The Alpha Masters: Unlocking the Genius of the World's Top Hedge Funds by Maneet Ahuja Page A
Authors: Maneet Ahuja
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from Harvard Business School as a Baker Scholar, Paulson accepted a job at Boston Consulting Group (BCG). It was a tough economic period, and the firm paid a large salary, but Paulson soon realized consulting wasn’t for him. While intellectually interesting, he wouldn’t be making deals like Jerry Kohlberg’s or earn the leveraged buyout–type paydays. Despite that, he valued his first job. Paulson says: “Although it wasn’t ultimately where my heart was, my experience with BCG was very useful to me in terms of understanding business strategy and what makes one business better or more valuable than others.”
When he saw Jerry Kohlberg at a tennis match, Paulson approached him, telling him how much he enjoyed his presentation at Harvard, and asked for help finding a job. While KKR didn’t have any openings at the time, Kohlberg introduced him to Leon Levy of Odyssey Partners. Like Kohlberg, Leon was famous among the cognoscenti for making widely successful deals, including the late 1970s’ $40 million buyout of Big Bear Stores, which produced a $160 million gain on a $500,000 investment. He was equally admired for buying one million shares in the bankrupt Chicago & Milwaukee Railroad for $6 per share and selling it several years later for $160 per share.
After a visit to Leon’s posh apartment on the Upper East Side, Paulson earnestly argued why he should work for the hedge fund titan. Odyssey was expanding and needed hardworking young talent. He got the job. Odyssey was one of the original hedge funds, and working for Leon and Jack Nash in their 10-person office helped Paulson build a solid foundation. In fact, most of what he learned there, Paulson still does at his own firm: risk arbitrage, bankruptcy investment, and corporate restructuring of public companies.
Knowing What You Don’t Know
Paulson was drawn to Leon and Jack Nash’s tough character and “get it done” attitudes and felt he had the type of thick skin needed to keep up with them. He didn’t realize, though, how his lack of experience in investment banking would hold him back, and he was the first to acknowledge that he needed to learn the business from an agency perspective.
“When they wanted to do a buyout, it was ‘Okay, call some bankers and arrange the financing.’ But coming from consulting, I didn’t know any bankers. I’d never raised any money and I really wasn’t yet equipped to handle that type of responsibility. I realized I’d skipped a very important stage between school and being a principal; I needed to learn the business from an agency perspective. As much as I wanted to avoid earning my dues, being the bottom associate at an investment bank, I realized that the skills learned during that training was what I was lacking. And there was no way around it. If you wanted to be a principal, you had to learn the investment banking business first.”
Nevertheless, Paulson learned a lot about investing at Odyssey and remained in contact with Leon and Jack. In fact, in the late 1990s, Leon and affiliated foundations became the largest investors in his hedge funds.
Paulson felt fortunate to land a job as an associate at Bear Stearns in 1984 right when M&A was taking off. He says: “I felt very lucky to be there, when Ace Greenberg was at the helm running Bear. They didn’t have a lot of people in M&A but had a lot of business. So I worked very hard and advanced fairly rapidly. Associate vice president, limited partner, then managing director all within the span of four years.”
Bear Stearns was the perfect place for Paulson to grow at his own supercharged pace. They placed no limits on how quickly he could climb the ladder or how long he had to remain at each level. They told him they would promote him as fast as he could handle the next level of activity, and they did. Another reason Paulson was able to accelerate so quickly was that he felt he had to play catch-up. Some of the friends he
When he saw Jerry Kohlberg at a tennis match, Paulson approached him, telling him how much he enjoyed his presentation at Harvard, and asked for help finding a job. While KKR didn’t have any openings at the time, Kohlberg introduced him to Leon Levy of Odyssey Partners. Like Kohlberg, Leon was famous among the cognoscenti for making widely successful deals, including the late 1970s’ $40 million buyout of Big Bear Stores, which produced a $160 million gain on a $500,000 investment. He was equally admired for buying one million shares in the bankrupt Chicago & Milwaukee Railroad for $6 per share and selling it several years later for $160 per share.
After a visit to Leon’s posh apartment on the Upper East Side, Paulson earnestly argued why he should work for the hedge fund titan. Odyssey was expanding and needed hardworking young talent. He got the job. Odyssey was one of the original hedge funds, and working for Leon and Jack Nash in their 10-person office helped Paulson build a solid foundation. In fact, most of what he learned there, Paulson still does at his own firm: risk arbitrage, bankruptcy investment, and corporate restructuring of public companies.
Knowing What You Don’t Know
Paulson was drawn to Leon and Jack Nash’s tough character and “get it done” attitudes and felt he had the type of thick skin needed to keep up with them. He didn’t realize, though, how his lack of experience in investment banking would hold him back, and he was the first to acknowledge that he needed to learn the business from an agency perspective.
“When they wanted to do a buyout, it was ‘Okay, call some bankers and arrange the financing.’ But coming from consulting, I didn’t know any bankers. I’d never raised any money and I really wasn’t yet equipped to handle that type of responsibility. I realized I’d skipped a very important stage between school and being a principal; I needed to learn the business from an agency perspective. As much as I wanted to avoid earning my dues, being the bottom associate at an investment bank, I realized that the skills learned during that training was what I was lacking. And there was no way around it. If you wanted to be a principal, you had to learn the investment banking business first.”
Nevertheless, Paulson learned a lot about investing at Odyssey and remained in contact with Leon and Jack. In fact, in the late 1990s, Leon and affiliated foundations became the largest investors in his hedge funds.
Paulson felt fortunate to land a job as an associate at Bear Stearns in 1984 right when M&A was taking off. He says: “I felt very lucky to be there, when Ace Greenberg was at the helm running Bear. They didn’t have a lot of people in M&A but had a lot of business. So I worked very hard and advanced fairly rapidly. Associate vice president, limited partner, then managing director all within the span of four years.”
Bear Stearns was the perfect place for Paulson to grow at his own supercharged pace. They placed no limits on how quickly he could climb the ladder or how long he had to remain at each level. They told him they would promote him as fast as he could handle the next level of activity, and they did. Another reason Paulson was able to accelerate so quickly was that he felt he had to play catch-up. Some of the friends he
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