The pair tapped their networks for talent. Chief risk officer Liberman also worked at JPMorgan before joining BlueMountain in 2004, as did Peter Greatrex, who signed up in 2007. Alan Gerstein, another friend of Feldstein’s from the bank, joined in 2004 after a stint at Goldman Sachs, where he knew Bryce Markus, who joined BlueMountain in 2005, and Derek Smith, who came onboard in 2008.
David Rubenstein, another Harvard Law grad, knew Siderow at McKinsey and came to BlueMountain in 2006.
All have equity in the company, and ownership is lucrative. In 2010, Markus, 35, bought a Park Avenue apartment from Goldman Sachs chief executive Lloyd Blankfein for $12.2 million, according to real estate records.
In its first few years in business, BlueMountain practiced a strategy known on Wall Street as crossing dealers, according to three people familiar with the firm’s trading.
In one example, BlueMountain would call a handful of banks and ask for prices on bespoke securities — CDOs that had been cut into custom tranches by the banks that bought and sold them. It would buy from the bank quoting low and sell to the one quoting high. The move rankled some bankers. BlueMountain’s defenders say it was just taking advantage of inefficiencies in the market for the benefit of its clients.
Feldstein and Siderow declined to comment on the matter.
London-based Barclays, a longtime Feldstein banker, says it has no complaint about its treatment by BlueMountain.
“The trading desk has consistently maintained a strong working relationship with BlueMountain over many years and market cycles,” said Drew Mogavero, global head of high yield and U.S. credit derivatives trading. “We have found them to be a valuable business partner and a top trading account.”
Such stratagems as crossing dealers aside, BlueMountain became a coveted customer for banks that trade derivatives, people familiar with the firm’s relationships say. By mid-2008, it was turning over billions in assets and paying millions in commissions. That year, BlueMountain was Goldman Sachs’s fourth-largest counterparty in credit derivatives, according to a 2011 report by the Financial Crisis Inquiry Commission.
Then prices plunged, and the banks panicked. Goldman and Morgan Stanley asked BlueMountain to put up more collateral, according to five people familiar with the matter. On the other side, hedge funds such as BlueMountain worried about the stability of their prime brokers. By the end of 2008, BlueMountain had less than $1 billion left at Goldman, according to a person familiar with the matter.