David Tepper has told his investors in his hedge fund firm, Appaloosa Management, that he will be returning 20 percent of their capital — some $3 billion — at year-end.
This would reduce the assets of Miami Beach, Florida-based firm to $16.5 billion, the vast majority of which belongs to Tepper and other employees. The sharp reduction in assets should not be interpreted as a bearish forecast for the markets, however.
Tepper — whose prognostications on the markets are widely followed — is believed to be somewhat optimistic about the economy, given some of president-elect Donald Trump’s proposed policies, such as lower tax rates, and the fact the Republicans control the Senate. However, he wonders how much of Trump’s early initiatives will benefit the workers he reached out to during his campaign versus how much they will benefit corporations — and therefore their stocks, say people familiar with his thinking.
In any case, right now, Tepper is long equities and short bonds, both in the U.S. and Europe. He is also long the dollar versus the Japanese yen and the euro. Appaloosa’s hedge funds, which are essentially eclectic multistrategy funds, are up nearly 5 percent for the year through November.
Given the stock market’s surge and the sharp rise in interest rates since the election, the big question is, how much are the potential economic benefits from a Trump administration already priced into the markets?
Momentum could push it up more, but at current levels it is getting harder to make money, Tepper is thought to believe. And Wednesday’s Federal Reserve meeting could make a difference. The markets are also not really discounting potential negatives of Trump’s proposed policies, such as protectionism, he adds.
This is at least the sixth straight year Tepper has returned capital to investors. Last year, he gave back about $2 billion to investors. Still, $16.5 billion is the lowest amount of capital the firm has managed at the start of the year for some time. Appaloosa managed around $18 billion at the beginning of 2015 and 2016 and started with a little more than $19 billion three years ago.