Bruce Kovner

Financial World The Wall Street 100 By Stephen Taub, David Carey, Richard Coletti, Tom Bancroft July 11, 1989 Page 39 No. 27 Bruce Kovner At Least $25 million Has $600 million under management at commodity trader Union Financial, which he chairs. Kovner, 43, tried teaching as a Harvard fellow, but clearly prefers the erratic gyrations of currency and metals trading. Accounts return 15%. Financial World The Wall Street 100 By Stephen Taub, David Carey, Amy Barrett, Richard J. Coletti and Jackie Gold July 10, 1990 Page 54 No. 2 Bruce Kovner More than $110 million This secretive futures trader earned a dazzling 50% return for accounts worth more than $900 million at year-end. Earlier this year, Kovner formally linked up with hedge-fund meister Michael Steinhardt. Kovner has a country home in Dutchess County, NY, about 45 minutes north of Steinhardt's. A music aficionado, he has best been known to treat friends to private performances at his New York City home by up-and-coming musicians, often from New York's famed Julliard School. Six feet two inches tall, with a neatly trimmed graying beard and a professional manner, Kovner, 45, grew up in the San Fernando Valley east of Los Angeles, the son of an engineer. The former Harvard teaching fellow switched from academia to Republican Party political consulting before getting into interest-rate futures and currencies. When he lost $23,000 trading soybeans one day back in 1977, he could not eat for a few days. One friend remembers Kovner consoling himself after a multimillion-dollar loss by telling himself it was small sum in percentage terms. Does much of his trading after or before US exchange hours from monitors in his homes. Keeps staff on duty 24 hours a day. Financial World The Wall Street 100 By Stephen Taub and David Carey with Alison M. Smith July 21, 1992 Page 40 No. 4 Bruce Kovner Caxton Corp. At least $60 million

When a bad case of writers block stymied his quest for a Harvard Ph.D., Kovner drove a cab to pay the rent, took harpsichord lessons at Julliard and dabbled at a succession of pursuits while seeking this true calling. In 1976 he found it: currencies and futures speculating. A 47-year-old native of California, Kovner now runs New York City-based Caxton, where his staff confers daily with government policymakers in order to better gauge up-coming shifts in interest-rate-sensitive markets. Even so, those markets fooled Kovner for much of last year. His $1.2 billion in assets were up just 14% on average, far below his lofty norm. Government probes, meanwhile, are investigating Caxton for a possible role in the Saloman Treasury auction scandal. Financial World The Wall Street 100 By Stephen Taub, Nanette Byrnes, and David Carey July 6, 1993 Page 41 No. 6 Bruce Kovner Caxton Corp. At least $100 million Last fall, like Soros, Steinhardt and Robertson, this secretive New York City currency and futures speculator bet against the European Community's initiative to dictate currency values. The EC's effort flopped, and Bruce Kovner's prescience lifted last year's net returns on his $1.4 billion asset pile to 22%. A 48-year-old native of California, Kovner forsook a budding career as an academician and Republican Party political strategist in 1977, when he caught the trading bug. Kovner began by dabbling in futures with $3,000 borrowed from his MasterCard. Then he got serious, learning the ropes under Commodity Corp. trading ace Michael Marcus. Within five years, Kovner had built a $35,000 opening stake into more than $20 million. At Caxton, Kovner keeps his staff on duty 24 hours a day to get a jump on impending shifts in interest-sensitive markets worldwide, while he tracks the action before and after trading hours from monitors in his homes. Financial World The Wall Street 100 Call it the year of the hedge funds. For this elite band, it was the best year ever. By Stephen Taub and David Carey with Andrew Osterland and David Yee July 5, 1994 No. 5 Bruce Kovner Caxton Corp. At least $200 million

Bruce Kovner minted money last year, wresting a hefty net gain of more than 36% from his $2 billion asset pile. But Kovner, a 49-year-old Manhattan currencies and futures speculator, has had a rocky 1994. The stronger yen and deutschemark have punished him, although not nearly as harshly as they have his hedge fund peers George Soros, Michael Steinhardt and Julian Robertson. With backing from the Rothschild family, Kovner launched Caxton (named after a 15-th century English printer Kovner learned to admire while putting together his rare book collection) in 1983. He has trading screens in both his elegant Park Avenue apartment and his country house, a Georgian-style mansion 75 miles north of New York City. Kovner, who sports a salt-and-pepper beard and a professorial demeanor, once hoped to earn his living as a scholar and teacher. But a case of writer’s block thwarted his bid for a Harvard Ph.D. Financial World The Wall Street 100 By David Carey and Stephen Taub October 21, 1996 Page 59 No. 10 Bruce Kovner Caxton Corp. At least $70 million 1999 Forbes Four Hundred Richest Americans Kovner, Bruce , 54 , self made Source: Finance, Money management Net Worth: $900 mil Hometown: New York, New York Marital Status: married , 3 children Education: MASTERS Harvard Ph.D. dropout ran out of things to say for dissertation. Became a NYC cabbie, played harpsichord at Juilliard. Borrowed $3,000 on credit card to trade commodities age 31. Honed skills under veteran Michael Marcus at Commodities Corp. Founded Caxton Corporation in 1983, made fortune trading oil, interest rates. Closed funds to new investors 1992. Raised millions for scholarship fund to benefit students in New York City. Collects rare books. 2000 Forbes Four Hundred Richest Americans Kovner, Bruce 55 , Self made Source: Finance, Trading

Net Worth: $900 mil Hometown: New York, New York Marital Status: divorced , 3 children Education: MA/MS from Harvard U Shrank hedge fund in mid-1990s because it was too unwieldy, but high returns pushing back up again: his Caxton Corp. now has more than $3.5 billion under management. Son of a trade unionist, dropped out of Harvard Ph.D. program because of writer's block. Drove New York City cab, played harpsichord. Borrowed $3,000 to start trading commodities age 31; founded Caxton 1983. Active in school reform movement, raised millions for New York City scholarship fund. With artist Barry Moser produced an illustrated Bible released last fall: limited editions of Pennyroyal Caxton Bible sold for up to $30,000 each; trade editions $65. 2001 Forbes Four Hundred Richest Americans #211, Kovner, Bruce Track This Person 56 , self made Source: finance, money manager Net Worth: $1,100 mil Hometown: New York, NY Marital Status: divorced , 3 children , 1 divorce Undergraduate: Harvard University, Bachelor Dropped out of Harvard Ph.D. program because of writer's block; drove New York City cab, played harpsichord. Began trading commodities at age 31 after borrowing $3,000. Founded hedge fund firm Caxton in 1983; today more than $5 billion in assets under management. Active in school reform, raised millions for New York City scholarship fund. 2002 Worlds Richest People Kovner, Bruce , 56 , self made Track This Person Source: money mgmt. Net Worth: $1 bil Home State: New York Marital Status: divorced , 3 children Harvard University, Bachelor of Arts / Science

Not just any harpsichord-playing, ex-New York City cabbie can raise enough money to start a hedge fund. Fewer still could see their fund perform better than Kovner's Caxton Corp. Also has invested in the New York Sun, a Conrad Black-led venture slated to launch this spring Saturday, April 13, 2002 Also backing the Sun is Bruce Kovner, another free marketeer in theory who, in practice, subverted and short-squeezed the Treasury note market with Steinhardt. Kovner’s Caxton Associates was allowed to escape prosecution and admission of malefaction in the case by paying out tens of millions of dollars. Kovner is celebrated in the business press as something of a Horatio Alger figure, the son of a trade unionist who ends up fabulously wealthy. He began speculating on a line of credit obtained through his charge card. As Kovner ended up so rich as to require a fleet of Cray supercomputers working in tandem to compute his wealth, it’s pointless to chide him for his irresponsibility by reprehensibly gambling with other people’s money. Better instead to chart his upward trajectory: He learned commodity futures and derivatives game at the secretive Princeton-based Commodities Corp., the proto-hedge fund established by economics Nobel laureate Paul Samuelson. He would light out on his own in 1983, managing funds for several luminaries - the most luminescent being Lord Jacob Rothschild and the late Global Asset Management head Gilbert de Botton, father of Consolations of Philosophy author Alain who needs Montaigne and Proust despite access to a massive inheritance. The so-called self-made-man is an inexhaustible fund of amusement. Those who through a concordance of moil, smarts, and receipt of His good graces rise to sufficient heights seem to exhibit a monomaniacal concern with maintaining or augmenting those heights. Poor $1 billion man, Bruce. While you and I have just neighbors left, right, and across the hall to worry about bettering, Kovner has a full 444 of Forbes wealthiest 500 above him to contemplate. He mitigates the humiliation by giving and giving. Considering nice guy Kovner, the trade unionist’s son who is said to keep his staff on duty 24 hours a day, one is struck by the man’s fascination with high culture and attendance to noblesse oblige. Not content to merely patronize museums, Kovner recently moved into one, displacing the International Center of Photography to its current Midtown quarters. The building he purchased for a fair $17.5 million, prior to housing the Center, harbored the Audubon Society, and, originally, Willard and Dorothy Straight, founders of The New Republic - which Steinhardt and other Sun cohorts acquired a controlling stake in recently. As if unseating a long-standing institution weren’t contribution enough to the arts, Kovner also served as

patron to Barry Moser while Moser completed his Pennyroyal-Caxton Bible, volumes of which sold for upwards of $20,000. Kovner figures in an etching therein as Solomon. -------------------------------Bruce Kovner achieved fame and fortune during a remarkable ten-year spell investing in the interbank currency and currency futures markets, during which he realised returns of 87% per annum compound, a record which would have turned an investment of $2000 made in 1978 into $1m ten years later. Kovner is intensely shy of publicity and there are only sketchy details of his career. It is known, however, that unusually for a hedge fund manager, he started out as an academic. He taught at Harvard, where he graduated, and also at the University of Pennsylvania. His subject was political science. Born in New York City he had earlier attended public schools in New York and Los Angeles. He is said to have liked teaching but was less than enamoured over the race to publish that is part of an academic's life. In the early 1970s he turned from theory to practice, running a number of political campaigns with the idea of using this as a springboard to running for office. But he abandoned politics because, by his own admission, he lacked the funds to run for office and -the will to work his way up the political ladder even had he been successful. For a time he did consulting work for the US Con- gress, he National Science Foundation, the Council of Environmental Advisers for the State of New York, and the University of Pennsylvania. In the mid 1970s Kovner gravitated towards the idea of trading in financial markets, and approached the task with an academically rigorous approach to detail, studying several aspects of the markets intensively, notably interest rate theory. This led to the notion of trading the then relatively new markets in interest rate futures. He joined the Princeton, New Jersey, trading firm of Commodities Corp- oration in 1977. Because of their relative novelty, interest rate futures markets were not traded actively by the big financial houses and hence possessed anomalies and arbitrage opportunities that an intelligent trader could spot and exploit. Kovner later switched to trading commodities and then currencies, his trades always backed by an argument based around fundamentals and undertaken with strict trading discipline. In 1983 he left commodities Corporation to start his own fund. His vehicle Caxton Corporation returned more than 30% a year for investors in its first 12 years of existence faltering in 1994. In June 1995 Caxton returned $1.2b of cash to investors, two-thirds of the money managed at the time. One reason for the move was the conviction tht the $2b Kovner then managed was too large an amount to operate effectively in the markets. A more recent move however has seen Caxton attempting to capitalise on its brand mane recognition and move into the equities areana. In late 1998 Kovner recruited Kurt Feuerman, former Morgan Stanley research analyst turned portfolio manager to launch a fund to invest in US stocks and market under the Caxton banner. Kovner's fund turned in the best performance among his peer group in 2000, retuning around 30%. FRIDAY, DECEMBER 16, 1994

JUSTICE DEPARTMENT, SEC ANNOUNCE THAT STEINHARDT AND CAXTON WILL PAY $76 MILLION TO SETTLE ANTITRUST AND SECURITIES CHARGES WASHINGTON, D.C. -- Two of the country's leading investment fund managers, Steinhardt Management Company Inc. and Caxton Corporation, have agreed to pay $76 million to settle antitrust and securities charges filed today by the Department of Justice and the Securities and Exchange Commission in U.S. District Court in New York City. Anne K. Bingaman, Assistant Attorney General in charge of the Department's Antitrust Division, and William McLucas, Director of Enforcement at the Securities and Exchange Commission, announced the settlement today at a press conference in Washington. Along with the settlement filed today, the Department filed a civil complaint charging that Steinhardt and Caxton conspired to limit the supply of, or to "squeeze," the Two-Year Treasury note issued in April 1991. As a result of the conspiracy, investors who wanted to purchase or borrow such securities had to pay inflated prices. The Department's proposed consent decree, if approved by the court, would settle the antitrust suit. "Steinhardt and Caxton joined to corner the market and to inflate the price of securities in the largest and most important securities market in the world. The health of this market is critical to the nation's economy and to financing the national debt," said Bingaman. The Department said that Steinhardt and Caxton purchased a combined position of almost $20 billion in the April Two-Year Note, or 160 percent of the $12 billion issue. The two firms agreed to coordinate their trading of the issue in a way to withhold it from the market, forcing investors to pay inflated prices to buy or borrow the security. The conspiracy lasted for several months in the spring and summer of 1991. "From the Commission's perspective, this case stands for the proposition that parties cannot engage in fraud and manipulation in the market for U.S. Treasury securities. This case reflects the Commission's commitment to protecting the integrity of that market," said McLucas. Steinhardt agreed to pay $40 million to settle the charges. Of this amount, $12.5 million will be forfeited to the United States under the antitrust laws, $6.5 million will be paid to the SEC as a penalty for violating the securities laws and $21 million will be placed in a disgorgement fund to be administered by the court for the benefit of the victims of the violation.

Caxton agreed to pay $36 million. Of this amount, $12.5 million will be forfeited to the United States under the antitrust laws, $9.5 million will be paid as a penalty for violating the securities laws and $14 million will be placed in the disgorgement fund. Caxton and Steinhardt also agreed to an injunction that will prevent them from conspiring to inflate the price of Treasury securities in the future. The cases are the result of an unprecedented three-year effort that combined the forces of the Antitrust Division with those of the SEC Division of Enforcement. "The Division will continue to coordinate with the SEC and other agencies in its efforts to enforce the antitrust laws in financial markets," Bingaman said. As required by the Tunney Act, the proposed consent decree will be published in the Federal Register, together with the Department's competitive impact statement. Any person may submit written comments concerning the proposed decree during a 60-day comment period to John Greaney, Chief, Computers & Finance Section, Antitrust Division, U.S. Department of Justice, 555 4th Street, 9th Floor, Washington, D.C. 20001. Kovner will trade anything that is liquid. Among the things he trades are currencies, fixed income, equities, indexes, commodities and derivatives. "I trade world financial markets, all asset classes." Kovner also has a photograph of one of his three oil tankers hanging on the wall. He first started purchasing tankers in 1987. They are not part of the funds but provide another source of information flow and intelligence Founded in April 1983 with assets of $7.6m, Caxton corporation now has assets of $4.5b. There are 3 hedge funds- Essex, GAMut and Caxton Global- and a few small stock funds. Caxton Iseman Capital does pvt equity deals. (Caxton provides a home and capital for Fred Iseman.) A small % of assets of Caxton Global can be allocated to less liquid deals such as private equity. Caxton Corporation consists of 160 to 170 people, of which about half are in the NYC office. Kovner sees NY as a big plus. "You can see and talk to all kinds of people, govt officials, scholars, economists. It is the world capital..I wouldn't want to be anywhere else." The Plainsboro, New Jersey office serves as the back office and research center. Kovner's goal is absolute return. With assets under management at $4.5b and assets at their peak, Kovner says, "I don't want to grow faster than capacity." He will allow money in if the firm is whithin liquidity limits of its capacity. Once liquidity limits are reached, he sends money back. For example in Jun 1995 with assets at $1.8b Kovner returned 2/3rds to investors in order to improve performance. At the time he said in a press

release, "Under current market conditions, roughly $2b in trading capital is proving unwieldy. I think that a smaller capital base will help us return to us historically high profitability...The lower liquidity in currency, fixed income and commodity markets hurt our performance as our funds grew larger. In addition, I think Caxton has gotten too big and bureaucratic. This downsizing will help us respond in a more focused and agile manner." Kovner expects to pay out dividends from time to time so as not to grow faster than capacity. Caxton principals' assets vary as a % of the total, and are currently under 30% of the assets. Diversification with 27 trading centers Kovner describes Caxton's approach as top-down. "We make a judgment on what the world is like. Then we ask, given that the world is like this, where are the opportunities? Some periods are great for stocks; other periods are great for commodities." Kovner observes the environment and tries to develop a strategy to take advantage of that environment. he tries to identify the different styles, elements and configurations of the economy-inflation/recession, low interest rates/ high interest rates-and politics. Kovner trades what is uncorrelated to the stock market. "The rule is to try hard to have uncorrelated strategies." he believes this is one of his edges since other managers may not do this carefully. Many analytics are used to measure noncorrelation of markets and trades under a number of varying conditions-even conditions that don't exist today. For Kovner, diversification is more than just a platitude; it is a way of life. "The objective is to trade any political or economic environment as well. One defining characteristic is that we want to seize opportunities in many markets. We try to keep the portfolios balanced so if we are wrong or an exogenous event occurs, we don't pay such a high price." He doesn't risk more than 2% of the fund's equity on one idea. As a result Kovner has 27 trading centers that provide this diversification. While the teams range in size from 2 to 10 people, they are usually 2 to 3 people. Some represent regions; others represent trading strategies such as macro, equity, arbitrage or quantitative techniques. Each trading center is strong on its own and not highly correlated to the others. "With this structure, we are able to take advantage of different environments and we are not excessively at risk by relying on one style," Kovner explains. "The key is to constantly adapt and find the strategy that works." "It is wrong to assume a specific environment will continue forever." For example, he notes that value investing is not good now (May 2000) due to money flows. But at the same time, value investing again will become good. He finds it useful to develop signposts that mark when an environment is ending. Examples of such signposts? While none are foolproof, one good example is a high degree of consensus, which tends to create opportunity in the other direction.

To those that predict the demise of global macro, Kovner disagrees and says such predictions usually occur at the end of popularity cycles. "You need to avoid crowd judgement." When business cycles swing (eg. the Fed chomps down or central banks are active), big shifts are created. In periods of instability, global macro will make lots of money. Kovner says now there is higher stability and regular currency movement, it is a great period for other styles. "Our structure allows us the opportunity to focus and choose the trading style that is most appropriate for the period...Global macro will be back. Currently, global macro accounts for about 25 to30% of the portfolio. though this amount varies based on the period, it is a smaller % than it had previously been. The typical allocation is more in the range of 30 to 60%. "Over the past 24 to 30 months, rewards from global macro have been low. So the risk attached to it is low." Today, Kovner sees many opportunities. "The hard part is balancing those risks. Every asset class is in in disequilibrium-currencies, fixed income, commodities and stocks." Kovner says that many investors ask whether the European currency consolidation has eliminated currency trading opportunities. "There are so many more opportunities than before. Some currencies have been lost (with the advent of the euro), but more currencies can be traded now such as those in Eastern Europe. And as the financial markets develop more tools exist. In the 1970's when I began trading, there were only T-bills and GNMAs; today there are over-the-counter structures. As the financial markets develop there are so many more tools to express a view. There are hundreds of instruments now." Kovner does not like to be publicly quoted on market direction because he doesn't want to be perceived as a market guru. He also needs the flexibility to change his mind-without encumbrances- in the event he has to. In 200, Caxton's Essex fund was up 3.4%. Kovner says, "Caxton's diversified portfolio worked the way we had hoped. Macro was poor in the first half, excellent in the second. Our absolute return and quant strategies worked well throughout the year." Kovner spends most of his time developing strategy, rick control and risk allocation. "Most people don't know that I am not the principal trader. I get other people to trade well and allocate resources to them. I develop structures that do it well. I pay attention to how you grow it (the business) and make structures that work." Kovner believes that by developing different strategies, a manager can grow the size of the fund. Each strategy can handle X amount; add them up and you can continue to grow until you hit a limit. "My goal is to develop a company that works without me in 10 years or doesn't have a lot of input from me,"

Information Technology

Kovner says that his total long exposure to the stock market has always been low. Currently it is about 17% which is historically low. This reflects a moderate bearish view on the equity environment. Technology is only a very minor % of the total portfolio. "Some manager get sucked into trading what they shouldn't...They tend to be momentum traders. Some managers move to where the action is. They got into Nasdaq, a big rollercoaster. For eg.,while it may be easy to get into technology, it may be difficult to get out. It is difficult to cope with the volatility." Nevertheless, technology is important to Kovner. Technology is needed to gather information globally. "It is hard to handle (all the information flow) without information technology," he says. This may be one of the defining success factors between the new generation and the old generation of hedge fund managers. He suggests that some of the older hedge fund managers may not have wanted to learn new technologies-which may lead to they demise or put obstacles in their way of surviving. "The survivors will be those who are able to adapt to new markets, adapt to IT and instill riorous risk control." Intellectual honesty Kovner says that Ed Banfield, his academic mentor at Harvard has been the biggest influence in his life. "He was an intellectual leader of the New York conservative movement; really he was a complete iconoclast...I learned intellectual honesty from him. There are lots of things you don't know. You've got to be aware of that. Be honest about what you don't know...I never thought I could do as well as he (Banfield) so I moved out of academia. In applying this philosophy to trading, Kovner says it not so much about being right all the time but rather being able to adapt and find a strategy that works. "I am wrong a lot. While the analogy may be pushing it, you can think of a painter painting many brush strokes. He can be wrong a lot; no one stroke is right or wrong. We are constantly painting a picture." Kovner says they have losses all the time because they are testing ideas in the marketplace. The implication are minor; a loss tells you that something isn't right now. but if the losses are larger than predicted or expected, those losses have to examined. Why? What happened? What was wrong with the analysis? Kovner is most concerned when risk levels are exceeded. The terms are given maximum risk levels and they can trade within acceptable risk levels. Risk control, risk control, risk control. When asked what his edge as a manager is, Kovner acknowledged that it is "a complex game we are in and the edges are subtle...In real estate the key is location, location, location. With money management, the key is risk control, risk control, risk control." He spends considerable time and resources on understanding and managing risk. Kovner says that unlike other hedge fund managers, he usually takes smaller positions. "We don't

like to see big volatility in the fund. We have seen volatility steadily lessen in the last five years as we understand risk better. It is probably half what it was five years ago." While Kovner uses leverage, it is used cautiously. If leverage is a feature of hedge funds, leverage magnifies the mistakes as well as the benefits. There are plenty of ways to get returns but there are plenty of ways to lose it, too. Kovner notes it is difficult to measure how leverage he uses. He acknowledges that the term "leverage" creates lots of confusion. "We measure risk precisely every day. We do lots of analysis on risk. The term leverage doesn't specify risk." Caxton has a department that focuses on risk management, and risk is measured in many different ways. Considerable stress testing is done on the portfolio every day. That is, what happens if there is a big shift in stocks? What if interest rates change or a political crisis occurs? While Value-at-Risk (VaR) is measured every day and the numbers are very low because the portfolio is balanced with short and longs, Kovner feels VaR isn't good at capturing basis risk. "We've developed techniques to understand risk outside VaR." Kovner acknowledges that market volatility can be both a friend and an enemy. Day traders have had an impact on market volatility as well. But generally Kovner finds market volatility is an opportunity. "We've learned how to take advantage of volatilitynot let it hurt us." Kovner feels this is another edge-something that other managers may not have been able to solve as well as Caxton has. Kovner feels that many of the long stock traders that call themselves hedge fund managers will eventually go through a shakeout in the inevitable bear stock market because they don't have adequate risk control. Kovner feels that institutions now have a higher sophistication level on portfolio theory and alternative investments. "There is an increasing perception of absolute return investments (i.e. those investmetns that are not correlated to the S&P)- that these are a good thing to have...Over the next ten years their perception will grow that it is good to have investments uncorrelated to the S&P does well or does not do well- inverse correlation." These investments will provide relatively stable returns with a high Sharpe ratio and low standard deviation. Kovner expects that those investment vehicles with low correalation to the S&P.