For Hedge Fund Stars, Being Right in 2008 Proved to Be a Curse
Einhorn, Paulson, and Howard made their names in the crisis, but they faded in the decade that followed.
(From left) David Einhorn, Alan Howard, and John Paulson.
Photo illustration: 731; Photographer: Adam Jeffery/CNBC/NBCU Photo Bank/Getty Images (Einhorn); Prensa Internacional/ZUMA Press (Howard); Rick Maiman/Bloomberg (Paulson)It was the spring of 2008, and David Einhorn gave the most memorable speech of his career. At a conference in Manhattan, the hedge fund manager took to the stage at the standing-room-only concert hall and delivered a scathing attack on Lehman Brothers. The U.S. investment bank, he said, hadn’t disclosed before that year billions of dollars of assets tied to loans and had incorrectly valued some its mortgage-related assets.
Lehman filed for bankruptcy four months after Einhorn’s presentation, cementing his reputation as a money manager with a sharp eye for spotting corporate troubles. Around the same time, another New York hedge fund manager, John Paulson, was minting a fortune by betting that more U.S. subprime mortgage borrowers would fail to make their payments. Across the Atlantic in London, a firm run by a lower-profile hedge fund manager, Alan Howard, had prepared for a financial crisis by cutting risk and buying investment contracts that would profit from market volatility.