Highland Capital Management’s Dondero opens up about his Strengths: Trends, Debt Deals, and Turnarounds

Jim Dondero was born in Hoboken and attended the University of Virginia where he studied finance and accounting. In 1993, co-founder Mark Okada and Dondero joined forces with an insurance company, and Highland Capital Management was born. Early in the history of the firm, the two moved from Los Angeles to Dallas in an effort to minimize what they referred to as “the three Ts,” time zone, taxes, and traffic.


Okada and Dondero bought out their parent in 1997, and since then, they have grown the resources and assets of the firm. Highland hires approximately 165 people whereby most of these employees are based in Dallas. Dondero has made bold calls on almost everything starting from the American Airlines to Argentina. He even found value in a Texas energy company, which was almost going bankrupt following loss of money by Warren Buffet.


Highland Capital Management offers relatively inexpensive and mutual fund investors’ liquid access to the best of its investment ideas by Dondero. This is done through Highland Global Allocation Fund, which is approximate $894 million. The fund sits in Morningstar’s global allocation category, and over the last 12 months, it has seen an increase of 29.6%. However, it doesn’t bear a resemblance to its peers. On average, world allocation fund tends to hold approximately 400 securities, but Highland Global Allocation fund holds 200 securities.


Additionally, assets as much as 40% can be easily concentrated in a few themes that range from one company to like a dozen companies all in the same sector. Dondero says that they can place all these companies in the overall portfolio without calling them a theme. Some recent themes include Vistra Energy restructuring, master limited partnerships, and Argentina.


Dondero’s portfolio is top-heavy and is capable of producing big performance swings. For instance, in 2014, the fund was ranked the best of its peer group. In 2015, it moved into energy, and this pulled it down only to ascend to the top the following year. Dondero claims that, although these extreme cases are unusual, volatility goes hand in hand with the territory.