When reclusive star hedge fund David Abrams met fellow hedge fund star Seth Klarman in 1987, he didn’t realize it would move him from New York City to Boston forever.
David Abrams wanted to stay in New York, but when Klarman said “try it for a year” Abrams was hooked
David Abrams, whose hedge fund has delivered nearly double the returns of the average for hedge fund tracked by Hedge Fund Research, was working in merger arbitrage in New York when Seth Klarman suggested the two work together in Boston. “I don’t want to leave New York City,” Abrams said to Klarman at the time. “Just try it for a year,” Klarman replied.
Twenty years later David Abrams still finds himself with a wife and two kids, still in Boston, although he owns a prime Manhattan residence with views of the park. After a successful run at Baupost, Abrams branched out on his own to form Abrams Capital Management. After leaving Klarman’s Baupost Group, one of the world’s largest hedge funds, Abrams finds himself atop the hedge fund world operating a “One-Man Wealth Machine,” a recent Wall Street Journal article by Rob Copeland.
David Abrams likes to buy on drawdowns
David Abrams, a renowned art collector, is a classic value investor who likes to “buy on drawdowns,” a term used by quantitative investors that in discretionary terms means “buying when there is blood on the street.” After the 1998 stock market crash, for instance, when he had left Baupost to establish his own fund, he said he was “on the beach when the world blew up and I said ‘wow, investing actually looks fun again so maybe it’s time to plug into Bloomberg again.’ ”
Thus Abrams started his own hedge fund. He and Klarman remain on good terms and respect one another. One area Abrams beats secretive Klarman is in regards to privacy and the size of his operation. The Journal report notes that with nearly $8 billion, Abrams employs just a handful of employees and, while earning clients an average annual return of 15%, he has become a billionaire himself. Many hedge funds of that size might employ a hundred or so employees.
David Abrams has sense of humor
While he is reclusive, Abrams is known to have a sense of humor. Speaking at a Columbia Business School event on October 2, 2008 – in the midst of the derivatives blood bath that led to the stock market swoon and recession – Abrams, speaking alongside Klarman, once said his firm was very similar to Baupost but when he went to name the fund, Baupost was taken so he settled on Abrams Capital Management. Describing his strategy to a number of hedge fund luminaries on stage and in the audience, he joked that “A lot of my best (investing) ideas were stolen from people in this room.”
David Abrams, who is on the verge of launching a forth fund with a target of $2 billion under management, likes investors who are like minded about volatility. “We care less about volatility and try and find like minded limited partners,” he said in the 2008 presentation. Abrams, like many of the top managed futures quantitative fund managers, recognizes the difference between upside and downside volatility, noting that managing clients through volatility is “a lot easier on the way up than on the way down.”
Among David Abrams current holdings is American International Group Inc (NYSE:AIG), Microsoft Corporation (NASDAQ:MSFT), The Western Union Company (NYSE:WU), Wells Fargo & Co (NYSE:WFC), SLM Corp (NASDAQ:SLM). Some of his more controversial holdings include Royal Bank of Scotland Group plc (ADR) (NYSE:RBS) (LON:RBS), J.C. Penney Company, Inc. (NYSE:JCP) and Barnes & Noble, Inc. (NYSE:BKS), as well as a position in Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) noted in the Journal that is a bet against reform of this system.