Alpha addict: The amazing career of Leon Cooperman

Leon Cooperman is addicted to investing.

The hedge fund manager's stock-junkie lifestyle starts at 5:15 a.m. on weekdays, when he wakes up in the Short Hills, New Jersey, house he's lived in for 36 years. He then drives to the Manhattan offices of his $10.7 billion Omega Advisors, getting in by 6:30 a.m. (he took the ferry for 30 years before the firm recently moved from Wall Street to midtown). Cooperman then digs in to investing for 12 hours—including a working lunch in the office—bouncing between grilling corporate executives in person or on the phone, consulting with his 18-person research team and reading company reports. By 6:30 p.m., it's off to a business dinner with more CEOs or fellow investors like Mario Gabelli of Gamco Investors and Bill Priest of Epoch Investment Partners. Then it's a quick post-dinner shower and more time in front of a Bloomberg terminal checking international markets before bed at 11 p.m.

"The way to be successful is do what you love and love what you do," Cooperman said this month in an interview. "I get paid normally a lot of money for basically doing something I enjoy doing. And what I enjoy is to hunt—finding something somebody else doesn't see, making a bet and having Mr. Market prove me right."

Mr. Market has indeed smiled on Lee Cooperman, making the 71-year-old South Bronx native a billionaire. A maniacal focus on picking undervalued companies combined with the hard work and frugality of someone who came from little have led to a nearly unparalleled track record of investment returns for longer than most people have worked on Wall Street.

Take Cooperman's recommendations at the Delivering Alpha conference, where he is scheduled to speak Wednesday. In 2012, Cooperman made 10 stock recommendations at the joint CNBC and Institutional Investor conference. All gained in value over the next year, many by double digits. In 2013, the hedge fund manager presented 10 more picks. Eight of them are winners.

It's not just Cooperman's public pronouncements that have done well. His flagship Omega Overseas fund has averaged returns after fees of 14.6 percent since inception in January 1992 through June 2014, according to confidential client materials obtained by CNBC.com.

That puts him in rarefied air compared to almost any benchmark. The S&P 500 Index gained 9.3 percent and the average actively managed U.S. stock mutual fund rose 9.38 on average over the same period, according to Morningstar. The best $1 billion-or-more mutual fund return over the same period was 14.19 percent, from Joel Tillinghast's Fidelity Low-Priced Stock Fund.

Cooperman has also beat most of his hedge fund peers. The average stock-focused hedge fund, as represented by the Absolute Return U.S. Equity Index, gained just 9.34 percent on average from January 1998 through June 2014 (the index doesn't go further back). Cooperman's fund has gained 11.9 percent over that period.

Not perfect

Cooperman's record is not without blemishes. In 2008, Omega lost 35.2 percent net of fees. It was by far the largest loss in the firm's history and worse than most hedge funds during the peak year of the financial crisis (the AR U.S. Equity Index fell 13.98 percent).

"So it was really 2008 that was a rough patch for us, and it was very simple. We misjudged the significance of Lehman," Cooperman said in a 2011 interview. "2008 was transformative for me because, at the time, I allowed my people to hold onto their positions when I should've started kicking them out well before we got into the hole." (Lehman Brothers, one of the nation's largest investment banks, filed for bankruptcy in September 2008, precipitating the financial crisis that drove the U.S. economy into a deep recession.)

To Omega's credit, it did not "gate" investors as others did, meaning it allowed them to take out their money as usual. The fund rocketed back with a 52.6 percent gain in 2009; Cooperman said on CNBC that he saw some signs of optimism days after the stock market's nadir in early March. He noticed early that stock prices were often not falling even when their earnings were poor, a sign of a bottom. Omega continued its value strategy in early 2009, buying cheap stocks and betting that the market would rise, or at least not "double dip" again into a depression.

"There's a sustainability to the economic expansion when it comes about," Cooperman said on CNBC in August 2009. "We're bottoming around now."

Omega lost money in four other calendar years. In 1994, it fell 24.1 percent in part because of bad bond, stock and macroeconomic bets. In 1998, it was down 5.2 percent despite a roaring stock market, thanks mostly to emerging market loses precipitated by Russia's debt default. In 2002, Omega declined 12.7 percent, although less than S&P 500 Index. And in 2011, it fell 1.4 percent mostly on bad equity positions, a year many hedge funds struggled given stock market swings around a potential U.S. debt default.

Cooperman's self-described worst investment was when an Omega executive, Clayton Lewis, was aware of a 1998 scheme to bribe officials in Azerbaijan to buy a government oil company from which Omega could profit. Omega signed a nonprosecution agreement with the Justice Department in 2007 and paid $500,000 to resolve the matter. Lewis pleaded guilty, cooperated with investigators and was sentenced to time served—six days. Cooperman said Clayton lied to him and Omega sued to recover some of the losses. The parties agreed on a private settlement in 2010, and Omega has largely avoided emerging markets since.

"I had a rogue employee. It happens," Cooperman said. "But it was the worst chapter in my life."

Hunter College graduation picture
Source: Leon Cooperman
Hunter College graduation picture

From the South Bronx to Columbia Business School

Cooperman was born to working-class Polish immigrants—his father was a plumber—and grew up in the family's one-bedroom apartment. He attended neighborhood schools and was the first in his family to go to college, at nearby Hunter, where he met his future wife of 50 years, Toby, in French class.

After a false start at dental school as an undergraduate, Cooperman focused on economics coursework and became interested in business. He went to work at Xerox as a quality control engineer after Hunter, but soon started at Columbia Business School with the help of a National Defense Education Act student loan.

Cooperman fell in love with stock picking at Columbia. He learned the school's mantra of "value" investing, the term for finding undervalued securities popularized by professors Benjamin Graham and David Dodd and espoused by fellow alum Warren Buffett. After class, Cooperman would race classmates Gabelli and Art Samberg—future billionaire investors in their own right—to a pay phone to call their shared stock broker.

"We were all Ph.D.s—poor, hungry and driven," fellow Bronx native Gabelli said of his time at Columbia with Cooperman.

"If you're doing fundamental analysis a la Graham and Dodd, it is basically focused, intense bottoms-up," Gabelli added. "That has been a training and discipline that Lee and other sell-side analysts … have taken every day in their life and their passion—they understand and dominate knowledge of specific companies."

Left to right: Cooperman on "Wall Street Week" in 1982; fishing on a rare day off in 1988; with one of three grandchildren in 2001; with fiancé Toby in early 1960s; 25th wedding anniversary in 1989, with son Michael, Toby, Regina and Mario Gabelli.
Source: Leon Cooperman
Left to right: Cooperman on "Wall Street Week" in 1982; fishing on a rare day off in 1988; with one of three grandchildren in 2001; with fiancé Toby in early 1960s; 25th wedding anniversary in 1989, with son Michael, Toby, Regina and Mario Gabelli.

Golden at Goldman

Cooperman got his MBA on Jan. 31, 1967, and started at Goldman Sachs the next day. He quickly rose through the ranks and was made partner in charge of research in 1976. Each year from 1976 to 1986, Cooperman was voted onto Institutional Investor's All-America Research Team for portfolio strategy, including being ranked first in the sector from 1977 to 1985. Cooperman then helped the bank set up its asset management unit, which he led as chairman and CEO. When Goldman balked at the idea of setting up a hedge fund, Cooperman left on amicable terms after 25 years to launch Omega the day after leaving in November 1991.

"He was an outstanding research person at Goldman Sachs," said John Whitehead, the former co-chairman of the bank who worked with and was a mentor to Cooperman. Whitehead, who was also an early Omega investor, remembers Cooperman knowing companies in his Goldman portfolio "better than anybody else" and said his individual company research made him "different and special."

Adding value

Omega practices a classic "value" strategy with a focus on picking undervalued American stocks selected on the basis of broad and deep research. While Cooperman mostly looks at micro company developments, he uses macroeconomic analysis led by longtime top deputy Steve Einhorn to inform how much risk to take and when to dabble in other asset classes, like international stocks, bonds, currencies, commodities and equity indexes. The firm also takes positions against some overvalued stocks using short bets, but the vast majority of its historical profits have come from the long side, according to an Omega's investor presentation (the firm declined to comment on fund performance or positioning).

While Cooperman said he has a "potpourri" of best trades, he said the single greatest investment of his career was discovering Henry Singleton, late founder of technology conglomerate Teledyne Technologies. Cooperman first recommended Teledyne's stock while at Goldman and went on to meet with Singleton twice a year for 25 years to learn from his operational prowess, which included buying back shares when the stock price was low and making large acquisitions when it was high.

Generally, "any stock or bond at the right price" is how Cooperman describes his investment philosophy. "I find over the years, if I buy something at the right price, invariably I get lucky," he said.

He likes to use the analogy of selecting from 25 different brands of beer in the supermarket: some combination of return-on-equity, growth rate, price-to-earnings ratio, dividend yield, and asset value. "There's something that makes you reach for one particular brew," Cooperman said in 2011.

Omega's top 10 holdings as of June 30—all 3.2 percent of assets or less—were Sprint, SandRidge Energy, AIG, Sirius XM, Citigroup, Tribune, Tetragon Financial, Telenet Group, Dish Network and Chimera Investment, according to the materials. The flagship fund is 97 percent net long, meaning it has very little short exposure. It's up 4.7 percent year to date through June.

Hard work

"He's the James Brown of hedge funds—the hardest working man in the industry" -Doug Kass, founder of Seabreeze Partners Management.

Those close to Cooperman credit his work ethic for Omega's success.

"Lee is the hardest working guy in the investment business I know and have ever known," said Robert Salomon Jr., former head of Salomon Brothers Asset Management who has been friends with Cooperman since the late 1960s and was an early investor in Omega. "I don't think he puts in long hours, I think he works around the clock. I don't care whether he's on a plane or car or in Florida presumably on vacation—he's working."

Salomon is hardly exaggerating. Cooperman has taken only one two-week vacation in his entire career: A November 2010 trip with Gabelli and their wives to Luxor, Egypt. Cooperman said the highlight of the time off was when his trading desk called him while he was looking at an ancient sphinx to tell him that Omega's largest position, Atlas Energy, was bought by Chevron for a nearly 40 percent premium on its stock price at the time. Omega made about $100 million that day.

"If you ask me what I enjoy the most about vacation, it's coming home," Cooperman joked.

"He's the James Brown of hedge funds—the hardest working man in the industry," said former employee Doug Kass, founder of hedge fund Seabreeze Partners Management.

"More than anyone I know … he goes belly to belly with the management. He knows the companies as thoroughly as the CFOs of the companies he invests in," Kass said. "It's hard work."

Kass added that Cooperman never takes projections from a company—or himself—at face value. "He's always second- and third- and fourth-guessing a company and his thesis," Kass said.

Cooperman's addiction to work has meant pushing employees hard.

"He's tough on people but he wants those people to succeed very badly," Kass said. "He's much tougher on himself than the other people."

Asked about being a difficult boss, Cooperman says he wants to justify Omega's high fees—usually 1.5 percent of assets for management and 20 percent on positive performance. "You have to bring a total commitment to the business or you don't belong. Premium fees demand premium performance," Cooperman said. "I don't expect others to work harder or longer hours than me. I try to lead by example."

Former Omega employees include Larry Robbins of $6.3 billion Glenview Capital Management; David Fiszel, a portfolio manager at Point72 Asset Management (formerly SAC Capital Management); Michael Zimmerman, founder of $481 million Prentice Capital Management; and Brian Zied, founder of $310 million Charter Bridge Capital Management.

One unfortunate—and unrepresentative—of the dozens of Omega alums is Samuel Israel, a low-level, 18-month employee in the early 1990s who went on to perpetrate one of the worst pre-Madoff frauds in hedge fund history with his Bayou Hedge Fund Group. He's now in prison for running a $450 million Ponzi scheme—after being caught by authorities in 2008 following a fake suicide.

Walking the value walk

Cooperman is known for his frugality almost as much as his work ethic. Nearly everyone who has met Cooperman has a story about him trying to save money.

Cooperman recently hung the pictures on the wall in Omega's new offices instead of being charged $25 for each installment, according to Joe Scanlon, the firm's head of investor relations. He stays overnight at Kass' home instead of getting a hotel while visiting the Hamptons on New York's Long Island. He buys his own newspapers every morning. He eschews chauffeured car service and once shared a taxi with this reporter in Las Vegas from the SkyBridge Alternatives Conference to the airport—asking the cabbie questions about various casino performances most of the way.

"It has to do with value investing. You walk the walk," Gabelli said. "You don't even want to pay wholesale in anything you do."

"Unlike some hedge fund managers who invest purely for the financial rewards, Lee does it for the love of investing," said Michael Oliver Weinberg, who teaches at Columbia Business School and has invested in hedge funds professionally.

Cooperman received an honorary doctorate degree in humane letters from Hunter College. Jennifer Raab, president of Hunter College; Lee and Toby Cooperman; Maurice DuBois (June 3, 2010).
Source: Omega Advisors
Cooperman received an honorary doctorate degree in humane letters from Hunter College. Jennifer Raab, president of Hunter College; Lee and Toby Cooperman; Maurice DuBois (June 3, 2010).

Giving Pledge

Cooperman is generous despite being cheap.

Cooperman, who Forbes estimates is worth $3.5 billion, signed the Giving Pledge in 2010, a group of wealthy philanthropists organized by Buffett and Bill Gates to give a majority of their wealth to charity.

Cooperman has made four recent gifts of $25 million. Three already disclosed were to Hunter College, Columbia Business School and Saint Barnabas Medical Center in Livingston, New Jersey. A fourth—and previously undisclosed—is to establish the Cooperman Scholars Program, an initiative launching this fall to provide financial aid to college-bound students from Essex County, New Jersey.

The Leon and Toby Cooperman Family Foundation had nearly $200 million in assets at the end of 2012, the most recent public filing available, and supports many local New York and New Jersey charities, especially those connected with Judaism and education, the focus of Toby's career.

Cooperman said he chose to give his money away rather than letting the government take it in taxes; leaving so much to his already "accomplished" sons that it takes away their "incentive" (Wayne Cooperman manages hedge fund Cobalt Capital Management and Michael Cooperman is a fish scientist for Conservation International); or by spending it on himself. "I'm not an art collector," Cooperman explained.

A bull who won't quit

Looking ahead, Cooperman remains bullish on stocks in the short term. "The market is in a zone of fair valuation and there is more time and price left in the advance," he said.

Omega, according to its investor materials, also believes that European and Japanese stocks should deliver "respectable returns" in 2014. The firm dislikes nearly all bonds but notes that the dollar should be a "strong" currency in 2014.

When Cooperman takes the stage Wednesday at Delivering Alpha in New York he'll do what he loves most: discuss the market and give the audience a few stock picks.

"He has no hobbies, no anything. This is what he does," said Michael Lewitt, editor of The Credit Strategist who has managed a bond portfolio for Cooperman. "Unfortunately one day they're going to find him slumped over at his desk and that's going to be it. He'll die happy."

—By CNBC's Lawrence Delevingne

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