They say if you can’t beat ‘em, join ‘em. Or you can join ‘em, leave ‘em…then beat ‘em. That’s what former JPMorgan exec Andrew Feldstein did.
Andrew Feldstein was hired by JPMorgan in 1992. And before he left in 2003 to form the BlueMountain Capital hedge fund, he helped the firm develop the credit default swap market…ironically the market at the heart of its loss of over $2 billion.
Last year, when a trader in JPMorgan’s chief investment office started making outsized bets in that market, Feldstein saw an opportunity. Seeing the price distortions being created by the trades, Feldstein took the other side of JPMorgan’s bet…and won big. BlueMountain stands to make as much as $300 million on his bet (according to Investment News).
When JPMorgan realized the trouble it was in, it went to Feldstein for help. After betting against the firms flawed strategy, Feldstein extended a helping hand to his former employer. BlueMountain aided the bank in unwinding more than $20 billion in soured trades.
That helped JPMorgan…a lot. By working with BlueMountain as a middleman, the firm was able to unwind its positions outside of the traditional web of dealers…in other words, without tipping too many people off to the exact details.
Feldstein, and a small pack of wolf-like hedge fund managers, were able to profit by recognizing and exploiting JPMorgan’s mistakes.
How did Feldstein see what JPMorgan could not? Maybe because his vision isn’t jaded by the hubris of Wall Street. According to the exec who hired him at JPMorgan: “He’s a very modest individual…he has no ego. He’s not a master of the universe and wanting to make big bets and be a hero”. In other words, he saw the arrogance of Wall Street and beat it without blinking.