Nowadays, you can invest in multiple assets, which share common “themes.” If you win, your profits are multiplied. Highland Capital President James Dondero has demonstrated this alternative investing strategy with American Airlines and multiple limited partnerships (MLPs) in the oil and natural gas industry. Of course, fuel is one of the primary costs for airlines, so this was an interesting topic during the March 25, 2017 James Dondero Barrons interview.
“Energy & Transport”
Some might think that alternative hedge fund managers might not be engaged in risk management, but nothing could be farther from the truth. The addition of American Airlines and energy firms (such as Targa Resources and Enterprise Products Partners) to the same Highland Capital fund is a great example of risk management. If fuel goes down, American Airlines wins; if fuel goes up, the energy firm wins.
James Dondero might call this a combination of high conviction “themes.” Certainly, James Dondero’s links to Dallas make it highly likely that he would be an expert on energy. American Airlines also has its headquarters in Dallas. So, is James Dondero simply investing in Texas-based firms?
“Argentina Needs Capital”
The answer is No.
If an asset is part of an important on-going theme, then James Dondero will consider it. His “alpha analysts” are continually reviewing almost a dozen of these high-conviction themes. These might identify macroeconomic trends and look for securities, which have the desired characteristics for solid profits.
Argentina has defaulted eight times on its sovereign debt since 1824, the latest being in 2014. Can Argentina (or any nation) survive without access to the capital markets?
Therefore, James Dondero’s Highland Capital invested in Argentina sovereign debt. Priced at 70 cents, these rose to 120 cents when the next Argentina leader returned to the global bankers. James Dondero & Highland understand that capital is a necessity for nation-states.
“Dondero Charitable Giving”
Highland Capital has also allotted $3.5 million a year for non-profit organizations. The primary goal is create “transformative” changes in the community. James Dondero multiplies his profits and shares them with the entire community.