Highfields Capital
The fund who called Enron's Bluff
It was an earnings call in 2001 - shortly before companies ended the practice of taking questions from real investors, rather than just Wall Street analysts.
Richard Grubman asked the question.
"You're the only financial institution that can't produce a balance sheet or cash flow statement with their earnings," he said.
The CEO on the other end of the line - Jeff Skilling of Enron - fumbled. "You... you... you..." Then, thinking the mic was off: "Well, uh... thank you very much. We appreciate it. Asshole."
Bloomberg picked it up within hours.
Four months later, Skilling resigned. Before the year was out, Enron filed for Chapter 11 bankruptcy. And the firm that had been quietly shorting Enron for over two years - losing money the entire time while the company and Wall Street kept promoting the stock - finally got its payoff. The stock fell from $110 to the $30s.
That firm was Highfields Capital Management, a Boston-based long/short value hedge fund that ran $12 billion at peak.
Jonathon Jacobson
Before Highfields, Jonathan Jacobson was already a golden child in the investing world.
He had the pedigree - Wharton undergrad, Harvard Business School MBA.
He started his career at Merrill Lynch in 1983, then moved to Shearson Lehman Brothers, where he eventually rose to be the President of the Equity Arbitrage Group. He spent years as a trader focused on option and merger arbitrage.
Then he joined Harvard Management Company (HMC), the firm that manages Harvard's endowment - notable for picking stocks in-house rather than outsourcing everything to outside managers.
For eight years, Jacobson ran money at HMC as a long/short portfolio manager, reporting to Jack Meyer - the CIO of HMC and former CIO of the Rockefeller Foundation. He ran $1.6 billion in equities and co-managed a $450 million emerging markets fund. Given his roots as an arbitrageur, he was known to use derivatives to exploit discrepancies in stock prices. It was the kind of seat most investors would never leave.
But in 1998, fresh off putting up a 42.4% return for HMC in 1997 and making $10.2 million as the the highest paid employees of a nonprofit organization, Jacobson decided to strike out on his own to found Highfields Capital Management.
Jack Meyer pushed back. Jacobson left anyway.
More to come:
- Value investing with vocal activism
- Shorting Enron - the full story
- The painful decision to shut down
- Hedge funds with a Highfields lineage
Want my insider takes?
8,000+ readers get my weekly insights on public equity research.
