If you remember the subprime mortgage crisis and subsequent recession in America, then you might remember Kyle Bass. He predicted it would happen. These days, Bass is founder and Chief Information Officer of Dallas hedge fund investment firm Hayman Capital Partners, LP. In the investing world, he is a lightning rod for controversy for his various opinions, forecasts, successes, failures, lifestyle, and charitable contributions – and you can literally thank (or blame) the classic board game Risk.
Although born in Florida, Bass grew up in Dallas, where he loved to play Risk. As the story goes, his favorite country to defend was Iceland because it was easy not only to defend but also to launch an attack from. It was a harbinger of things to come, as it prompted him to learn as much as he could about Iceland. Years later, when Iceland finally went broke after its government’s repeated attempts to bail out the country’s banks failed, Bass was prepared – and profited big.
Kyle Bass got his official start in securities and investing in 1992, when he went to work for Prudential Securities after graduating from Texas Christian University. In 1994, Bass began a successful stint at Bear Stearns, where he worked until 2001, rising up the company’s corporate ladder quickly. At 28, he was one of the youngest people ever to be named senior managing director at the firm.
After Bear Stearns, Bass signed a five-year contract to work at Legg Mason as a hedge fund advisor, but he had a vision – the day after his contract finished, he would launch his own firm to manage a global special situations hedge fund. Sure enough, his prediction came true when he founded Hayman Capital Management (although it happened in December 2005, earlier than Bass had foreseen). The hedge fund he had been planning for years launched in February 2006, and shortly thereafter, began noticing signs and patterns of a growing real estate bubble in the U.S.
To say that Kyle Bass merely profited from his prediction of the subprime mortgage crisis is akin to saying that the sun is merely hot.
After analyzing the residential mortgage and securities markets, he determined which ones were low quality and most likely to default. He then developed a strategy to take advantage of the coming collapse and implemented it with ruthless precision – buy credit default swaps against what he considered suspect securitizations. In fact, he created a special fund specifically to take advantage of the market. Eventually, he was managing or advising over $4 billion of subprime mortgages. In essence, Bass was shorting the bonds – and the payoff would be massive.
However, Bass wasn’t finished. As bad as the crisis was, he was convinced it wasn’t over; the issues in the U.S. were just symptoms of an overall global problem. Thus, in 2007, Hayman’s flagship fund started to purchase credit default swaps again. This time, though, they were swaps on bonds of at-risk European governments on the brink of default.
Hayman Capital earned an ROI of over 200%, and Bass made hundreds of millions, in 2007 from shorting the subprime mortgages – and Bass’s legacy was cemented.
There’s no doubting Kyle Bass’s fearlessness, financial acumen, and convictions. His penchant for moving fast and taking calculated risks is well documented, as are his successes and predictions.
Since 2007, however, after he had catapulted to worldwide acclaim and untold riches, he and Hayman Capital have come back down to Earth somewhat. Since then, Hayman has averaged under 2% in annualized returns; while there have been major successes, some of the failures have been just as big, if not bigger. For example, the Macro Opportunities Master Fund, founded in 2010, lost 61% of its value in just two years.
He also has made waves with several bold proclamations and positions. In 2010, he compared Japan to a Ponzi scheme for its debt financing strategies, drawing rebukes from all corners. His huge investment in General Motors caused him to take an unpopular stance defending the automobile manufacturer in 2014 when the company was forced to address why it didn’t correct a defect linked to over a dozen deaths.
Bass’s and Hayman’s reputations took further hits with the recent oil bust, as well, when energy prices collapsed after Bass had bought up millions of shares of various oil companies.
Kyle Bass has made a name for himself with his contrarian investment positions and big personality. Even with his hedge fund’s 3-year losing streak, and the fact that the public at large has grown wary of hedge funds, his firm’s overall track record is up nearly 300% (over the same period, the S&P has increased about a third of that).
His next big bet is shorting Asian currencies, many of which he expects to depreciate between now and the end of the decade, especially the Hong Kong dollar and the Chinese yuan, for which a dedicated fund has been created.
It remains to be seen whether Bass’s prediction on Asia will pan out, as it’s a typically contrarian viewpoint shared by very few. Bass is convinced that the yuan will plummet in the near future because it has recklessly allowed its banking system to grow.
However it pans out will go a long way in determining his final legacy.