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The Brothers of King Street Let Down Their Guard
In a rare interview, Lifetime Achievement Award honorees Brian Higgins and O. Francis Biondi Jr. reflect on their relationship and building one of the world’s top hedge funds.
Brian Higgins and O. Francis Biondi Jr., co-founders of the standout hedge fund King Street Capital Management, have done few interviews, especially compared to some other giants of the industry. So when a camera-primed Higgins signed into a Zoom call for this story and discovered he was conversing with a generic avatar, he was “really disappointed.”
“I shaved; I put a nice, clean shirt on. I got the right lighting. I was going to do makeup, but [the public relations firm] thought that would be a bit too contrived,” Higgins said jokingly.
Even among hedge funds, King Street has historically been especially discreet. When Institutional Investor published an in-depth article about the firm in 2012, Biondi and Higgins declined numerous requests to comment. And when reporters occasionally obtain King Street’s investor letters and publicize gains and losses, the co-founders never speak to them on the record.
“We always wanted our returns to speak for ourselves,” Higgins says. He and Biondi always saw more downside than upside to drawing attention to the firm. “One of my early colleagues described it as: The spouting whale gets harpooned.”
The media relations strategy hasn’t changed much over the years, but King Street is willing to evolve. This adaptability is partly why it has not only survived for nearly three decades, it’s thrived, according to investors and others familiar with the firm.
Since Higgins and Biondi launched New York–based King Street 28 years ago, the hedge fund has become one of the largest in the world, managing $22 billion in assets. It has made $18.7 billion in net gains for investors since it started, according to research by LCH Investments.
The co-founders, who are the recipients of Institutional Investor’s 2023 Lifetime Achievement Award, never envisioned the level of success they have achieved. Looking back, they can’t imagine it without each other.
Higgins and Biondi befriended each other at First Boston in the summer of 1987. They were two of more than 100 junior analysts who were hired to learn the ropes and ultimately be recruited by the various departments of the investment bank. A few months later, the stock market crashed on what became known as Black Monday. First Boston began laying off employees shortly after, including some of their cohort.
“That was probably the first sobering moment both personally and professionally that we both experienced,” Biondi says. “It was a real taste of how cyclical Wall Street could be, and that it wasn’t always perfect.”
Higgins would continue to work at the bank for the next eight years, whereas Biondi left at the end of the two-year analyst program to attend Harvard Business School. He would eventually rejoin First Boston after a stint at Morgan Stanley’s real estate fund.
In 1995, the two friends left First Boston to start — in a windowless office with used furniture — King Street Capital Management. At the time, Higgins’s brother liked to tease them by calling the firm “Two Guys Capital.”
But early lessons and experience shaped a productive investment philosophy.
“We’ve always tried to be intellectually honest,” Higgins explains. “Early on in our career, people would say, ‘What drives you?’ I would joke and say ‘Paranoia and insecurity.’ What kills you in investing is this false sense of bravado: ‘I have all the answers,’ or ‘I could beat the market,’ or that sort of sensation or approach. We always say the work is never done, and knowledge reduces risk.”
The co-founders also leaned on their early training as generalists, which gave them the confidence to routinely seek opportunities in places they hadn’t before. The firm became known for its ability to spy credit opportunities across asset classes — and more recently, it has expanded beyond its hedge fund roots, launching a collateralized-loan obligations business in 2017 and moving into strategies including real estate and growth lending.
One longtime investor who has experienced King Street’s adaptability and opportunistic mindset firsthand is Tarik Serri, senior director of hedge funds and alternative investments at Trans-Canada Capital. The pension fund manager, which oversees more than $30 billion of assets for Air Canada and other institutions, has been an investor with King Street for about ten years. According to Serri, the investment process and nimbleness are what keep the hedge fund alluring.
“They’re a value investor at the end of the day,” he says. “They focus on stressed and distressed investments. But they also focus, in terms of trading, around names and turning over the portfolio a lot. Marrying both the fundamental aspect and the trading — a hedge fund aspect — really attracted us to them.”
Serri notes that King Street and TCC are true partners that engage each other with questions and suggestions. The two parties have openly discussed tweaking strategies and made co-investments. TCC also seeded a private debt strategy at King Street when the asset class started to take off five years ago.
Right now, Serri really likes what he describes as an ingenious, niche credit strategy in southern Europe that King Street is running — one that he says is too good to share more details about, for fear of others jumping in.
Another example Serri shares: King Street’s opportunistic credit investments in the wake of Covid-19. The hedge fund firm was quick to point out massive price dislocations across debt markets when the virus began rapidly spreading in the U.S. in March 2020. Less than two months later, TCC and another investor partnered with King Street to capitalize on them. “That mandate did extremely well,” Serri recalls. “We achieved a 20-plus percent return over 12 months, and then the spreads started to compress back and the opportunities kind of evaporated.” Any slower, and the trades would not have worked out as well. (King Street declines to comment on investment performance.)
“It’s all about the network and the partnership model that they built,” Serri explains. “They have a few large, sophisticated investors like us that can actually get on the phone really quick, understand the investment thesis really quick, and deploy capital really quick. These three points are very important for a GP.”
Another longtime partner of King Street’s is Barclays’ Stephen Lessing. As chairman of the investment bank’s senior relationship management group, which focuses on the 150 biggest clients, Lessing has worked with King Street for more than 20 years. He agrees with Serri that King Street’s global network of limited partners and central banks has differentiated it and gives the firm a macro view others don’t have.
As a customer, Barclays has never had an issue with King Street. “They’ve always dealt in the most straightforward way, [with] no surprises. And they act with integrity every day,” Lessing says.
King Street has delivered good returns for investors relative to its competitors. In 2021, it posted a 14.7 percent gain in its flagship fund, its best performance since 2009 and its second straight double-digit gain.
But 2022 was a different story, as hedge funds experienced their worst year since the financial crisis. Credit funds were among the categories that suffered, if not as badly as equity long-short funds. But King Street fared better than many of its peers: It was down just 3.8 percent for the year, according to a person who has seen the results.
And the hedge fund’s historical performance is hard to top. “They did not lose money, or did not have many losses in the past, within a 20-plus-year track record, which is rare in the hedge fund world,” Serri says.
These sentiments were echoed by John Waldron, president and chief operating officer at Goldman Sachs.
“We’ve been close partners for many years, and what they have built over at King Street is remarkable,” he says. “Their thought leadership continues to be top-flight, and the firm has done an impressive job assembling the talent needed to be truly innovative in credit investing and asset management more broadly.”
The success of the firm has enriched the founders, who in years past have made II’s annual Rich List, the definitive ranking of the 25 highest-earning hedge fund managers, based on a combination of fee earnings and gains on their own capital. However, Higgins and Biondi have remained “humble and low-key,” according to Lessing, who counts them as friends.
“Both of them are good sons. They’re good brothers, they’re good husbands, they’re good fathers, and they’re good friends,” Lessing adds. “I’ve seen them grow, and they both are very philanthropic and involved in a number of charities, in a meaningful way, and they give back to their communities.”
Higgins was surprised when Biondi told him in 2019 that he wanted to retire. When Biondi left the firm the next year, in June 2020, it was a major change for King Street and for Higgins, who remains managing partner and co–portfolio manager. “I always describe ourselves like brothers, or as an old married couple, or whatever analogy you want to use for the 25 years that we spent together,” Higgins explains.
But he understood and supported his friend’s decision to step down.
Leading what is widely considered one of the best hedge funds in the world, with almost 250 employees, is an all-consuming job. But there are other things in life — and Biondi says it was a good time for him to depart, as King Street was set up to succeed in a new phase that didn’t need to include him.
“I think I certainly reached a point in age where I felt like I had more responsibilities, both to my family and my parents, sort of in both directions when you’re in your mid-50s. And I wanted to spend more time on that,” Biondi says.
His calendar is now filled with family-related appointments and other responsibilities (he’s still a member of the Yale Corp. Investment Committee, for example).
Higgins and investors say King Street hasn’t missed a beat since Biondi’s retirement — a testament to Biondi’s investing prowess and influence on other leaders at the firm. Both co-founders credit their employees with the company’s success.
There was another high-profile departure in November last year. King Street’s global head of markets, Justin Gmelich, who joined the firm in 2020 from Goldman Sachs, left to join Millennium and become its new co–chief investment officer. However, King Street has had modest turnover overall. More than 70 employees have worked at there for at least ten years, according to Higgins.
And recent performance has remained strong in the face of changes in markets and at the company, he adds.
“It’s a team effort, certainly. It speaks to how we operate and continue to operate,” Higgins says. He and others at the firm have pride in what they’ve built and their ability to stay successful through different cycles. “That’s always the key. Can you stand the test of time?”
King Street has made it this long.
“I think we accomplished a lot together,” Biondi says. “The people who singularly do this, that’s an incredible thing to do, I have to tell you. We were lucky to be together, and it really made it possible to happen. No question that the two of us together made for a very, very powerful team.”