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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 than mine."

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 buddy.

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 the longest."

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 500.

"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 their fund."

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 business."

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.

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