The “alpha” is a key benchmark representing the profits, returns and success of a fund manager. Highland Capital President James Dondero explained his strategy for “driving the alpha” during his March 25, 2017 Barron’s interview. What does James Dondero’s Alpha say about him?
“Successful Alpha is Advantage”
Starting a mere five years after graduating from the University of Virginia, James Dondero was managing $1 billion for American Express. Barron’s James Dondero interview recounts his numerous accomplishments, including management of the Highland Small-Cap Equity (HSZAX) and closed-end NexPoint Credit Strategies (NHF) funds. His funds have been at the top of their peer groups for 2014 and 2016.
James Dondero’s bold alpha bets have led to his investing in American Airlines, Argentina and master limited partnerships. Like many alternative investments, they might experience dramatic price changes. Somehow, James Dondero keeps on ending up at the high end of alpha success.
“Successful Alpha is Research”
The fund’s alpha is really its “calling card,” making it “stand out in the crowd.” Anyone can invest in an index and get average gains, but experienced investors turn to hedge funds to deliver superior results.
Highland’s “alpha analysts” cover about a dozen “high-conviction ideas in detail” – this gives them an edge, so if the assets change dramatically, they can react in real-time. James Dondero continues, “[w]e expect the big themes to drive the alpha;” this is where the real profits are made. High risks and high rewards are the norm in the hedge fund field.
As alpha ideas bear fruit, they might “graduate to the diversified bucket.” The risk management of James Dondero Alpha seems to be quite effective.
“Dondero Charity: Reasoning Mind”
“Reasoning Mind” could be the name for Dondero’s alpha strategy, but it is also his charitable organization, seeking to increase mathematical and technological opportunities for the poor in Dallas schools. The program runs from pre-kindergarten through the seventh grade to give the children a solid base for a successful life. James Dondero Alpha seems to show he cares and is quite successful in picking out the future winners.