After a fall in '94, Gerstenhaber rebuilding Argonaut Money manager finding his touch again in betting on macroeconomic trends



NEW YORK -- David Gerstenhaber is counting on top returns to help investors forget some nasty times.

Gerstenhaber, 35, has set out to rebuild his money management firm, Argonaut Capital Management, after a disastrous 1994 that brought his $400 million investment pool down to less than $50 million today.

Clients pulled money following a 28 percent loss in the first seven months of 1994. While he wasn't alone losing in markets where the dollar, U.S. and foreign bonds ganged up on many managers, hopes for the young manager were especially high, and many investors fled Gerstenhaber in disappointment.

So far this year, Gerstenhaber has posted 53 percent returns in his offshore fund and 70.8 percent for the last 12 months. His fund for U.S. investors has posted 20.6 percent in 1996 and 46.2 percent in the last 12 months. "We are having more fun" than in 1994, he said with a grin.

That performance is beating out his better-known rivals in the world of macro hedge funds. In these kinds of funds, managers bet on macroeconomic trends such as interest rates and currency moves, often with lots of borrowed money.

George Soros' benchmark Quantum Fund has climbed only about 5 percent this year, and Mark Strome's Strome Offshore Fund is down about 5 percent. Leon Cooperman and Julian Robertson both have funds that have climbed about 16 percent this year.

Of course, Gerstenhaber has a much smaller amount of money lTC than these big-name investors, so higher percentage gains are easier to achieve. Still, he maintains that the keys to big returns this time around are better risk control, minimized leverage and a rifle-shot focus that was missing at the launch of Argonaut in mid-1993.

In 1994, he was managing a big chunk of money, a staff of 23 and simultaneously building a back-office operation. Now he has only six other people working for him, including his wife.

Several back-office functions such as audited accounting and some record keeping are now run by a third party. That frees him to make all the trading and investment decisions. "The whole operation is well controlled," Gerstenhaber said.

That might not be said for the beginning years of Argonaut.

Gerstenhaber was 33 years old when he left the employ of master stock picker, Robertson, and Tiger Management after two and a half years, opening his own firm with another Tiger trader, M. Barry Bausano.

For two managers without their own track record, the duo attracted an impressive $250 million immediately. Money flooded on the basis of their work at Tiger, where they were major contributors to returns there that averaged about 40 percent a year between 1991 and 1993.

Bright and arrogant are the words most often used by consultants, investors and other traders when describing Gerstenhaber during that period of wunderkindism.

Bright has never been under dispute. Gerstenhaber graduated from Yale in four years with a bachelor's and master's degree in economics. He won a Fulbright scholarship to Cambridge before joining Jardine Fleming Securities in Japan and later Morgan Stanley & Co. as an economist.

But that's the kind of background that can build overconfidence. "Clearly there was a degree of arrogance, but his 1994 experience has enabled him to relate more to the common man," said Cooperman, who counts himself a friend of Gerstenhaber. "I've noticed a greater degree of humility."

After 1994, Gerstenhaber himself says, it's "difficult to conduct oneself in an arrogant fashion."

This year, Gerstenhaber has made money on traditional macro fare, for example, betting that the dollar would rise against the yen, and correctly wagering in January that U.S. and European bonds would rise. He also made money on stocks jumping in Japan and, earlier in the year, in Hong Kong.

While Gerstenhaber never doubted his ability to measure risk, he said that today "our risk control is far superior."

Case in point is his experience this year in the capricious commodity markets. He decides ahead of time on stops -- the prices at which he will get out of the market. Gerstenhaber also watches volatility, with the idea that huge price fluctuations are often a harbinger of a market tumble. "When gold went up $5 at the opening, I thought it had gone up too much, too fast," he said. That was in February, about the time it reached its high of $417 an ounce.

Pub Date: 6/30/96

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