Highlander II

Author:
Publish date:
Updated on

Apparently, we reserved judgment on Highland Capital a little too quickly. Flooded with emails from the smartest hive mind in the business (our readers) we've had brushed, right before our eyes like watching a street performer with three cans of spray paint and a trancelike tune seeping out of an ancient boom-box, a picture of comic proportions. We were not convinced, frankly. Until we found a certain article about a certain someone in a September 2006 edition of The Dallas Morning News. The resulting sketch was best described by one of our readers as, "...a caricature of the worst of moronic hedge fund stereotypes, simply destined to be impaled with spectacular drama by its own laboriously honed hubris." How could we not investigate?
Things start of with the typical level of douchebaggery you would expect both from the subjects and author of such an article:

Highland's phenomenal growth has gone hand in hand with a tough work ethic, including a rigorous hiring process and mandatory 60-hour workweeks. The firm is also known for its aggressive legal tactics.
Named after the enclave where Mr. Dondero and many of his 75 investment professionals live, Highland makes money in a number of different ways, including earning fees for managing high-yield debt.

But it quickly gets nasty:

But interviews with Highland's executives, investors and others -- as well as a review of numerous lawsuits -- provide a rare look at Mr. Dondero and his 13-year-old firm. More than a thousand miles from Wall Street, Mr. Dondero and his longtime business partner, Mark Okada, have assembled a team of hard-charging financial analysts and portfolio managers who often can be found at their desks dressed in Hawaiian shirts, shorts and flip flops. Mr. Dondero cultivates a taste for the unusual. Pressed about rumors that he has hunted giraffes, he would only admit, "Giraffe makes very tasty jerky."

More Dallas dirt, after the jump.


Before turning downright (and wonderfully) mean:

At Highland, Mr. Dondero has fostered a culture that treasures hard work. Employment contracts mandate the extra-long workweeks. Caterers bring in meals so employees don't have to leave their desks. And everybody must log into a software program that tracks work hours.
"You have to be committed and passionate every day," said Paul Adkins, chief executive of Moll Industries Inc., a Dallas-based custom injection molder controlled by Highland.
"Nobody's thinking about compensation," he said. "You're in it because of ego, you're in it because of intellect, you're in it because your desire to win forces you to."
He works at least six days a week, sometimes seven. Even on Father's Day, Mr. Adkins, a father of one, was in Michigan visiting a customer.
Mr. Dondero credits hard work for the firm's growth.
"This business is populated by a fair number of our competitors who have more of a rock star approach and a vacation approach," he said. "We've had more of a 'try to work as hard as any of our investors would work' attitude.
"We make 15 to 20 employees a year millionaires," he added. "It's a high-intensity environment. It's not for everyone."
Highland gives job applicants a few days to complete a case study. The assignment enables the firm to assess candidates' analytical capabilities and writing and financial modeling skills, said Jack Yang, Highland's head of business development.
Highland views its Dallas location as a benefit, allowing it to attract a more diverse group of people than the average New York investment firm. Besides Wall Street finance whizzes, it has hired engineers, lawyers and military officers.

Like all good poison pen letters, the Dallas Morning News sprinkles some fantastic tidbits. To wit:

Both Mr. Dondero and Mr. Okada fiercely guard their privacy. For this story, both agreed to be interviewed only by telephone. They declined to be photographed and shied away from questions about their families.

Or:

Today Mr. Dondero works 70-hour weeks and sometimes goes months without leaving Dallas.

That is dedication.

"On the personality tests, I test out as the carpenter."

Highland displays a softer side outside the business world. It's been a sponsor of the American Cancer Society's annual Cattle Baron's Ball in Dallas and last year received the organization's "Caring Spirit Award." It also supports local fundraising races for the National Multiple Sclerosis Society and other groups.

Highland's chief investment officer sometimes arrives for Saturday breakfasts at a La Madeleine cafe on a skateboard.

Some of the lawsuits filed against Highland and Mr. Dondero also show how tough the firm can be. In one of them, Joshua Wheelock, a trader of collateralized debt obligations at UBS Securities, alleged that he lost his job because of Mr. Dondero.
According to the lawsuit, Mr. Wheelock wouldn't tell Mr. Dondero that UBS had won an auction for a collateralized debt obligation product. That allegedly prompted Mr. Dondero to tell UBS that it would pull its business unless Mr. Wheelock was fired.
The lawsuit also claims that Mr. Dondero told one or more of Mr. Wheelock's prospective employers that Highland would withdraw its business from them if they hired him.

We'll just close with this:

HIGHLAND'S MARKET PICKS
Company Market value of Highland's stake
1. Leap Wireless International $222,307,000
2. Mirant $131,670,000
3. Horizon Offshore $37,547,000
4. Walgreen $33,630,000
5. Loral Space & Communications $25,078,000
6. NRG Energy $23,859,000
7. Gray Television $21,387,000
8. Trump Entertainment Resorts $17,969,000
9. Murphy Oil $16,803,000
10. Hess $15,564,000

Related

Highland Capital Management Founder Sees Your Hiding Of Assets And Raises You A Megalomaniacal Prick

As some of you may recall, back in March, Highland Capital Management founder and CEO James Dondero testified that he is "insolvent under Texas family law, if not according to normal accounting rules," despite a 2010 tax return showing his adjusted gross income that year to be in excess of $36 million. The reason his finances were in question was because Dondero filed for divorce in September, and how much he owes his wife Becky is currently in dispute. Becky is "seeking enforcement of a prenuptial agreement guaranteeing her half of the couple’s community property, capped at $5 million," plus "spousal support and interim attorney fees." James, perhaps you can glean, is hoping it will be less than that and perhaps even nothing. One thing that really didn't help? Patrick Daugherty, a former senior portfolio manager at Highland who quit in October, testified that he met with James Dondero for drinks last month. “He told me his plan was to get his net worth down and pay her as little as possible,” said Daugherty, who was called to the stand by Becky Dondero. That testimony was given on March 28th. On April 11, this happened: Highland Capital Management, the $20 billion hedge fund and private equity firm based in Dallas, has launched a lawsuit that calls its former private equity investing chief a “megalomaniacal” manager who engaged in “abusive tirades” that “dehumanized employees.” Patrick Daugherty is the former head of stressed special situations and private equity at Highland Capital Management, where he was responsible for $8 billion of assets until he resigned in September 2011. Known as a blunt-speaking Texan, Daugherty has served on the board of Metro-Goldwyn-Mayer and as chairman of companies like Cornerstone Health Group. According to a 14-page complaint Highland filed in Texas state court in Dallas earlier in April, Daugherty has been paid in excess of $26 million while at the firm, but voluntarily resigned after “Highland refused to accede to his unacceptable ultimatums and megalomaniacal demands regarding compensation.” The lawsuit claims that Daugherty was “belligerent to peers” and that Highland employees complained and even quit after Daugherty publicly berated them as “‘f—ing idiots’” and disparaged them using other vulgarities. Highland, which has a reputation in the investment community for using hard-hitting tactics, pulls no punches in a lawsuit that at times can appear cruel. It claims that Daugherty’s tenure at Highland was characterized by extreme behavior and his performance diminished over the years as he “became increasingly unmanageable, erratic, and insubordinate.” It didn't have to be this way, Patrick! $20 Billion Highland Capital Calls Former Private Equity Chief "Megalomaniacal" [Forbes]