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Glenn Dubin became a billionaire by investing in the strongest macro tailwinds. Today he’s bullish on energy, fintech and artificial intelligence.
Among the ranks of self-made billionaires tracked by Forbes, few have shown the perseverance and knack for identifying profitable trends as hedge fund manager Glenn Dubin. Dubin, 66, grew up in New York’s Washington Heights at the northern tip of Manhattan, his father a taxi driver and his mother a hospital administrator. He attended public schools including the State University of New York at Stony Brook, where he played football and lacrosse. He became the first person in his family to graduate from college in 1978 with a degree in economics. After graduation he went backpacking through Europe before looking for a job in finance. With no connections to tap he searched the Yellow Pages of the phone book and found 30 different Wall Street firms to send his resume to. While in Paris, Dubin bought a $90 suit before heading back to the U.S. to start interviewing.
“The advice I like to give somebody that goes out and does job interviews in New York City in the late summer is don’t wear a pinstripe wool suit,” Dubin jokes.
He struck out on the first 29 firms he reached out to, but the last one, E.F. Hutton & Co., gave him a job as a retail stockbroker. He and Swieca both bought seats on the New York Futures Exchange in 1981, an investment that quickly paid off at the onset of the 1980s bull market, and they sold their seats for a healthy profit a couple years later. In 1984, the two friends decided to go into business together, launching a fund-of-funds firm called Dubin & Swieca Capital Management. Together, they allocated investors’ capital to a diversified set of managers, getting in on the ground floor of other hedge funds that would mint billionaires like Paul Tudor Jones’ Tudor Investment Corp. and Louis Bacon’s Moore Capital Management.
The fund of funds business grew to more than $1 billion by 1992, when Dubin and Swieca decided they wanted to be principals instead of mere allocators and founded their own multi-strategy hedge fund, Highbridge Capital Management, which invested in assets like convertible bonds, risk arbitrage and event-driven opportunities as well as equities. Highbridge loaded up on cheap Japanese convertible bonds during the Asian economic crisis of the late 1990s and generated a 32% net return in 1999, then kept gaining in the first three years of the new millennium while the S&P 500 fell each year during the dotcom bust. It posted gains in all but one year through 2004 and had $7 billion in assets when JPMorgan bought a majority stake in the firm for $1.3 billion that year.
Dubin was introduced to Jes Staley, then the CEO of JPMorgan Asset Management, by Jeffrey Epstein, who reportedly received $15 million in fees from the acquisition. Dubin was a friend of the financier and accused sex trafficker but was never charged with any wrongdoing.
JPMorgan bought out the rest of Highbridge in 2009 after its initial investment, and Dubin stayed on until 2013 to smooth over the transition. Since then, he has managed his personal portfolio through his family office, Dubin & Co. His first move was to buy Louis Dreyfus Highbridge Energy back from the hedge fund and the Louis Dreyfus Group with an investor group that included longtime friend Tudor Jones. He renamed the merchant energy company Castleton Commodities International, which invests in both raw commodities and physical infrastructure assets. His family office has a portfolio of venture-backed startups as well, including Brex and Scale AI, and he also founded quantitative trading firm Engineers Gate in 2013, which he stepped down from as chairman in 2020. Forbes estimates Dubin is now worth $2.8 billion.
Dubin cofounded the Robin Hood Foundation in 1987 with Tudor Jones and Peter Borish, and the charity has raised more than $3 billion in its history attempting to combat poverty in New York City.
FORBES: Where do you see the best opportunities in the market right now?
DUBIN: The last 10 years I’ve been running my own family office, and what I meant to do was to create a barbell strategy. Barbell strategies oftentimes mean that on one side of the barbell, you’re going to put very conservative investments, and on the other side, you’re going to be a little bit more aggressive and assume some volatility in your returns. If you think about your traditional barbell asset allocation, it was, ‘I’m going to allocate X percent of my barbell, my conservative side of the barbell, to fixed income, and Y percent to equities,’ the 60/40 classic historical allocation.
With the last couple of years, with interest rates going up, bond values collapsing, equity markets being extremely volatile and punishing, that barbell strategy was flawed. My barbell strategy went into two buckets. It went into the old economy part of the barbell and the new economy part of the barbell.
The energy transition, where we truly transition away from fossil fuels to renewable fuels, is going to be a very bumpy ride.
In the old economy part of the barbell, the first business that I started, when I left Highbridge and JPMorgan, was I put together an investor group and bought a historical business that we put together at Highbridge called Louis Dreyfus Highbridge Energy, which was a partnership that that Highbridge had with Louis Dreyfus’ family where we developed and had a merchant energy business. It’s a combination of trading both physical and financial energy products, and owning infrastructure assets like power plants, pipelines, storage facilities. It’s a fairly unique model, meaning that it’s very difficult to replicate, but if you put those two together, it can be very effective.
That was the first business that I started, called Castleton Commodities International, and that’s been a great success over the last 10 years in my old economy side of the barbell. It’s been particularly effective over the last two years, as you can imagine, with the enormous volatility that you’re seeing in the energy markets, where a lot of traditional asset classes have not done well, so it has a diversification benefit because it’s uncorrelated to growth investments, the stock market, the bond market, that’s been very beneficial. I believe over the forward 10 years, it’s going to be equally as interesting, and the reason for that is that I believe volatility in energy markets is going to continue, and the energy transition where we truly transition away from fossil fuels to renewable fuels is going to be a very bumpy ride as we’ve seen over the last five years. Ultimately, it’s going to introduce new technologies, new investment opportunities, but there’ll be extreme volatility in traditional energy markets.
Forbes: What about those new growth investments that would be on the other side?
Dubin: On the new economy side of the barbell, about four or five years ago, I was introduced to a young man that dropped out of Stanford after his first semester. I was introduced to him by a very big family office that was an investor with me with the energy business. He literally was 19 years old. They introduced me to this gentleman, and I spent an hour and a half with him, and meeting portfolio managers, meeting analysts, meeting traders, you kind of recognize talent. I had a feeling for this young man that I wanted to invest with him. I said to him, ‘Okay, what’s the new business that you want to start that you’re coming to talk to me about?’ And he said to me, ‘I’m either going to build a fintech business, or build a virtual reality business.’ I kind of said, ‘Look, I think you’re great, and I would like to give you startup capital, but please come back to me when you know if you’re going to go on the virtual reality side, or you’re going to go and build a fintech business.’ Unfortunately, he didn’t come back to me for the seed round. He went to Y Combinator for the seed round, but he did come back to me for the Series A, and the gentleman was Henrique Dubugras, the founder of a fintech company called Brex, if you’re familiar with that company.
Forbes: Sure, they’ve been on plenty of our lists and fintech coverage.
Dubin: Why it’s relevant to this conversation is that it not only was my first venture investment, but it was an investment in the startup founder ecosystem. His first product with Brex was to create a credit card for startup companies so founders could get credit based on the amount of money that they raised from Silicon Valley, not based on how much money they had in their personal bank account, not based on the fact that they graduated from a four-year college. His theory was, this is a much better credit risk for me to give a credit card to somebody who’s just gotten a $5 million check from Sequoia or a $3 million check from Benchmark, as opposed to what the traditional banks did. So he started that business, and he had this massive secular tailwind five years ago. To have venture-backed companies in Silicon Valley as your clients was a great thing to do.
I can help connect the dots for you, and the only thing you have to do for me is let me invest in your business.
As it relates to me, it totally opened my eyes to this new ecosystem of Silicon Valley five years ago. It reminded me very much of the hedge fund industry in the early ‘90s. You knew who the great hedge fund managers were. You knew that Stan Druckenmiller was head and shoulders above his peers. Paul Jones, you can go down the list of these iconic hedge fund managers, but it was a question of how do you get capital in their fund because they were closed. Similarly, in Silicon Valley five years ago, you knew who the great founders were. You knew who was being backed by Sequoia or Yuri Milner or Benchmark, the question was how to get on that cap table. What I realized with Henrique is that I could bring exposure, experience and connectivity to him that he didn’t have, and that frankly even all these great venture capital firms didn’t have. That’s connectivity to finance, to Wall Street, which I have obviously developed over 40-plus years.
So I sold myself to some of these interesting founders by saying, ‘Look, I was a founder myself, in a highly competitive industry, the hedge fund industry. We disrupted the asset management industry. We went from the small little disrupter to a $4 trillion, $5 trillion industry with some of the most iconic names in asset management. So I was a disrupter myself, and in the process of doing that, I’ve established all of these very high-level relationships with the big Wall Street firms. I can help connect the dots for you, and the only thing you have to do for me is let me invest in your business. That introduction to Henrique opened me up to the new economy, and I made a very significant number of investments in the new economy by investing in founders.
Some of the founders have done extremely well, some of the founders I’ve backed have not done well. I think what you’ve seen now with the collapse of Silicon Valley, and what’s happened over the last 24 months in venture investing, is you’ve had effectively a five- or seven-year cycle play out. You know that expression that Warren Buffett has, ‘When the tide comes in, you see who’s swimming naked.’ Well, the tide has come in, and you suddenly look at your portfolio of new economy investments, and some of them have done very well, but some of them are going to go by the wayside.
Forbes: Brex has stepped in the last few weeks after the SVB failure for some of these startups that might not have a bank anymore–how do you think that crisis is going to impact both Brex specifically and all of Silicon Valley?
Dubin: It’s going to accelerate the cycle. You’re going to have a lot of companies that are not going to be able to raise money, certainly not at previous valuations. They’ve got a runway, they’ve got cash burn, they’re doing everything they can to reduce their cash burn, but you’re going to have a lot of these formerly high-flying unicorns go out of business. That being said, you’ll have a lot of companies that are going to do very well, and you’re going to realize who the winners and losers are in a much shorter period of time, as a result of the SVB collapse and the repricing of venture investments.
Forbes: How would you describe your investing style and how has it evolved since you started 45 years ago?
Dubin: I would distinguish myself as a business builder, a risk manager and an asset allocator as opposed to an investor. If you look at the businesses that I’ve started over my 40-plus year career, they’ve all been focused on me identifying a trend, a tailwind, identifying investment talent, and helping them build and allocate capital into a business. That goes all the way back to my early days as one of the pioneers in the fund of funds business, where I recognized that there was an opportunity to allocate capital in a very diversified manner to managers that focus not only on the equity markets, but that focus on commodity markets, that could be long and short both equities and commodities, that could trade fixed income, to truly get diversification in an investment portfolio.
That was kind of the first business I built, the fund of funds in the early to mid ‘80s. We built that business and in the late ‘80s, early ‘90s, we were running $1 billion of assets under management, which at the time was an extraordinary amount of money, and we felt very pleased with what we had built, and the investment returns and results for investors were fantastic. But quite frankly, we said, do we really want to be agents and allocate capital to third-party managers, or would we prefer to be principals, investors ourselves? We made the decision to start our own hedge fund in 1992, which was Highbridge Capital. What we knew which was working really well in the fund of funds model was to identify these non-correlated return streams. In the case of the fund of funds, it’s Manager A, B, C or D. In the case of a multi-strategy fund that we were going to manage ourselves, it was underlying strategies.
We were early in ‘92 in identifying the opportunity to build a multi-strategy hedge fund, as distinguished from an equity hedge fund, credit hedge fund, foreign exchange fund. If you look back at the history of the hedge fund industry, in the early 90s, we had some very distinguished company in starting multi-strategy funds. You had Ken Griffin who started Citadel, you had D.E. Shaw, you had Dan Och, you had Harlan Korenvaes at HBK. You really had a number of what turned out to be very successful investors building these multi-strategy funds.
If you don’t have the experience of managing through a rising interest rate cycle, you’re at a real disadvantage.
Forbes: There are clearly differences to investing in all of those asset classes, whether it’s equities or credit or commodities, but are there common threads you look at when you’re evaluating whether to invest?
Dubin: I’m looking for a strategy, a region, an investment class, where the wind is at your back. That could be a new market, that could be a new product, that could be a secular change in the investment cycle, something where you have the wind at your back. Then it’s going out and identifying talent, whether it be a portfolio manager, a trader, an analyst, a quantitative analyst, obviously depending upon the strategy and the business that you’re building. If you put those two things together–something where you have the wind at your back, and you identify great talent, the probability of success is raised meaningfully.
Forbes: What are a couple examples of that with investments you’ve made or businesses you’ve built that have been successful?
Dubin: What we tried to do at Highbridge is try to identify process-oriented businesses, as opposed to businesses that required a particular skillset of an individual to create or generate outcome. The first business that we started at Highbridge was a convertible arbitrage business. In convertible arbitrage businesses, if you think about what the constituent parts are and what you’re doing, you’re buying a bond, so you’re lending money to a corporation, and oftentimes with a convertible bond, you’re getting a below-market interest rate, but they’re giving you an embedded equity option or warrant for the future success of that business. And then what you do is you short the stock against that convertible obligation, and effectively what you’ve done is you’ve created a hedge that isolates the equity option with a coupon, with your cash flow. That’s an investment process. That’s not me saying, ‘Gee, I think Time Warner is an incredible buy right now and the best security that I can put to work is to buy a convertible bond or to buy the common stock or to buy warrants or options.’ It’s an investment process, and it requires financing, it requires stock borrowing, it requires credit analysis. So those are the process-oriented businesses that we tried to build within Highbridge.
The next business we created was risk arbitrage, or event-driven investment. Same thing. A company announces that they’re going to merge with another company–by buying the acquired stock, you are underwriting the risk that that deal was going to get consummated over a period of time and you’re earning a rate of return. Those are my fondest memories of creating these real businesses that ultimately had value.
Forbes: What’s the balance between the old economy and the new economy that you try to keep in your portfolio?
Dubin: I’d like to tell you it’s very scientific and I go through a very rigorous asset allocation process and it’s driven by all these inputs, but to be very candid with you, a lot of it is instinct. A lot of it is seeing a fat pitch, the fat pitch being secular tailwinds, identifying an extremely talented individual or team that you want to be in business with, and putting money to work. If you read Steve Schwarzman’s book, he says whenever you meet somebody that’s a 10 out of 10, don’t even think, ‘do you have a job opening?’ Or ‘where am I going to put him or her?’ Just hire that person. There’s a method to my madness, but that’s how I make these decisions. That’s how I got into the merchant energy business, that’s how I got into the quant equity business called Engineers Gate, another other business that I built in my family office. That’s why I launched Commodore Partners, which is a small- and mid-cap biotech fund, public and private, that’s been very successful.
Forbes: What’s the biggest mistake investors going through their first prolonged downturn can make in today’s market?
Dubin: Well, I think that experience is probably the single most valuable characteristic to manage through a difficult market environment. If you’ve seen it before, if you know how to respond, you know how to manage risk, you know how to emotionally handle a volatile world, you’re far better off than somebody that’s experiencing it for the first time. The experience that I have through so many different market cycles, market crises, is so valuable, more valuable than any other tool that I have or skill that I have.
A lot of people that are managing money today have done so only in a very favorable environment for risk assets, a low interest rate environment. We’re now in a tightening cycle. We’ve raised interest rates from effectively zero to 5% in a relatively short period of time, and it’s creating a lot of cracks in the system. If you don’t have the experience of managing through a rising interest rate cycle, you’re at a real disadvantage. What we’ve seen in a relatively short period of time with this historical move in rates, Silicon Valley Bank is the first obvious casualty but may not be the last, so I would be very protective of assets. I’d be very concerned about longer duration assets in particular, I’d be very cognizant of liquidity and liquidity risk, all the things that can hurt an investor through difficult market cycles. There are a lot of curveballs being thrown at investors today that many of the people that are risk-takers and managing money haven’t seen before.
Excerpted from the April 2023 issue of Forbes Billionaire Investor
A BILLIONAIRE’S BARBELL STRATEGY USING ETFS
While a large chunk of Glenn Dubin’s wealth is now in private companies, investors can imitate his old and new economy barbell strategy in public markets using ETFs. To cover the old economy like Dubin’s Castleton Commodities International, which owns energy infrastructure assets as well as physical commodities, the $6.6 billion (assets) Alerian MLP ETF (AMLP) holds an array of pipeline stocks including Magellan Midstream Partners and MPLX and pays a dividend yield of 7.75%. The $1.1 billion Invesco International Dividend Achievers ETF (PID) offers a blend with several energy and utilities companies including TC Energy, Enbridge and Brookfield Infrastructure Partners, in addition to stocks in several other sectors. It’s currently yielding 3.45%. The fund is up 20% since the end of 2021, outperforming the S&P 500’s 13% decline in that span. On the new economy side of Dubin’s barbell, most investors don’t have access to invest in Silicon Valley startups at early stages like him, but they can still sate their risk appetite with the $3.2 billion iShares Exponential Technologies ETF (XT), which holds small stakes in hundreds of high-growth tech stocks including fintechs Coinbase, Sofi, Toast and Marqeta. The fund fell 17% last year, but has rebounded 10% so far in 2023. Another choice is Cathie Wood’s volatile $7.5 billion Ark Innovation ETF (ARKK), which was battered with deep losses in 2021 and 2022, but has rebounded 23% this year, outperforming the S&P 500’s year to date gain. –Hank Tucker
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