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Robert Abbott
Robert Abbott
Articles (246)  | Author's Website |

Leon Cooperman on Surviving Fame and Infamy

The Omega Advisors’ guru provides success with an eclectic value strategy

“Don’t confuse a bull market with brains.” Leon Cooperman

After a distinguished career at Goldman Sachs (GS), Leon Cooperman (Trades, Portfolio) launched his own hedge fund, Omega Advisors. As he ends his long financial career, he lives with an accusation of insider trading, an accusation he vigorously denies and subsequently settled.

Between those bookends, he had a solid career as a hedge fund operator because of his ability to use value strategies effectively.

Who is Cooperman?

Born to Polish immigrants in New York City, Cooperman was a Xerox quality control engineer before attending Columbia Business School where he earned an MBA. While studying at Columbia, he fell in love with stock picking.

Immediately after graduation, in 1967, he went to work at Goldman Sachs. He started as an investment research analyst, and by the time he retired in 1991, he had become a general partner, as well as Chairman and CEO of Goldman Sachs Asset Management (GS). That same year, he launched Omega Advisors, a hedge fund operation.

Cooperman has garnered praise within and outside the industry. The Omega website reports that while at Goldman Sachs he was voted the No. 1 portfolio strategist for nine consecutive years in the Institutional Investor All-America Research Team survey.

However, he is publicly known for a spat with President Barrack Obama in 2011 and insider trading accusations in 2016. The regulator's lawsuit alleged Cooperman misused his position as a major shareholder in Atlas Pipeline Partners. Cooperman strenuously denied the accusation, and in May 2017 the New York Times reported he had settled, paying $4.9 million in fines, admitted no wrongdoing and was not barred from the securities industry.

Unless otherwise noted, this bio was based on information at Insider Monkey.

What is Omega Advisors?

New York-based Omega is an investment advisor and manager, serving institutional clients and privately-placed investment funds. According to its Form ADV Part 2A, it offers a separately managed account and eight private funds. These eight are described as:

  • Three Delaware limited partnerships
  • One Cayman Islands exempted limited partnership
  • One Cayman Islands exempted company
  • One Cayman Islands mater-feeder fund structure, and three feeder funds

Omega charges a management fee of 1% to 1.5% annually and a performance fee of 15% to 20%.

The firm is owned by Cooperman, and a Form ADV filed November 13, 2017 lists its assets under management at $6.3 billion (this apparently does not reflect asset losses since the insider trading charge). At the Omega Advisors' website, the firm says it had approximately $3.8 billion under management, as of December 31, 2017. GuruFocus puts his equity holdings, as of September 30, 2017, at $2.6 billion.

Strategies

Cooperman describes himself as a value investor, driven by deep fundamental research. In Omega's Form ADV Part 2A, he says the main strategy is long/short equity with a bias to the long side.

Omega focuses on U.S. equities, but allows itself limited equity investments in European countries and Japan. It adds an opportunistic layer by making limited investments in fixed income securities of mostly American companies. Within equities, it prefers large-mid and large caps; up to 20% of its portfolio may be in international stocks and the remainder in domestic. The firm puts its investment time horizon at a year or more.

Cooperman's investment process involves the following tactics:

  • Correctly assess the direction of the market
  • Determine an appropriate asset allocation
  • Identify undervalued long candidates
  • Recognize overvalued shorts
  • Make the most of macro trends in currencies, fixed income, and non-U.S. equity indices

At a more granular level, its analysis involves bottom-up stock selection, with emphasis on differences between business value and market value. This analysis may include:

  • Business value is the price an informed buyer would pay for control of a corporation; market value reflects the price a marginal investor would pay for a minority position.
  • Business value is not precise and requires extensive fundamental analyses; market value is the precise number published daily.
  • Business value is relatively stable and changes gradually over time; market value, while precise, can be volatile and vary widely in a single day.
  • While business value is not affected by market value, the latter should eventually reflect business value.
  • Business value reflects economic prospects, while market value reflects the supply and demand of the marketplace.

In a ValueWalk profile, Cooperman is described as preferring stocks over all other assets. And, when considering potential stocks, he is open to all industries and businesses. What really matters to him is the quality of management.

Cooperman considers Warren Buffett (Trades, Portfolio) a hero, and says he bases much of his investment philosophy on Buffett's. However, he considers himself more eclectic than Buffett since he puts fewer limits on his scope. According to the article, Cooperman considers Buffett to be a far superior investor.

Like Buffett, he is an admirer of the late Henry Singleton, co-founder and former CEO of Teledyne Technologies Inc (TDY). The two gurus believe Singleton was one of America's best managers of modern business, as he built a huge conglomerate. Cooperman says Teledyne was his first great investment success.

Cooperman is very much a traditional value investor, an investor looking for potential growth among companies trading at a discount. Not surprisingly, he is a Buffett disciple, and to his acknowledgement that Buffett is a superior investor, there are few rational investors who would or could claim otherwise.

Holdings

With 85 stocks, Cooperman holds a diversified portfolio, as shown in this sectoral chart:

Leon Cooperman sectors

These are the top 10 equity holdings, as listed by GuruFocus:

Performance

According to ValueWalk, Cooperman averaged 16% between inception and 2011 (gross/net not specified). Billionaire Bio says Cooperman averaged 14.6% per year between January 1992 and June 2014. That includes the year 2008, when Omega lost 35%; however, the article observes that those losses were offset by “enormous gains” in 1993, 2003,2009,2012, and 2013.

2014 was not a good year for Cooperman and Omega. They lost 2.8% plus clients also had to absorb a management fee of 1% or 1.5% (no performance fees). In the portfolio, there were no big winners and there were serious losses because of falling oil prices. In a letter to clients, Cooperman wrote, “Our 2014 performance was embarrassing” and “While we clearly lost the sprint, we are confident that we will continue to win the marathon”.

Omega Advisors went on to earn to 8% in 2016, but nevertheless saw its assets under management shrink by 60%, according to Insider Monkey. The shrinkage was the result of the SEC's lawsuit in late 2016, as noted above.

Overall, Cooperman appears to have generated results that would keep clients in the fold, at least those still around after the insider trading news broke. If he continues to produce average results in the mid-teens, he will continue to be a major player.

Conclusion

Lawsuit aside, Leon Cooperman (Trades, Portfolio) has had a respected place among guru investors because of his long-term results. As he noted above, he’s running a marathon, not a sprint.

Value investors will see his record as validating the path they’ve taken, and the wisdom of Buffett.

They will also find new insights by studying Cooperman’s various distinctions between business value and market value. In particular, they will consider his assertion that business value reflects economic growth, while market value is a reflection of supply and demand. His studies in that area have enriched our understanding of the nuances that distinguish the two valuations.

And, his continuing faith in the importance of equities should reassure many value investors that they labor in the right asset class.

(Disclosure: I do not own shares in any of the companies listed and do not expect to buy any in the next 72 hours.)

About the author:

Robert Abbott
Robert F. Abbott has been investing his family’s accounts since 1995, and in 2010 added options, mainly covered calls and collars with long stocks.

He is a freelance writer, and his projects include a website that provides information for new and intermediate level mutual fund investors (whatisamutualfund.com).

As a writer and publisher, Abbott also explores how the middle class has come to own big business through pension funds and mutual funds, what management guru Peter Drucker called the Unseen Revolution. In Big Macs & Our Pensions: Who Gets McDonald's Profits?, he looks at the ownership of McDonald’s and what that means for middle class retirement income.

In an eclectic career, Robert Abbott was a radio news writer and announcer, a newsletter writer and publisher, a farmer, a telephone operator, and a construction worker. When not working, he has been a busy volunteer, which includes more than a decade of leadership roles at the Airdrie Festival of Lights, one of North America’s leading holiday light displays. He lives in Airdrie, Alberta, Canada.

Visit Robert Abbott's Website


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