Don't Mess with Texas - An Interview with Kyle Bass
Kyle Bass lived in relative obscurity until 2007, when he burst on the global hedge fund scene with a huge bet on subprime mortgages. Some might argue that outsized bets befit his Texan origins. But everything Bass does seems larger than life and goes against the conventional tide.
Bass is an outlier by any stretch of the imagination. Born in Miami, Florida, he was raised in Dallas, Texas and attended Texas Christian University in Fort Worth. Following a brief stint at Prudential Securities, he joined the Dallas office of Bear Stearns on the retail side of the business, not exactly the epicenter of global finance. Nevertheless, he became a senior managing director at 28, before leaving to run Legg Mason’s Dallas office.
It’s been an inside joke on Wall Street for years that getting assigned to do “equities in Dallas” was the most dreaded spot for anyone in an investment bank’s training program. But toiling away in Dallas, far from the bars of New York where everyone else was talking about their views and positions, gave Bass exactly the kind of removed perspective he needed in order to see what might be the biggest trade in history.
Fast-forward to today and few coming out of Harvard or Yale want to sign up for an investment bank training program in the first place. With the Volcker Rule and Dodd-Frank legislation, the free-wheeling days of yore are gone forever, and with them the entire model of investment banking has changed. Equities in Dallas, or more specifically, an institutional quality hedge fund in Dallas is indeed the place to be.
Bass started Hayman Capital Management in 2005, something he had planned from his early days in the business. Although at the time this surely must have seemed crazy, with hindsight his timing was impeccable, as a small, Dallas-based hedge fund proved the perfect vantage from which to see the world with perfect clarity. Early in his career, Bass focused across a range of products and instruments – not just equities – looking up and down company capital structures to determine the best way to express trades. His trades ranged from highly liquid expressions to more special situations, all of which were impacted by broader macro forces.
This interview was first conceived at the Barefoot Economic Summit, which I first attended in 2011 at Kyle’s ranch. Always the value investor, Bass is quick to note that he and some friends bought it at a very distressed price in the dark days of early 2009. The Barefoot Economic Summit, Texas (BEST) is a surreal mix of some of the most powerful hedge fund managers, investors, academics, pundits, Special Forces personnel, and other assorted characters. Macro managers tend to be a pessimistic bunch, and the Barefoot gathering is no exception. But if the end of the world were to be ushered in, Kyle might well come out the lone survivor.
If something bad happens, Kyle is ready, and this is exactly how he runs Hayman Capital Management. Bass might have come from relative obscurity, but he is now projecting raw power, something to which his numerous appearances in global media since his famous subprime trade would attest. After making a ton of money on the subprime trade, he more recently has moved his sights to Japan, which he says is an economic disaster. He isn’t going in guns blazing on this one, however. Instead, he is structuring his bets against the Japanese bond market to minimize the costs of waiting for the big payday, which he concedes could take a while.
We conducted this interview at Hayman Capital Management’s Dallas offices, where Bass is building a budding hedge fund empire. Bass is a big thinker hailing from a land of big thoughts and big dreams. The world he paints is a precarious one – but one would be foolish not to listen to what he has to say.
How did you wind up running your own hedge fund here in Dallas?
After undergrad, I took a sell side job at Prudential in their training program, but after about 18 months, I quickly figured out that retail was not where I wanted to be. I called up the guy that ran Bear Stearns’ office in Dallas, which at the time was the most entrepreneurial firm. If someone wasn’t covered anywhere in the world at Bear Stearns, you could cover them – there were no geographical limitations. They took me on right away, and I started working with event-driven funds on investment strategy.
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