Andrew Feldstein, the Harvard-educated lawyer who leads BlueMountain Capital Management, has had a good run.
His firm boasts just one losing year since it was started in 2003. Assets have swelled to $12.7 billion, and he has 150 people in New York and London helping him manage the abstruse derivatives contracts he likes to trade: credit-default swaps, collateralized debt obligations, synthetic CDOs, mortgage bonds, swaptions — the alphabet soup of stuff that went bad in 2008.
(Daniel Acker/Bloomberg) - Andrew Feldstein is betting that BlueMountain can make money on assets that banks no longer want to own and on loans that banks no longer want to make.
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Feldstein is best known for his June coup, when he bet against the London Whale — JPMorgan Chase trader Bruno Iksil — who was long and wrong on $100 billion in credit derivatives. That play reaped $300 million for BlueMountain, according to people familiar with the matter. JPMorgan lost $6.2 billion. Feldstein did more than make money. He also helped chief executive Jamie Dimon unwind JPMorgan’s trades, earning points with America’s most powerful banker.
JPMorgan and BlueMountain are tight. Feldstein worked at JPMorgan for a decade before going it alone, and the bank is BlueMountain’s biggest broker. They entwined even more this week when BlueMountain hired James “Jes” Staley, a 34-year JPMorgan veteran once considered a candidate to succeed Dimon. Staley will be a managing partner and buy a stake in the firm.
Staley is joining a lucrative enterprise. Feldstein’s $5.1 billion flagship fund, BlueMountain Credit Alternatives, rose 13.3 percent through October, making it No. 51 in Bloomberg Markets’ annual ranking of the top 100 large hedge funds. Credit Alternatives was the 20th-most-profitable fund, producing $134.7 million for BlueMountain. Since its inception in late 2003, the fund has returned an average of 10 percent a year.
The UBS deal
Feldstein, 48, who declined to be interviewed for this story, expects the good times to keep rolling. In October, BlueMountain started soliciting new investors for Credit Alternatives through UBS, Switzerland’s biggest bank. By pooling their money, UBS’s wealthy clients can each put in $250,000, far less than the $1 million-plus that hedge funds typically demand.
That could be a dangerous proposition, says Peter Rup, chief investment officer at Artemis Wealth Advisors in New York. He says credit markets are poised for a fall.
“The good rates of return in this market have been had,” Rup says. “The unsophisticated buyer is going to get hurt.”
BlueMountain is raking money into a new fund, too. It raised $1.5 billion for the BlueMountain Credit Opportunities Master Fund I in October, twice what it expected, BlueMountain co-founder Stephen Siderow said in an interview with Bloomberg Television. Feldstein is betting that BlueMountain can make money on assets that banks no longer want to own and on loans that banks no longer want to make, according to an October marketing document for the new fund. As banks shed risky assets, Feldstein is making money picking through these flea markets of finance.
“This market will continue to grow,” says Paul Rowady, a senior analyst at research firm Tabb Group in New York. “Their intuition to be a leader is spot-on.”
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