HENRY SWIECA VIVIDLY REMEMBERS THE FIRST TIME HE met Glenn
Dubin, his partner in Highbridge Capital Management, the New
York City hedge fund firm. It was in 1960 in a Bennett Park
sandbox at West 183rd Street and Fort Washington Avenue in the
northernmost reaches of Manhattan.
"We shared peanut-butter-and-banana
sandwiches," recalls the 47-year-old Swieca, with a grin.
Dubin, also 47, just laughs, saying, "His memory is much better
The two grew up in Washington Heights, a
working-class neighborhood in the shadow of the George
Washington Bridge. All through their school years, they
remained fast friends. Swieca attended a private school on the
Upper West Side -- the Franklin School (now merged with the
Dwight School) -- on a scholarship, whileDubin starred in
football and wrestling at John F. Kennedy High School in
Riverdale in the Bronx. But the friends, who lived just five
blocks apart, would often spend hours on the phone in the
evenings, with Dubin, the jokester, invariably cracking up his
The pair roomed together during their
freshman and sophomore years at the State University of New
York at Stony Brook. And it was at the leafy Long Island school
that Swieca and Dubin teamed up for their first business
venture: taking over the chocolate-distribution business of
Dubin's deceased grandfather. They earned a fair amount, but,
Swieca concedes, "We ate too much chocolate."
The two pals still have a taste for
sweets. As founding partners of Highbridge Capital Corp., a $6
billion hedge fund, they earn tens of millions a year, counting
their take from the firm's lucrative 25 percent performance fee
and the gains on their large stake in the fund. That's not to
mention the not inconsiderable proceeds from their other
business, Dubin & Swieca Capital Management, which runs a
pair of funds of hedge funds, Overlook Performance Fund and
Pinehurst Partners, with a combined $1 billion in assets.
The clients of Highbridge Capital have
also done rather handsomely -- and with remarkable consistency.
Highbridge's returns, net of all fees, from the time the fund
was launched in September 1992 through April 2004, average more
than 16 percent a year, or about 50 percent better than the
Standard & Poor's 500 index over the same period -- with a
lot less risk (see chart, page 76). Highbridge has posted gains
in an astounding 127 of 140 months since its inception, and the
fund's standard deviation of 5 percent indicates that it's one
third as volatile as the S&P. Moreover, Highbridge's Sharpe
ratio -- its incremental return over the risk-free Treasury
bond rate -- is 2.17, or more than four times that of the
S&P 500 (see table, page 76).
The fund's best year was 1999, when it
gained 32.4 percent -- nothing to sneer at, certainly, but not
the kind of jaw-dropping return that would catapult a firm to
the top of hedge fund performance tables. That very fact,
however, points up the premium that Swieca and Dubin put on
dependability -- on their batting average rather than their
home-run tally. Last year the fund finished up 10.2 percent net
of fees, or 13.6 percent gross. It was profitable in 11 out of
12 months, with a Sharpe Ratio of 3.86 and a standard deviation
of 2.3 percent. The fund was moderately leveraged.
"Many people in the hedge fund industry
see Swieca and Dubin as a benchmark," says Lloyd Blankfein,
president of Goldman, Sachs & Co.
THE PAIR, WHO DRAW THE NAMES OF ALL OF
THEIR funds from landmarks in their old neighborhood, picked an
especially apt label in "Highbridge." The name refers to the
old, now disused landmark aqueduct that spans 620 feet of the
Harlem River between 170th Street in the Bronx and 174th Street
in the Heights; built in 1848, it is the oldest extant bridge
on the island of Manhattan. Just so, Dubin and Swieca are
determined to see their firm endure long after they've left it.
Says Swieca: "Our mantra is: We don't want to be the largest
hedge fund. We want to be the hedge fund that is in business
To that end, the two have in recent
years brought in seasoned outside managers to run many
day-to-day operations; diversified the multistrategy Highbridge
fund further by adding five more investment strategies; and
allowed a few of their top portfolio managers to run money in
single-strategy funds for Highbridge clients. The last move is
an unusual policy designed to help the firm hold on to
outstanding performers while adding to its assets without
disrupting its methodically determined asset allocations (see
box, page 74). The founders also recently ramped up their
durable fund-of-funds business. Like the hedge fund business
generally, Highbridge Capital Management has had something of a
growth spurt lately. From early 2000 through the end of last
year, both assets and employees tripled.
Might this whirl of activity be a
prelude to Highbridge's founders walking away from the
business, perhaps selling the firm or taking it public? "Not
for a long while," insists Dubin. "We like to work. We tried to
build an infrastructure that is less reliant on us, but not
from the standpoint of retirement." He adds: "My wife is always
asking me to spend more time with the kids, get home for family
dinners and birthday parties. But she knows this is my passion,
and she and the kids get all of my time on the weekends."
Together, Dubin & Swieca Capital,
started in 1984, and Highbridge Capital Management, founded in
1992, employ 160 people today, mostly in midtown Manhattan.
Highbridge Capital Management also has an office in London and
is in the process of opening an outpost in Hong Kong. The total
assets of Swieca and Dubin's various fund enterprises -- the
funds of funds, the flagship hedge fund and the two new
single-strategy funds -- amount to nearly $8 billion.
The flagship Highbridge Capital fund now
deploys seven discrete strategies (listed in order of their
introduction): global convertible arbitrage, event-driven
equity arbitrage, special opportunities, statistical arbitrage,
structured private investments, European special situations and
long-short equity. Dubin and Swieca plan to add at least one
more single-strategy fund later this year and perhaps another
in 2005, both keyed off current strategies. However,
convertible arbitrage remains the fund's main turbine. As of
year-end 2003, U.S. convertible arbitrage accounted for 44
percent of Highbridge's assets, European convertible arbitrage
for 12 percent and Asian convertible arbitrage for 10 percent.
The remaining 34 percent was divvied up as follows: event
driven and relative value, 10 percent; special opportunities, 8
percent; statistical arb, 8 percent; private placements, 4
percent; long-short equity, 2 percent; and European special
situations, 2 percent.
Highbridge's client list is as diverse
as it is impressive, ranging from blue-chip institutions such
as insurers American International Group and Axa Group to
money-center banks J.P. Morgan Chase & Co. and Citigroup to
college endowments like those of Duke University, the
California Institute of Technology and the University of
Chicago to substantial family offices.
Investors have come to rely on Dubin and
Swieca's fund for returns that may not be showy by hedge fund
standards but are take-to-the-bank steady. Highbridge
compounded, for instance, at a 14 percent average annual rate
over the four turbulent years from 2000 through 2003, compared
with a 5 percent average annual decline for the S&P
"They understand risk," says Eli Broad,
the founder of two Fortune 500 companies and a Los Angeles
philanthropist who has long invested in Highbridge through his
foundations. "During a bubble," adds Broad, "they won't do as
well as others, but they average out, exceeding the S&P
with less volatility and less risk. They have survived and
thrived in all kinds of markets."
Private banker Edgar de Picciotto,
chairman of the board of Geneva-based Union Bancaire
Privée, who has been investing with Dubin and Swieca
since 1993, confides, "The steadiness of their returns and
volatility that is not high has made us a large investor in
The most extraordinary aspect of
Highbridge may be that Dubin and Swieca -- succeeding in an
industry all but created by and for larger-than-life traders --
are not hands-on traders themselves. Instead, they rigorously
oversee risk and asset allocation while identifying those with
superior investment skills.
"We never managed money for our
investors. We are never in front of screens making tick-by-tick
investment decisions," Dubin says. "This makes us absolutely
unique in the hedge fund industry."
Perhaps for this reason, Dubin and
Swieca may have come the closest among hedge fund proprietors
to building an institution capable of outlasting its founders.
Other well-known hedge funds have been so reliant on their
legendary founders that they've tended to go into swift decline
when the "name" partners retired. "While other hedge fund
managers were trying to figure out the dollar-yen trade, where
the Nasdaq or the S&P was going, we were trying to build a
sustainable business," says Dubin. "Look today. We've got a
LIKE MANY SUCCESSFUL marriages, Swieca's
and Dubin's partnership is a blend of opposites. A lifelong
Democrat and a supporter of John Kerry, Dubin is the more
outgoing, public figure, a former star athlete who chairs
fundraisers for the Robin Hood Foundation (he helped found the
charity). The Dubins have a weekend place in rustic-chic North
Salem in Westchester County. By contrast, Swieca, who is
stumping for George W. Bush, is a strictly behind-the-scenes
backer of civic and religious causes, and he and his family
spend summers and holidays in the low-key community of Atlantic
Beach, just over the New York City border on Long Island.
"You'll never find two people who are so dissimilar yet are so
bonded," concedes Dubin.