Leon Cooperman’s investment objectives at Omega Advisors are simple: no down years, beat the S&P, generate 10-14% return and maintain acceptable volatility. And over the years, the firm has largely met its goals: since its 1992 inception, Leon Cooperman’s Omega Advisors has had only six down years.
Not a bad track record for a hedge fund that spans more than two decades.
Leon Cooperman’s approach to investing
A May 4th conference call presentation for Omega investors provides key insights into Leon Cooperman’s approach to investing. His strategies have led to a 1753% return for Omega Advisors since 1992 and helped him to build a $3.7 billion fortune.
So what are the methods to Leon Cooperman’s wealth-building madness?
“We are value investors driven by deep fundamental research,” the Omega team writes in the presentation.
It makes money via four main avenues: market direction, asset allocation (fixed income and structured credit), developed country equities (undervalued longs and overvalued shorts), and occasional macro strategies.
The team first establishes a capital markets outlook to help determine the anticipated investment landscape and assess exposure to risk assets. It next decides on asset allocation. “We spend a great deal of time analyzing the relative attractiveness of stocks, bonds, cash, commodities, and other asset classes in the U.S. markets and many non-U.S. markets,” the team writes.
Stock selection process
In the stock selection process, Omega Advisors seeks out equity opportunities in both undervalued longs and overvalued shorts in developed countries. The presentation explains:
We are a value-based, catalyst driven investor, focused on a variant perception of company fundamentals. Our disciplined, fundamental approach to company analysis allows us to estimate a company’s business value and compare it to market value.?Once the investment decision has been made, we determine the appropriate exposure/ sizing in the context of prudent risk control and liquidity of the investment.
Omega’s macro and debt teams seek out value in other asset classes and hedge market risk using fixed income, currencies and major equity indices apart from the S&P 500.
Leon Cooperman and the Omega Advisors team use specific sets of attributes to identify investment opportunities on both the long and short end.
In identifying long investments, they utilize qualitative and quantitative criteria to make judgments. On the qualitative end, uniqueness, defined corporate goals, effective communications and end-user markets are considered. On the quantitative end, price, liquidity, barriers to entry and return on investment are in the mix.
In finding shorts, Omega seeks out deteriorating business and industry fundamentals as well as inappropriate investor expectations. Excess debt, stock sales by insiders and identifiable catalysts are also criteria.
In conjunction with its macroeconomic analysis and company characteristics, Omega Advisors pursues what it calls a rigorous, “bottom-up” approach to stock selection. It draws a clear distinction between business value and market value. The former reflects the price an informed buyer would pay for a corporation, and the latter indicates the price a marginal investor would pay for a minority position.
Once called the “James Brown of investing,” Leon Cooperman is one of the hardest workers in investing. In a CNBC interview “the way to be successful is to do what you love and love what you do.”
He has high expectations for his employees as well. “You have to bring a total commitment to the business or you don’t belong. Premium fees demand premium performance,” he said. “I don’t expect others to work harder or longer hours than me. I try to lead by example.”
Omega’s May conference call presentation highlight strong work ethic and focus as key qualities it values in its analysts. It also emphasizes “an intensity which leads one to be on top of positions and be ahead of the crowd” and “a good nose for money making.” Each year, analysts are expected to be able to produce at least three to four core type ideas and 10 to 12 trading ideas.
The takeaway: if you want to work at Omega, you better hit the ground running.
Leon Cooperman did not respond to request for comment regarding this story.