After the market imploded in 1989, most banks dissolved their high-yield trading desks. But Goldman’s survived, in part because Tepper, who had worked his way to head trader, helped take the edge off with a canny move: purchasing underlying bonds in the financial institutions that had been crippled by the crash. When the banks emerged from bankruptcy and the market picked up again, the value of the bonds soared. After these successes, Tepper assumed Goldman would reward him with partnership. He thought wrong. The culture of Goldman Sachs is like Survivor: You have to choose your alliances carefully. While Tepper had formed a friendship with Robert Rubin, the head of fixed income, he’d neglected to endear himself to Jon Corzine, the head of his division and the person in charge of determining his fate. The fact that Tepper chose a mentor over his head needled Corzine, according to his former co-workers. Also, there was his personality. He was a boundary-pusher, loud and profane, and a know-it-all, who claimed, among other things, to have popularized the phrase “It is what it is.”
“David is not Mr. Goldman Sachs,” says Kolatch. “He does not have that navy-suit, Harvard-type background. I think he looked to them like a little bit of a renegade.”
Fortunately, this type of personality was perfectly suited to the burgeoning world of hedge funds. After being passed over for partner a second year, Tepper quit. The mutual-fund manager Michael Price, a Goldman client, lent him a desk at his office, where Tepper began aggressively trading his personal account, hoping to raise enough money to start his own fund.
In 1993, with a few big scores under his belt and an investment from Jack Walton, a fellow Goldman junk-bond trader who agreed to become a partner (he has since retired), he started up Appaloosa. Since then, the fund has grown in adolescent fits and starts. Distressed investing is a tricky area: When you’re purchasing the garbage of a troubled company, hoping to find something valuable you can pawn, it’s “feast or famine,” as one investor puts it. Year to year, Appaloosa’s rate of return is wildly uneven. In 1998, Tepper bought a bunch of Russian debt on the assumption that the Russian government wouldn’t default. When it did and the ruble collapsed, it cost his fund hundreds of millions of dollars. But even as the market tanked, Tepper kept buying the ever-cheaper bonds, and a few months later, his tenacity paid off: The fund went up 60 percent.
A similar situation occurred in 2002, when the junk-bond market collapsed for a second time. Tepper lost 25 percent, but made up for it the following year, when bonds he’d purchased in bankrupt companies went up 150 percent. He took home $500 million, at the time a personal best, and the following year made his donation to Carnegie Mellon.
At the gala reception announcing the gift, his college buddy Roland Lazzaro aired a video tribute to his friend. One segment was called “Cindy Perl: Thanks for Nothing,” after Tepper’s high-school girlfriend.
“Everybody in your life, there’s one person you want to rub their nose in it,” said Lazzaro. “After a five-year relationship, she said to him, ‘David, I love you, but I don’t think you’re going to be able to support the lifestyle I want.’ ” She ended up marrying a dentist.
Speaking of people whose noses Tepper might want to rub in his success, it’s worth noting that he happened to buy the exact $50 million mansion owned by the ex-wife of the man who had passed him over for partnership at Goldman Sachs. “You could frame it that way,” Tepper says, breaking into a grin. “You could say there was a little justice in the world.” The Teppers plan a total renovation of the mansion, which will likely involve razing the current property to the ground.
Tepper has a pair of brass testicles. Cartoonishly huge and grotesquely veiny, they are affixed to a plaque inscribed with the words THE MOST VALUABLE SET OF ALL TIME and are not at all out of place in Appaloosa’s offices, which resemble a high-end sports bar—all polished mahogany and flat-screen TVs and black-and-gold Steelers paraphernalia—or a wealthy frat house. (“We had this client, they make breast implants,” says a former employee. “He loved to keep them on the desk, he’d love to throw them around.”) Appaloosa is staffed almost entirely by men.
The balls were a gift to Tepper from a former employee—Alan Fournier, who now runs his own fund, Pennant Capital Management—in the wake of Tepper’s big score in 2003. Tepper had purchased the distressed debt of the three then-largest bankruptcies in corporate history: Enron, WorldCom, and insurance giant Conseco. When they emerged from bankruptcy and the debt appreciated, Appaloosa went up a whopping 148 percent.