$2.5bn pay for the man with the brass balls

David Tepper keeps a pair of brass balls on his desk. Sometimes he rubs them together for good luck and a laugh. This year, his magic balls have reward him handsomely - he's on track to make a profit of $7bn in 2009 and personally take home home $2.5bn of it, a sum that makes him one of the highest paid hedge-funders of recent years.

Hedge funds have generally had a good year but, still, how did 52-year old Tepper, who runs New Jersey-based Appaloosa, one of the largest funds in the world with $12 billion under management, make so much money?

The short answer is he bet the US government would stand by its bail-out of the banks.

Through February and March, Tepper hoovered up beaten-down bank shares as most investors, fearing nationalisation or some permanent systematic change in capitalism, were fleeing the sector. He bought Bank of America, which was trading below $3, and Citigroup, which was briefly under $1.

"I felt like I was alone," Tepper told the Wall Street Journal. On some days, he says, "no one was even bidding."

Tepper's brilliance, it seems, was to simply take the US Government at its word. When the so-called Financial Stability Plan was introduced last winter, officials said they had no intention of nationalising the banks. So Tepper directed his traders to buy bank shares and stock. "This is ridiculous, it's nuts, nuts, nuts!" Tepper told a colleague. "Why would the government break its word? They're not going to let these banks go under, people aren't being logical!"

By mid-summer, Tepper was $1 billion up on Citi and BOA shares alone, and 70 per cent up overall. By December he'd made Appaloosa $7 billion - and a fortune for himself. Now he's betting on debt backed by commercial property - widely considered a highly risky strategy.

He bought Korean stocks after the Asian crash of '97; junk bonds in 2003; commodities in 2007. All were money-makers. But he's also prone to occasional, sudden and often spectacular losses.

"Investing with David is like flying, with hours of boredom followed by bouts of sheer terror," says client Alan Shealy. "He's the quintessential opportunist, investing in any asset class, but you have to have a cast-iron stomach."

Tepper's take-home bonanza underscores a happy year for the hedge fund business. More funds are launching; average gains for the year are in the region of 19 per cent.

The Pittsburgh-raised hedge-funder, who tends to wear jeans and sneakers to work, learned his trade on the junk-bond desk at Goldman Sachs. In 2006, he earned $670 million and bought a portion of the great Pittsburg Steelers. Given to self-deprecation, he's popularised the phrase "it is what it is" on Wall Street. Which is what one might say about a $2.5bn payday. It is what it is. ·