Email | Print    Type Size  -  +

Star hedge fund crashes to earth

Tontine Associates' concentrated bets made it the envy of peers, but now the fund's investments are going south.

By Roddy Boyd, writer
Last Updated: October 7, 2008: 8:11 AM ET

HEDGEFUNDS_graphic.gif

NEW YORK (Fortune) -- September was the worst month on record for hedge fund performance, but for one legendary player what's going on in the markets now must seem like its coming straight from the gates of hell.

Tontine Associates, a $10 billion Greenwich, Conn.-based fund, told investors on Friday that it expected to show a 2008 loss through Sept. 30 of 65%, according to two people familiar with the fund's performance.

Tontine builds large, concentrated positions in companies central to the big-picture investment thesis of the fund's general partner, former Smith Barney analyst Jeffrey Gendell. That kind of focused strategy can pay off big when a manager's vision is spot on.

Earlier this decade, Gendell bet correctly on the explosion in home-building, driving the fund to 100% returns in 2003 and 2005. Gendell made the Forbes magazine list of richest Americans in 2008 with an estimated net worth of $1 billion.

Boom turns to bust

Lately, Gendell has wagered on a worldwide economic boom, investing heavily in global energy services and infrastructure companies.

That looked like a sound strategy until a few months ago. No longer. Tontine's massive positions in companies such as U.S. Steel, iron miner and processor Cleveland Cliffs and tire manufacturer Goodyear have gone terribly.

As growth in the global economy started showing signs of a slowdown, and as investors began to worry that capital-intensive companies might have their access to bank lines and the debt markets constricted, Tontine's portfolio suffered sharp hits.

September was a particularly brutish month. Goodyear (GT, Fortune 500) shares fell 25.1%. (Tontine owned 13.1 million shares as of June 30, the latest date for which figures are available. Some of its positions have likely changed since then.)

Cleveland Cliffs (CLF) (4.5 million shares) was down 43% for the month. U.S. Steel (X, Fortune 500) fell 20%.

Other Tontine holdings fared poorly, including a 38% drop in battery maker Exide Technologies (XIDE). The fund held a huge position in the stock, some 23.7 million shares, or 31.5% of the shares available.

So far October shows no signs of providing relief. Goodyear and U.S. Steel shares continue to post double-digit declines. And the stock of energy and construction engineering company Foster-Wheeler (FWLT), in which the fund held 4.4 million shares, is down 20% this month.

Calls and emails to Gendell and Tontine were not returned. To top of page

Company Price Change % Change
Bank of America Corp... 16.15 0.02 0.12%
Facebook Inc 58.94 0.00 0.00%
General Electric Co 26.56 0.44 1.68%
Cisco Systems Inc 23.19 0.16 0.69%
Micron Technology In... 23.91 1.43 6.36%
Data as of Apr 17
Index Last Change % Change
Dow 16,408.54 -16.31 -0.10%
Nasdaq 4,095.52 9.29 0.23%
S&P 500 1,864.85 2.54 0.14%
Treasuries 2.72 0.08 3.19%
Data as of 12:36am ET
More Galleries
50 years of the Ford Mustang Take a drive down memory lane with our favorite photos of the car through the years. More
Cool cars from the New York Auto Show These are some of the most interesting new models and concept vehicles from the Big Apple's car show. More
8 CEOs who took a pay cut in 2013 Median CEO pay inched up 9% in 2013 to $13.9 million. But not everyone got a bump last year. Here are eight CEOs who missed out. More
Sponsors
Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer LIBOR Warning: Neither BBA Enterprises Limited, nor the BBA LIBOR Contributor Banks, nor Reuters, can be held liable for any irregularity or inaccuracy of BBA LIBOR. Disclaimer. Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.