The Leverage Academy team feels strongly that its students should have role models in the industry. Role models serve as inspiration and also provide context for students and young professionals to understand the industry and the competitive landscape from a senior level. The team has compiled biographies of prominent Investment Bankers, Traders, and Investors, and presents these here for students to browse and learn from.
Mason Hawkins, Founder of Southeastern Asset Management (Investor - Value)
The Story Behind Mason Hawkins, One of the Best Mutual Fund Managers in America
From late 2007 to 2010, most money managers were hard-pressed to generate positive returns for their investors, let alone outperform any benchmark. As a result, investors were preoccupied with searching for the best of the best funds to invest in, whether in traditional mutual funds or alternative investments. Few managers were able to outperform the S&P500 or other relevant benchmarks over this period. One such asset manager, Otis “Mason” Hawkins, may prove to be a savior for weary investors looking for a fund manager to help them recoup heavy losses from the latter half of this past decade.
Hawkins’ interest in the capital markets began well before his college career. In his high school years, he received a copy of Benjamin Graham’s -Intelligent Investor- from his father, which described lessons in value investing that would later serve as the basis of Hawkins' investing strategy. After graduating from the University of Florida in 1970 with a Bachelor of Arts degree in Finance and obtaining an MBA in Finance from the University of Georgia just one year later, Hawkins entered the investment business. He then had two brief one-year stints as a Director of Research for both First Tennessee Investment Management and Atlantic National Bank in the early 1970s. It was after his experiences at these two investment firms, that Hawkins accomplished what he may be most widely recognized for— becoming the founder, Chairman, and CEO of Southeastern Asset Management.
Hawkins' list of credentials does not begin to describe his successes as a fund manager. For the first 20 years after starting Southeastern Asset Management in 1975, the accounts Hawkins and his team managed experienced “compound annual returns of 19.5% per year, compared with the S&P 500’s 17.7% returns.” For the 10-year period thereafter, Southeastern’s largest fund, the Longleaf Partners Fund (LLPFX), easily outperformed the S&P 500, with average annual returns of 12.6% against the index’s 8.3% advances. While Hawkins’ more volatile funds were not exempt from the hard-hitting recession, experiencing a drop that was nearly 14% greater than that of the S&P 500 in 2008, his panache for selecting the right stocks in the long-run has helped lead his flagship fund to more than double the returns of the major index (53.60% vs. 26.46%) in 2009, as the markets began to rebound, so did LLPFX. From November 2009 to November 2010, the fund beat S&P 500 returns by more than 7%.
How has Hawkins achieved such levels of success? – By utilizing a strategy of value investing, established by the aforementioned Benjamin Graham and adapted by the widely-heralded Warren Buffet. The strategy focuses on identifying and investing in stocks with low P/E ratios, price-to-cash ratios, or price-to-book ratios. Hawkins and his partner Staley Cates continuously search for “good companies with good management that are trading at a discount of 40% or more to their estimates of intrinsic worth” in order to sell the stocks once they approach their estimated value. Hawkins and his partners also search for “industries that have been the most beat up” in hopes of finding good deals. In fact, Longleaf estimates that the overall price-to-value ratio of the fund hovers around 50%. While many of these companies are selling at a large discount for a reason, Hawkins’ ability to identify companies that are on the cusp of bouncing back has resulted in his fund’s positive performance.
News Corp. (NWS):
One such account in the 1990s involves Hawkins’ large position in Rupert Murdoch’s media company, News Corp (NWS), even when few other investors saw the potential long-term profitability of the business. Taking a stance that conflicts with common opinion usually takes a lot of courage, but Hawkins believes firmly that one should invest in one’s best ideas, as long as the due diligence and research have been conducted, even if those ideas go against the grain. In that same time span, Hawkins and Cates invested heavily into FDX (FDX), United HealthCare (UNH), and Hilton Hotels (HLT)— stock picks that helped drive Longleaf’s annual returns, resulting in the fund outperforming the major indexes. Currently, three of the stocks in which the Longleaf Partners Fund is most heavily invested in: Chesapeake Energy Corporation (CHK, 10.16% invested), DirectTV (DTV, 10.12% invested), and Walt Disney Company (DIS, 6.54% invested), have also seen hefty advances since low points in the early 2000s, once again driving the fund’s successes in the recent year.
The strategy of searching for value stocks that are on the rise after periods of poor performance can lead to exceptional long-term financial performance, fitting with one of Hawkins’ most fundamental principles— focusing on long term results rather than the short-term horizon, something that many investors may fail to recognize. Hawkins also pays attention to investors themselves— not only does Hawkins warn investors that they should expect to wait at least five years before the intrinsic value of the fund’s stock picks materialize, but he even has closed off Longleaf’s small-cap fund to protect the holdings of its current investors. Praised for his success in David Swenson’s book, Unconventional Success: A Fundamental Approach to Personal Investment, and being named Domestic Fund Manager of the Year in 2007 by Morningstar, Hawkins and his focus on the future and concern for the investor should make him a solid choice for any investor looking to recoup losses suffered during the recent recession.
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Carl Icahn, Founder of Icahn Management LP (Investor - Activist)
One of the Most Successful Global Activist Investors
The period of the 1980s was infamous for the “takeover boom” and the leveraged buyout. The potential of vast fortunes and power that could result from acquiring entire businesses were tempting to many corporations and wealthy individuals. Some of the larger deals included corporations acquiring other corporations, such as Shell’s purchase of Belridge Oil, DuPont’s acquisition of Conoco, and US Steel’s bid for Marathon Oil. However, in addition to corporate takeovers, many individual investors with access to cheap credit began to purchase companies using General Partners. This was the beginning of the private equity industry. One such investor is Carl Icahn, current CEO and Chairman at Icahn Management LP, Icahn Associates Corp, and Icahn Capital LP.
Icahn was born in Queens, New York, in 1936. He had a fairly modest upbringing, belonging to a middle class family that consisted of his father, a lawyer, and his mother, a schoolteacher. He was, however, an intelligent and hard-working individual, even at a young age, and earned a spot at the world-renowned Princeton University, where he graduated in 1957 with a Bachelor of Arts in Philosophy. He later had a brief two-year stint at New York University’s School of Medicine, but left after two years to join the Army.
Career at Dreyfus:
While he seemed destined for great things even from an early age, Icahn was first exposed to finance in 1961. Returning to New York after a short stay in the Army, Icahn he began his lengthy career on Wall Street as a Registered Representative with Dreyfus & Company. It was there where he learned the ins and outs of options and convertible arbitrage. Just seven years later, with experience under his belt and a network of potential investors, Icahn started his brokerage firm, Icahn & Co, and purchased a spot on the New York Stock Exchange. It was on Wall Street where Icahn would enact and perfect his aggressive leveraged buyout technique of taking controlling positions in various companies. His hostile takeover attempts of public companies later earned him the title of “corporate raider.
In 1978, Icahn began to take controlling positions in more and more companies in an “attempt to bring about change in management, forcing them to improve their performance.” He held positions in corporations such as RJR Nabisco, Texaco, Phillips Petroleum, Western Union, Gulf & Western, Viacom, American Can, USX, Marvel, Imclone, Federal-Mogul, Kerr-McGee, Medimmune, BEA Systems, and Time Warner. In addition, he became the Chairman of Bayswater Reality and ACF Industries in the late 1970s and early 1980s. His technique of buying into businesses and restructuring them resulted in large personal profits in the 1980s, particularly in two famous cases with Texaco and USX.
Icahn states that his “investment philosophy is to buy something when no one wants it.” He attempts to search for companies whose book values exceed market values in order to acquire controlling positions, force restructurings, and eventually boost stock prices. While his dealings with Texaco, USX, RJR Nabisco, and Time Warner may be among the most well-known, they just scratch the surface of Icahn's career. Over the past three decades, he has obtained controlling positions in a handful of companies, and has become board member in a multitude of businesses in the industrial, consumer, and healthcare sectors. His “contrarian investment” style and aggressive corporate takeover strategies have helped him achieve billionaire status, a rank which he shares with the the world’s richest men.
Texaco & USX:
In 1987, Texaco had been going through a four-year “war" with competitor Pennzoil. The battle was over the acquisition of Getty Oil in 1984. Pennzoil claimed that Getty had originally agreed to a merger, but Texaco had stepped in and unrightfully acquired it. After a series of legal proceedings and appeals, Texan courts ordered Texaco to pay penalties of $10.5 billion. The Company appealed, as this course of action would have caused it to file for bankruptcy protection. Icahn stepped in by purchasing a majority stake in Texaco stock and taking majority control of the Company. He then forced an agreement between the two giant oil companies, to avoid the $10.5 billion in legal fees. By striking a deal between Texaco’s CEO James Kinnear and Pennzoil’s Chairman J. Hugh Liedtke, Icahn was able to lead the companies to a settlement of $3 billion dollars. The result? Texaco was saved from bankruptcy, and Pennzoil had the funds to acquire other small oil companies. But Icahn himself benefitted greatly from his work— his 12.3% stake in Texaco shares immediately advanced 8%, while his 2% position in Pennzoil increased 6%.
after the Texaco ordeal, Icahn sold his share in Texaco (which increased to 17.3%) for a $600 million profit, rumors generated that he would attempt to buy out the steel giant USX. He owned 11.4% of the company’s shares at the time. After increasing his stake in USX to about 13.3%, which he paid slightly over $20 per share, Icahn did attempt to capture total control of the company in order to split it up into a separate steel and oil entities. The resulting move was estimated to boost share prices up to $45-$60, potentially giving Icahn double, possibly nearly triple, profits on his initial investment. He proposed to USX Chairman David Roderick a deal that would allow Icahn to purchase USX $7.1 billion, or about $31 per share. Roderick, determined to prevent his company from falling into Icahn’s hands and being split up, devised a plan in which he would borrow $3.4 billion “under terms that allowed the lenders to call in their loans immediately if the company were taken over.” Therefore, if Icahn were successful in taking the company over, he would have to pay nearly $10.5 billion to take the company over and pay back the debt. In the end, however, the split and “creation of a second class of USX stock” led to 28% gains, a hefty profit for Icahn.
Icahn is also famous for other “Failed” attempts at corporate takeovers, such as his bid to force the separation of RJR Nabisco in the 1990s and Time Warner in 2006. While his attempts were unsuccessful, Icahn still profited greatly as share prices rose amidst the battles involving Icahn and these corporations.
Despite his profit-seeking nature, Icahn has contributed to society through his charitable efforts. For example, he funded and helped build three charter schools in the Bronx years ago. He has also made significant donations to Princeton University as well as Mount Sinai Hospital, and has developed apartment complexes for poor and homeless families. His donations in support of children’s education and relieving the problems of homelessness have given Icahn recognition beyond his investment successes. He was named Man of the Year in 1990 by the Starlight Foundation, and Man of the Year in 2001 by the Guardian Angel Foundation. While his aggressive tactics in corporate takeovers may lead one to believe that greed and the hunger for power may be a driving factor in his business dealings, one cannot deny that Icahn certainly pust his wealth to good use by giving back to the community, especially to the downtrodden.
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T. Boone Pickens, Founder of BP Capital Management (Investor - Energy)
Founder of Mesa Petroleum and One of the Most Successful Energy Investors of All Time
Very few men have the business acumen to amass large, sustainable fortunes by consistently outperforming their peers. Even fewer men are able to achieve this level of success by managing investments. One such man is the self-made billionaire, T Boone Pickens, founder of the independent oil company Mesa Petroleum, as well as the hedge fund BP Capital Management.
Even as a child growing up in Holdenville, Oklahoma, Pickens had a knack for the business world. He began delivering newspapers at the age of 12, expanding his number of customers on his route from 28 to 125 by grabbing the routes next to his. This technique was for the young Pickens, an early introduction to “expansion by acquisition,” a strategy he skillfully utilized in his later years. Years later, Pickens and his family moved to Amarillo, Texas, where Pickens would eventually attend Texas A&M. However, after a short one-year stay at the university and the loss of a basketball scholarship, he transferred over to his hometown school, Oklahoma A&M, where he would graduate in 1951 with a degree in geology.
Fresh out of college, Pickens was employed by Phillips Petroleum, where he would work for 4 years until the first major breakthrough in his career— the founding of Mesa Petroleum. Within the next 15 years, Pickens would use the technique he had learned as a young child by acquiring the much larger Hugoton Production Company. By the early 1980s, Mesa had become one of the largest oil companies in the world under Pickens’ leadership and philosophy that “shareholders should know that they, not management, are the true owners of the company.” With company assets of well over $2 billion, Mesa continued to enact Pickens’ expansionary approach through attempted takeovers of Gulf Oil and Phillips Petroleum, as well as successful buyouts of Pioneer Petroleum and parts of Tenneco.
Pickens continued to showcase his business prowess in the oil industry by leading Mesa to the top until his departure in 1996. At that point in time, a much more experienced Pickens began to set the gears in motion for his new business venture, BP Capital Management, which ran the Capital Commodity and Capital Equity hedge funds. As one of the most successful “energy-oriented” investment funds, BP Capital’s commodity fund experienced staggering annualized returns of over 40% which easily beat out the S&P 500 due in part to “large positions in Suncor Energy (SU), ExxonMobil (XOM), and Occidental Petroleum (OXY).” Pickens’ equity fund was no slouch either, generating annual returns of 24% even after fees. Fueled by cheap debt, these huge percent advances, coupled with Pickens’ 46% stake in his company’s funds, resulted in personal profits of $1.1 billion in 2006 and an astounding $2.7 billion in 2007. However, the most recent economic downturn hit Pickens and his funds hard in 2008, resulting in his equities fund dropping over 30%, and his commodities fund losing a whopping 84%, causing nearly half of BP’s investors to withdraw their funds. More recently, however, Pickens has regained his form, by outperforming the S&P 500 index once again.
While Pickens was not immune to the effects of the hard-hitting recession, his track record and large gains over the past decade are the envy of investors. He has accomplished this success through a laundry list of business philosophies, which include analyzing positions well, “assess[ing] risks and prospective awards because there [are] no substitutes for good research,” being patient, and learning from mistakes. Regarding his strategies for stock picks, Pickens uses his knowledge and experience in the oil and gas industry to predict where oil and gas prices may be heading in the future, and is more often than not correct in his assumptions. This ability to predict the movements of prices allows him to take stronger positions in certain companies or sell off stake in others accordingly. Pickens is also a large advocate of the Peak Oil Theory, in which oil production begins to decline after reaching its peak, until it is no longer able to meet the worlds’ energy needs. He believes that “the oil and gas sector will provide a favorable environment for growth and attractive investment opportunities due to a combination of depleting oil and gas reserves, global demand growth, and ongoing political instability.”
Pickens’ funds are heavily centered around the energy industry, which may make them more volatile and less diversified than some would like. Because of his belief in the Peak Oil Theory, Pickens not only holds large positions in oil and gas companies, but also bets big on alternative energy, such as wind power. Some of his fund’s largest positions are in oil and gas companies— Transocean LTD (RIG), Hess Corporation (HES), and Occidental Petroleum (OXY). In the alternative energy space, Pickens has also bet heavily on Suncor Energy (SU), an energy company which deals with natural gas, but also has invested a great deal in renewable energy and wind power. He has recently increased his positions in smaller oil and natural gas companies to take advantage of decreasing oil supply and increasing demand while retaining large stakes in Suncor and becoming the majority stakeholder in Clean Energy (CLNE)— the nation’s largest natural gas supplier— as well as having strong positions in other renewable energy-focused companies to take advantage of the growth in that sector.
His stance on alternative energy and natural gas does not stop there, however. In July of 2008, Pickens announced his Pickens Plan, which is an energy policy that attempted to pioneer the complete shift of wind power to provide electricity so that American natural gas resources could be better utilized to provide power to trucks and other vehicles. Some believe that this plan can reduce American dependency on foreign oil and also reduce expenditures on foreign oil by $300 billion, which is deemed important as over 65% of our oil is imported. His plan would also create millions of jobs as wind turbine farms are erected alongside preexisting solar power structures, and would call for a new infrastructure to support this new power generation and distribution via wind and solar energy. As an added benefit for the environment, the plan would result in significant reductions of carbon emissions.
Of course, Pickens himself has much to gain from his own plan as well. After all, BP Capital Management is highly invested in domestic oil companies, wind power companies, and natural gas corporations, and would undoubtedly benefit greatly from the Pickens Plan. Share prices of the assets in BP’s portfolio could potentially see generous increases as the nation depends more on domestic oil suppliers, wind energy, and natural gas.
While he may be well-known for the fortunes that he has amassed, the trait that makes him stand out is his philanthropy. Throughout his career, he has given nearly $700 million to various charities (the fact which certainly help quiet those who doubt Pickens’ motives behind his energy friendly plan). They include a $7 million donation to Hurricane Katrina relief efforts, as well as over $400 million to his alma mater, Oklahoma A&M (Now known as Oklahoma State University). He has also taken up activism in lobbying for the American Horse Slaughter Prevention Act, and has ordered his company to build a large wind farm in Texas as a part of his Pickens Plan. Essentially, it is not just his success in business, but also his contributions to society, charitable nature, and leadership that should make him a role model to aspiring entrants in the industry.
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John Paulson, Founder of Paulson & Co. (Investor - Real Estate)
While many investors were hit hard by the latest economic recession, a few smart (and lucky) investors foresaw the sub prime mortgage collapse and bet accordingly— and won. One of these savvy investors is one of the financial world’s most well-known hedge fund managers, John Paulson.
Born in Queens, New York in 1953, Paulson had always been an intelligent and hard-working individual. Attending New York University’s College of Business and Public Administration in 1978, Paulson impressed both professors and students alike as he graduated at the top of his class. He then went on to obtain his MBA at the highly-respected Harvard Business School, where he continued his academic excellence by graduating in the top 5% of his class. He started working for Boston Consulting Group, and then Odyssey Partners. After brief periods at those two companies, Paulson went to Bear Stearns, where he worked in the mergers and acquisitions group. He then joined Gruss Partners LP, another mergers and acquisitions firm, as a partner in the business. With years of financial knowledge and experience under his belt, Paulson founded his own hedge fund, Paulson & Co. in 1994 with $2 million in funding and a personal assistant. He believed that “investing your own money and earning the returns, rather than earning fees,” could result in the highest gains and rewards, which is what motivated him to move into money management. It was this event that would later launch Paulson into the ranks of the financial world’s elite players.
Paulson primarily employed investment philosophies that he learned from Martin Gruss, whom he worked with at Gruss Partners LP— philosophies which essentially placed more of a focus on protecting oneself from losses, rather than focusing on making money. In fact, Paulson has stated that “investors will forgive us if our returns don’t beat the S&P in a given year,” but experiencing significant losses is another story. By reducing the downturns, Paulson is able to keep portfolio profits and have that money continue to work for him. Paulson also states that his portfolio strategy can be more diversified that those that other money managers hold, in the sense that each asset consists of, on average, just 2.5% of the entire portfolio, compared to most other funds in which a single position may constitute 10% of more of the portfolio. These strategies of being more diversified helped Paulson live up to his investment philosophy of preventing huge losses. However, Paulson still understands that outperforming the market requires some more calculated risks, and he has allocated room for that in stating that a position of 10% or more can be taken if he feels strongly about a specific investment. He also provided insight on specific investments that he preferred— in particular, he found investing in triple-B bonds and shorting them. If his bet was off, as he states, he would lose up to 1%, but if he were correct, he could make 100%. Essentially, Paulson plays it “safe,” only to bet big when his experience and knowledge of the markets can convince him to invest heavily in specific assets that have lower risk and higher payoff potentials.
The first major showcase of Paulson’s ability to profit when everyone else suffered losses occurred in the late 1990s, during the tech bubble. By shorting stocks and “betting big on corporate mergers,” Paulson was able to experience increases of 5% in his funds for two years in a row, even as the rest of the market spiraled downwards. As his gains increased, so too did investor confidence in his money management skills— the funds under his management rose to nearly $4 billion by 2003. While Paulson continued to manage funds throughout the late 1990s and early 2000s, he is probably best known for his success during the sub prime mortgage collapse in 2005. Paulson, highly convinced that the US economy would fail, began to bet in favor of falling housing prices and rising mortgage foreclosures, even while companies such as Merrill Lynch and Citigroup were reaping “enormous profits by packaging and trading blocks of risky home loans.” Paulson made a play against popular opinion, and won by taking advantage of the problems faced by mortgage backed securities and by investing $22 million in credit default swaps, that paid out over $45 per dollar invested, as the government decided to leave Lehman Brothers to fend for itself. As the markets continued to suffer through 2007, his funds experienced huge advances— one fund rose 590%, while another jumped 353%, landing him a hefty profit of $3.7 billion in 2007.
In 2008, Paulson extended his bets against the economy by creating a new fund— one that would “capitalize on Wall Street’s capital problems by lending money to investment banks and other hedge funds currently feeling the pressure of the more than $345 billion of write downs resulting from under-performing assets linked to the housing market.” He also continued to profit from the economic downturn by betting against some of the largest banks in Britain. By holding positions against Barclays, Royal Bank of Scotland, and Lloyds TSB, he was able to profit by nearly £300 million as he reduced his short position in RBS. Even in the previous year, Paulson’s funds experienced gains that were nearly 20% above those of the S&P 500, by continuing his bet against sub prime mortgages. During the latter half of 2009, however, Paulson’s funds underperformed the S&P index for the first time in several years, as his positions in Citigroup (C) and Boston Scientific (BSX) were hit hard.
Overall, Paulson amassed billions of dollars through betting against, what seems to be, the all of Wall Street. He lives a very “comfortable” lifestyle— a 28,000 square-foot mansion in the Upper East Side of Manhattan, as well as a massive estate in Southampton, New York. While he certainly has spent a great deal of his fortune on himself and his family, he has also given very generous donations, including a $15 million gift to the Center for Responsible Lending, which works to help homeowners avoid foreclosures, which is ironically one of the things he was betting for in his path to great wealth. While his “meager” present of $15 million may pale in comparison to the enormous donations by successful investors such as T Boone Pickens ($700 million and up), it still is a charitable gift that will be going towards a good cause; however, it may be too little too late for Paulson if he— the man who benefited from everyone else’s demise— is hoping to improve his public image.