David Tepper and Co.: Which traders profited most from the downturn?

David Tepper reaped $7 billion in profit for his firm by scooping up bank stocks at their nadir. How does that stack up with other lucrative moves?

By , Correspondent

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    From left to right, Hedge-fund managers George Soros, James Simons, director of Renaissance Technologies, and John Paulson, are sworn in to testify before the House Oversight and Government Reform Committee hearing on the regulation of hedge funds in November 2008. In 2009, hedge-fund manager Dave Tepper made $7 billion betting on undervalued financial stocks.
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David Tepper wasn't the only person who turned the economic downturn into an unbelievable windfall. But few made a bigger splash than he did with the $7 billion profit he made for his firm or the $2.5 billion he earned for his personal portfolio in 2009.

Mr. Tepper did it by scooping up the stock of crisis-battered financial institutions like Citigroup and Bank of America when they drooped to a few dollars (or in Citi's case, under a dollar) per share early this year, according to the Wall Street Journal. He bet – correctly – that the federal government wouldn't let them go the way of Lehman Brothers.

How does that compare with other supertraders? Here's a look at the three highest-paid hedge-fund managers of 2008 and their strategies to rake in big profits that year.

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At the top of the list is James Simons of Renaissance Technologies Corp., who pulled in $2.5 billion in 2008, according to Alpha Magazine in March. Mr. Simons generated an eye-popping return of 80 percent through rapid-fire trading, an approach driven by sophisticated computer models and raw technological power to rapidly capitalize on opportunities. That return is a must given Simons' industry-leading fees of 44 percent on profits and a 5 percent management fee.

Next up is John Paulson of Paulson and Co., who took down $2 million personally in 2008 and who was the subject of a book, "The Greatest Trade Ever," about his 2007 move to short the real estate market reaped $15 billion in one fell swoop. Mr. Paulson's insight, as a Portfolio.com profile put it, "was his realization that nobody was able to value these complex securities. His advantage came when he was willing to admit that."

Third is John Arnold of Centaurus Energy, who earned $1.5 billion by betting heavily on natural gas and other elements of the energy sector. While other sectors were getting pounded by higher energy costs, Mr. Arnold was reaping huge rewards.

Now, Tepper is setting his sights on another piece of the financial cosmos America loves to hate: commercial mortgage-backed securities.

There are many ways to make a buck in the new economy, and there are big risks. But, as Tepper has shown, big risks can mean fantastic profits.

Even in down economic times, insightful investors can find value in wide-ranging sectors. Keep up with the latest economic news by following us on Twitter.

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