prevented Tepper from qualifying for the Rich List for the first time in seven years, and only the second time since 2008.

Tepper grew up in a lower-middle-class neighborhood in Pittsburgh, earned an economics degree at the University of Pittsburgh, and got his first job as a credit and securities analyst in the trust department of Equibank, also based in Pittsburgh. He later worked for Goldman Sachs Group, leaving in 1992 after being turned down three times for partner.

“I would rather be lucky than be smart. But you have to be smart enough to put yourself in a position to be lucky,” Tepper told Institutional Investor in 2013, when he was named to the II Hedge Fund Hall of Fame.

Over the years Tepper has distinguished himself as a resilient market opportunist with a penchant for taking calculated risk. This was underscored three times when after enduring more than a 25 percent loss, Tepper followed with eye-popping gains, including triple-digit returns in two of those three years.

In 2009, Tepper posted a 132 percent net gain, his second-best year. He achieved this in large part by purchasing beaten-down bank stocks after the U.S. government announced a plan to shore up bank capital during the financial crisis.

In his 2013 interview with II, Tepper said it’s not always bad to lose money in the short term as certain investments take time to pay off.

“But we don’t ever want to jeopardize the firm,” he said at the time. “Nobody has been down and come back like Appaloosa in the history of hedge funds.”

David Tepper Goldman Sachs Group Highfields Capital Management Jonathan Jacobson Leon Cooperman