Stephen Taub

David Tepper’s Appaloosa Management is still galloping at full speed. In the first quarter of this year, his main funds climbed 14.5 percent net while Thoroughbred, which must invest at least 70 percent of its assets in fixed income, was up around 11.4 percent net.

Not too shabby considering Tepper — who last year he racked up a 133 percent net return in Appaloosa Investment I fund and 129 percent in Palomino — thought this year would be choppy and tougher to make money. In case you’re not a Tepper-ophile, he is the one who earned about $4 billion last year from gains on his own capital in his funds and his share of the fees, making him the highest earning hedge fund manager.

The Pittsburgh native and one-time Goldman Sachs head junk bond trader is widely thought of as a distressed investing expert. But, he is actually an eclectic investor, who typically devotes about 30 percent to 40 percent of his assets to equities. After assessing the big picture, Tepper looks for the best value within the capital structure — whether it is bonds, preferred stock, bank debt or equity — sometimes engaging in capital structure arbitrage.

He also is not afraid to be the first in, either. Or the only one in an investment, for that matter. Last year, a big portion of his gains came from the battered banks — especially Bank of America — and other financial companies, which upset glib populists like MSNBC’s Keith Olbermann, who tried to convince his disciples that tax-payers actually bankrolled Tepper’s $4 billion in earnings. Nice try.

Tepper, who managed $12 billion at the end of 2009, also has a strong stomach and ice water instead of warm blood. Twice this past decade his funds surged by triple digits after losing 25 percent the prior year. According to sources, last year Tepper took his hedges off at the right point and played currencies at the right point. He also bought collateralized mortgage backed securities at the beginning of the year and sold some credit-related securities and equities.

Although credit spreads have tightened sharply since the financial crisis, Appaloosa still has some positions in credits, believing there is more room left for spreads to tighten. It also believes there is more money to be made in the CMBS market. In fact, although Tepper told me in an earlier interview he plans to give capital back to investors — which he has done on several occasions in the past — there still does not seem to be an indication he is close to doing so. Sources say he is waiting for the markets to get closer to fair value.

Stephen Taub, who has covered the hedge fund industry for 30 years, is a contributing editor to Institutional Investor and Absolute Return-Alpha magazines.