Jeffrey Gendell: Tontine Associates

Jeffrey Gendell founded Tontine Associates in 1997. Tontine posted 100% returns in 2003 and 2005 and generally did very well until 2008.

Tontine posted very poor operating results in 2008. They closed down funds and were amongst the worst hedge fund performers of 2008 with some of their funds returning losses of -63.6% and -91.5%.

Tontine somehow survived and changed direction. Jeffrey Gendell closed several funds and got out of highly concentrated stakes in illiquid positions

Tontine’s economic outlook was not as pessimistic as many of their hedge fund counterparts in 2009. Gendell understood that while the ‘Blue’ states and the coasts of the US were economically declining, the ‘Red’ states in the middle of the country were doing fine. Going forward, Gendell decided that he would likely be playing companies with solid balance sheets and few impending debt maturities. Specifically, the firm began investing in the direction of oil service companies, wind energy (and alternative energy in general), and industrial process companies. Gendell has deemed ‘the movement of electricity from production to transmission and then to storage’ as the most attractive area.

Some of the restructuring of their funds can be seen in the differences in their funds going forward from the 2008 collapse:

  • Tontine Financial Partners fund remained unchanged
  • Tontine Total Return Fund was unlevered, less concentrated, and no longer focused on tax efficiency. However, it was more liquid. This fund actively traded positions. Through September 30th, 2009 Tontine was up 53.8% net of fees.
  • Tontine Capital Partners II now focuses on thematic long-term investments and more highly concentrated investments.

They have since rebounded in an emphatic manner as they succeed to recover losses from 2008. Tontine did not die, but they came close. They succeeded to bring the proverbial rebirth. With their wounds still healing, one sees that their performance this year is reassuring.

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