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Page 167

Kingdon has a compound average annual return of about 23 percent since trading began in 1983. In the 18 years, only two have been negative. In 1984, the firm was down 18.4 percent.

The year 1994 was also a slightly down year for Kingdon, with the fund down 2.2 percent. He says that was a difficult year in almost all of the markets the firm trades. An example of a recent loss? The firm lost money on the General Motors/Hughes Electronics arbitrage because "we trusted someone's well-meaning but misinformed advice as to the amount of shares GM would accept in its tender offer. We should not have let his high confidence level outweigh our skepticism that perhaps he did not know what he didn't know—an old lesson we have learned before and will probably learn again several times before retirement."

Despite this loss, Kingdon feels that many factors came together in 1999 for him, resulting in great returns from both an absolute and a relative viewpoint.

For Kingdon, the typical day starts as he arrives in his office at 7:30 A.M. A daily half-hour meeting starts at 8 A.M. The macro traders give a two-page summary of overnight/market news. The European trader then gives a summary of what happened with overnight trading. The in-house technician discusses what is breaking out on a momentum model. Then the meeting is opened to everyone to discuss significant events. They talk about what is relevant and determine strategy for the day.

During the rest of the day, Kingdon often sees companies in the portfolio or a prospective investment. He talks to economists and to money managers. He works with internal managers on ideas in the portfolio. "I focus on what is going on in the real world, not just Wall Street."

Kingdon Capital consists of 15 profit centers (made up of teams and individuals). Of these, 12 are industry groups and three are regions. In the total organization there are 50 people.

An investment committee exists, but it is Kingdon's area to determine how invested the firm will be. The investment committee consists of Kingdon; Richard Rieger, director of domestic equity research; and Peter Cobos, the chief financial officer. "We take a top-down and bottom-up approach . . . bottom-up because the analysts and specialists (industry and geography) meet formally every morning as well as informally during the day. If a great idea emerges, capital is always available."

Rieger and Kingdon are the senior portfolio managers. Kingdon

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