The David Rubenstein Show: Peer-to-Peer Conversations — Paul Singer

What was the strategy that you used? I was completely determined to recapture my parents' money that I had lost.

How did somebody raise $5 billion in 24 hours? It was first come, first served. You have an image, though, of being a person that strikes fear in a lot of CEOs. Some people are probably afraid that they're going to get a call from Paul Singer.

It doesn't bother me anymore.

If somebody had invested with you in the very beginning, what kind of rate of return would they have compounded? $1 became like $160. They're too late to invest retroactively into that?

Would you fix your tie, please?

Well, people wouldn't recognize me if my tie was fixed, but OK. Just leave it this way. All right. I don't consider myself a journalist. And nobody else would consider myself a journalist. I began to take on the life of being an interviewer, even though I have a day job running a private equity firm. How do you define leadership? What is it that makes somebody tick? I read the other day that you opened your fund for 24 hours and $5 billion showed up. Now, how does somebody raise $5 billion in 24 hours?

It wasn't exactly true. Oh. It was true in the sense that once the offering was open, because it was first come, first served, there was a lot of demand. And 23 hours later, it was filled up. But it took a number of months of preparation.

Yeah, well, that makes me feel better that you didn't do it in just 24 hours. So how much do you manage now overall?

I think it's $34 billion at this point.

So you started your fund in what year?

1977.

And how much money did you have then?

$1.3 million.

And where did you get that from?

It was friends and family. I was a practicing lawyer. And in early 1977, I decided that what I had been doing, managing a small amount of, a tiny amount of friends and family money, was much more interesting than practicing law.

You grew up in Teaneck, New Jersey, and Manhattan, and you went to University of Rochester and then Harvard Law School.

It was a wonderful experience, but it was a daunting experience, especially because I didn't exactly like what I was doing.

But you went to practice law in New York.

In the absence of a better idea.

Okay, so I practiced law in New York initially as well, and I practiced law in Washington.

So when I gave up the practice of law to go into business, my mother said, 'You went to law school. What are you going to do? You don't know anything about business.' What did your mother say when you said, 'I'm going to give up the practice of law'? She said, 'You know, what?'

Can you earn a living?

So you started, and you worked out of your apartment, and you had $1.5 million from friends and family. So what was the strategy that you used to get off the ground?

Tiny bit of context. My dad was a retail pharmacist. And after I started attending law school, he said, "Well, you have to learn how to be an investor." And he and I traded tiny amounts of tech stocks and mining stocks together, $2,000 of this and $5,000 of this. So I became very, very interested in, in markets and in trading. And in the period of time from 1967, '68 through 1974, he and I found just about every possible way conceivable to lose money. And so when I started Elliott in 1977, I was determined to engage in a trading strategy that made money all the time. And so for the first 10 years or so of Elliott's existence, the primary strategy was convertible bond hedging: buy the bond, short the stock.

It had a strong positive carry, some trading profits. I practiced it on low leverage, and it did the job—the job meaning a consistent return, making money more or less all the time.

When did you realize that you were really better than the average guy doing these kind of things?

I never thought of it that way. I was completely determined to just make a rate of return, really recapture my parents' money that I had lost previously, and keep finding ways to pursue that goal of absolute return, at a time when convertibles were becoming more quantified, more leveraged, and more competitive.

The core of what you do, you call it a macro fund or a value fund. What would you describe your investment technique?

Some people call what we do multi-strategy; others call it absolute return. The idea of our portfolio mix is to try to make money as close as possible to all the time. What we've done over the years in pursuit of that goal, as vanilla convertible hedging became uninteresting, was add other ways of generating absolute return to the mix. For example, I came to feel, and part of it was because of my experience as a lawyer, that manual activities—trading manual effort for risk—was a good way to add value and also control risk. That's why bankruptcy, distressed securities became our largest capital deployment. And that's why in recent years, equity activism has become a very important capital deployment.

That's an important part of what you do now is what you call equity activism. So there are a couple that are very well known. Let me talk about one that's very famous all over the world. You bought some bonds from Argentina. You may remember this. And you held on to it for a long time, you pursued it in the courts and so forth, and you ultimately reached a settlement that was pretty favorable for your investors. Was it hard to hold on that long?

It was not hard to hold on in a portfolio sense because at no time until the current government came into, came into office—I believe in December 2015—at no time before that did the previous two governments negotiate with us. So sometimes the stubbornness or motivations of your adversary cause you to not be able to make a deal. And as the claim mounts up, it becomes potentially a larger recovery.

Well, did any of your investors say, "Paul, you've made a little profit, it's okay, go on to something else"? Did they ever say this during this long period of time?

Interestingly, no. They didn't. Okay, even when it got some press, and it was not an easy situation. I mean, it wasn't only the 14 or 15 years holding this thing, but it was contentious.

So you didn't worry that somebody was going to maybe physically attack you from Argentina? You didn't worry about that?

This isn't the place to talk about security arrangements, but it was a contentious situation.

So if somebody had invested with you in the very beginning, and he or she kept their money with you from the very beginning, I don't know if anybody did that, what kind of rate of return would they have compounded over 40 years?

My mom did that.

Your mother is 99 years old?

Yeah, 99 plus.

99 plus.

She's waiting for that call next year.

And I assume she's proud of you. I assume. Yes, she is. And is she...

The answer to your other question is, from the beginning, a 13.5% net compounded rate of return, so $1 became like $160, $165. And there were some early investors that have stayed in basically all the time.

In other words, over a 40-year period of time, you've compounded 13.5% net for 40 years. That's pretty good. Is it too late to invest retroactively into that? I guess probably not. You have an image of being a person that strikes fear in a lot of CEOs. You must recognize that some people are probably afraid that they're gonna get a call from Paul Singer.

It's good when a corporate executive listens with the understanding that we are real, that we have the capacity to carry through on the projects that we undertake, and that we need to be convinced.

Today, you will take corporate bonds or sovereign bonds, and you're willing to litigate.

Litigation is always a last resort in a situation in which there's a dispute about seniority or a claim. It's part of the equation. One of the risk-limiting and value-creation strategies is uncorrelation. Uncorrelation is a wonderful element to add to an absolute-return-seeking portfolio because if you're doing something that has a pattern of risk and return, even if it's volatile, even if it's binary—make a lot, lose a lot—but a pattern of returns that doesn't have anything to do with the course of the stock or bond markets or anything else in your portfolio, that's an elegant part of the mix.

So do you ever, I'd say, do research on a company, let's say a company, and then you call up, or somebody calls up the CEO and says, 'This is a way you can improve your company, do this and that,' and they say, 'That's a good idea, I wish I had thought of that'?

That's interesting. The way you're asking the question, it presupposes that the response of the company is always either anger or hiding under their desks or some combination.

And that's wrong, you would say?

No, sometimes you're actually knocking on an open door. My style and our style as a team is doing the work as thoroughly as we can to develop a thesis, to assess whether we think there really is an action or a series of actions that could be taken to eliminate underperformance or ameliorate a situation, then contacting a company privately, testing with consultants or bankers, testing our ideas and trying to generate a dialogue. And sometimes you find that you're knocking on an open door. Sometimes there's a founder or a management team that's, that's ready to sell out or happy to go on to something else, but they don't want to feel that they're deserting their staff, their employees. So there's a lot of different reasons why a company that's ready for some kind of reformation or new blood likes to see a resolution that can maximize value.

How many investment professionals do you now have in your firm?

It's about 120.

How do the decisions made go forward?

I have a co-CEO and a co-CIO, Chief Investment Officer, and his name is John Pollock, and he's been with me since 1989. And in that period of time, we more than just complete each other's sentences. The founding impulse of the hedge fund idea is independence of thinking. It's the opposite of investing by committee. And the earliest hedge fund folks, of course, were by themselves. They were sort of privateers on the world's investment oceans. And I never thought that the craft would be susceptible to an organizational approach, team approach. And I actually never really thought that I would be able to be a good manager and a good team leader. The way it actually works is a layered process by which

We attempt to train people to accept responsibility, to deliver trustworthy insights, inputs, to have done the work, to have commissioned the work, but John or I generally approve every meaningful position and certainly every—we have deep discussions about every large position.

You have an image, though, of being a person that strikes fear in a lot of CEOs. You must recognize that some people are probably afraid that they're going to get a call from Paul Singer. So does that image bother you that you have an image of being a tough person and commanding?

What I've learned over the years is to not care too much about opprobrium and unfair press. It's good when a corporate executive listens with the understanding that we are real, that we have the capacity to carry through, and the history of carrying through on our, on the projects that we undertake, and that we need to be convinced in order to say, 'Okay, sorry,' which sometimes we do, 'Sorry, we were wrong,' or, 'Doing a great job.' So it doesn't bother me anymore.

So how do you see the economy right now? Are you worried about the economy?

I'm very concerned about where we are in terms of the financial system, the economy, the American economy, global economy, after nine years of what I consider to be distorted, a distorted set of policies, completely oriented towards what I regard as monetary extremism, combined with what I consider to be growth-suppressive fiscal policies, regulatory, tax. And so I think it's created a distorted recovery, has been partially responsible for this augmentation, exacerbation of inequality that's caused—a combination of that and the incomplete recovery has caused this middle-class stress and edginess around the world, which has led to some political, you know, fringe parties and fringe thoughts, populism.

And so, after nine years of this artificial levitation on the part of financial assets, high-end real estate, art, the things that rich people buy, what we have today is a global financial system that's just about as leveraged and in many cases more leveraged than before 2008. And I don't think the financial system is more sound. And I don't think that the fixes that have been put into place have actually created a sound financial system. So I don't believe that confidence is justified in policymakers and in central bankers. And the fact that confidence has not been lost up to now is obvious, but if and when confidence is lost, I think it could be lost in a very abrupt fashion, causing conceivably a ruckus in the bond market, stock markets, and in the financial institutions.

You've given a lot of money, raised a lot of money for Republicans. Do they listen to you?

Their problem is that they are subject to all kinds of forces, all kinds of pressures coming from 360 degrees on their compasses. And so the right policies and the best ideas are not necessarily the things that make the final cut.

Now, in the political world, you have become well known in the Republican Party, outside of your firm. Last presidential election, who was your favorite candidate?

I supported—I stood aside for most of 2015, and then supported Marco Rubio.

Okay, and when he dropped out, did you have anybody next?

No, I stood aside. Okay.

But ultimately, when Donald Trump was the nominee of the party, did you support him then as a nominee?

I voted for him.

OK.

And I was not going to vote for Hillary Clinton, as some of my Republican friends did. And I became optimistic about some of the opportunities in economic growth and regulatory reform, tax reform.

Donald Trump invited you down to visit him. Did you know him before he was elected president?

I did not. I invested in his bonds a couple of times.

Okay. Those were high-grade bonds?

They were on the date of issue.

They later became high-yield.

And below.

So, have you seen him since he's president? And do you give him any advice?

I visited the White House once a few months ago, and we chatted a bit about taxes and economic policy.

You've given a lot of money, raised a lot of money for Republicans. Do they listen to you? Sometimes they say, 'Well, thank you for your ideas. By the way, I'm having a fundraiser in a week,' or they don't do that?

That's not the way it goes, but what they... Their problem—I mean, let's be humanists here—their problem is that they are subject to all kinds of forces, all kinds of pressures coming from 360 degrees on their compasses. And so the right policies and the best ideas are not necessarily—and many of them listen and many of them are smart—they're not necessarily things that make the final cut. I think it's important for citizens to—informed citizens—to try to give assistance. We're among Republican activists who actually can, on a relatively unconflicted level. We have less parochial interests in the things that we talk to policymakers about than most folks.

You have made a fair amount of money, and you have been very involved in philanthropy. One of the areas you've been involved with is human rights. And what propelled you to get involved in human rights and, let's say, marriage equality issues?

First of all, I apply to philanthropy the same spirit of activism, trying to get involved, trying to make a difference, make an impact, create things, not just write out a check. It's a similar impulse as the impulses that govern my investing style. In the case of gay rights, my younger son came out to me as gay in 1998 when he was 21 years old. And shortly after some brief discussions, I became very interested in, in being a funder of gay rights groups, of helping out in that, in that realm. At the beginning, just writing out checks at the beginning, pursuant to agreement with my son, anonymously, but over a period of time, it became overt, and over a period of time, I and my team became quite friendly with, with various legacy gay rights groups, including Democrats, hardcore Democrats, and we started working together on different projects. The culmination of that was, and it was really a very

A very highly strategic and well-executed project was a partnership with the governor of New York, with us and our Democratic friends, to make gay marriage legal in New York, which required Republican state senators' help, and we were involved in that.

When you're not investing your money or your investors' money and you're not giving away your money, you must have some time for relaxation. So, what actually gives you pleasure outside of those other activities?

I'm a musician. I play piano and keyboards.

You play at concerts, or you do it at home, or do you have a band, or?

I've been in a number of bands—amateur bands, of course—and I play with musicians now.

Is this because you took lessons when you were young and you didn't quite get to the level you wanted and you get pleasure now doing it, or did you learn this late in life?

I started taking piano lessons when I was 10 years old and started becoming interested in playing rock and blues and honky-tonk piano when I was 11 years old. I've been in reggae bands, blues bands, rock bands. I've had a lot of fun because most of my family are musicians, and so we have a family band also. We have a guitar player, a saxophone player, a drummer.

What would you like to see as the headline of what you've accomplished in your life?

He tried to make a difference. He protected a lot of people's capital over a long period of time. He was steady, reliable.

Well, that's pretty good. So, a lot of people who are very wealthy, I've noticed, are not really happy. You seem like a pretty happy person, would you say? You're happy with what you've accomplished? You're not tortured?

This is a form of therapy, David, which I appreciate. Do you mind if I lie down?

No. Paul, you've actually done an incredible job building a business that I admire what you've built, and what you've done in philanthropy is really quite remarkable. So I want to thank you for a great conversation, and I want to thank everybody here for listening. Thank you.

Thank you.