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Paul Singer | Main | David TepperS. Donald Sussman Paloma Partners Founded in 1981 $45 million (what $1 million invested on |
day one would be worth now)
When S. Donald Sussman met David Shaw for the first time, in the 1980s, Shaw was a former Columbia University computer sciences professor who had been working for a year at Morgan Stanley's quantitative proprietary trading unit. At the time, Shaw had received an offer to join Goldman, Sachs & Co. and launch his idea for a new quantitative strategy there. Sussman persuaded him instead to take backing from Sussman's firm, Greenwich, Connecticut-based Paloma Partners, which would allow Shaw to own his business. D.E. Shaw & Co. went on to become one of the world's most successful quantitatively driven hedge fund firms, but the Shaw investment was not a one-hit wonder for Sussman. Since launching Paloma in 1981, he has made early investments in some of the industry's most legendary firms. These include Bruce Kovner's Caxton Associates, Edward Thorp's Princeton/Newport Partners, Paul Singer's Elliott Management Corp., Alan Slifka's Halcyon Asset Management and John Angelo and Michael Gordon's Angelo, Gordon & Co. The investments were part of a strategy -- not widely deployed at the time -- to identify and then farm out money to unknown managers for Paloma's multistrategy fund rather than invest the capital himself. Eventually, Sussman moved away from investing in outside managers to hiring undiscovered managers to trade on Paloma's centralized platform. The approach has worked well. From October 1981 through July 2013, Paloma Partners, which manages $2 billion, produced an annualized return of 12.7 percent. "There are very few managers who have been really disciplined and said,'What I do doesn't work anymore.'" -- S. Donald Sussman
Alpha: What do you look for in a manager?
Sussman: We're looking for market insights that we believe have not yet been exploited. No big-ego types -- I'm looking for someone who is approaching investing in terms of real intellectual interest in crafting a great strategy and obviously someone whose personality tends toward extreme risk aversion.
Was there ever a time you managed money, or did you always invest money with other managers?
We've always used independent managers, but what that means has changed 100 percent over the years....