For fun, Curtis Macnguyen likes to run along the seafloor in 15 feet of water, carrying a boulder.

He does it offshore from his house on the blue-watered Kona Coast of Hawaii’s Big Island, not far from similar spreads owned by Michael Dell and buyout kingpin George Roberts.

Macnguyen, 46, is a hedge fund manager—an old-school hedge fund manager. His methods are what you’d expect from a guy who carries rocks underwater: lots of hard work, almost no big sprints, and steady progress, all under pressure.

Macnguyen brings his A game to everything, and has since childhood, when he bet on Trivial Pursuit and Pictionary with his six brothers. He has a tennis court in his backyard in the Brentwood neighborhood of Los Angeles, where he hits against local pros. Mats Wilander, winner of eight Grand Slam titles, came for a few sets in March.

“Every guy who’s really successful at anything wakes up and says, ‘How can I do this better?’” Macnguyen says. (He’s Vietnamese, but his name sounds Irish. It’s pronounced like McWin.)

Macnguyen puts that philosophy to work at Ivory Investment Management, the $3.5 billion hedge fund firm he founded in November 1998. Through the end of 2014, his Ivory Flagship Fund returned 346%, or 9.7% a year. That’s twice the 139% delivered by the Standard & Poor’s 500 Index.

Even more impressive: Because Macnguyen hedges his bets by balancing long and short positions, he had, on average, about one-fifth of investors’ money exposed to potential losses. The S&P 500 is 100% exposed, by definition. When the market fell during those years, he either made money or lost very little. And when it rose, his portfolio often rose much more.

Macnguyen’s methods have made him rich. He likes Hawaii so much that he and a group of investors bought 873 acres of oceanfront land that they’re developing. He gets there from Los Angeles on his very own Gulfstream G450.

But that’s not enough for Macnguyen. He could own every white-sand beach in the Pacific and not be content. Lately, he’s been pretty ticked off—with himself. A person could look at his track record and conclude that his best years are behind him. And that is just not acceptable.

In 1999, its first full year of operation, Ivory Flagship returned 28%, compared with 21% for the S&P 500. Even better, when the index fell 9% the next year, Macnguyen made 17%.

Investors who didn’t love him already should have swooned in 2008. The market plunged 37% that year, and Ivory Flagship fell just 7.6%. When the rebound came in 2009, Macnguyen was ready. Investors had been pestering him for a new fund that would take more risk, and he obliged with the Ivory Optimal Fund, now his largest. It jumped 28% that first year, compared with 26% for the S&P 500.

Then something changed. In 2010, Ivory Flagship lagged the index by 13 percentage points. In 2011, he lost 3.6% in Flagship while the market rose 2.1%. Ivory Optimal did worse. His mojo was missing in action.

“I never kicked a dog or smashed a computer or even yelled at anyone,” Macnguyen says. “I was just frustrated and pissed off at having to keep explaining to investors that the environment was tough for our strategy. I’ve always felt that we’re in a no-excuse business. Just like high-level competitive sports, no matter how tough the conditions are, it shouldn’t matter, because you just have to be better than your competitors.”

In 2010 and 2011, few of Macnguyen’s picks worked. He shorted, betting that earnings would tumble as the company invested heavily to keep revenue rising. Sure enough, earnings fell, but investors didn’t care, and the stock rose. “For every winner we had, we had a loser,” he says. “We didn’t add a lot of alpha for two years, and that is painful for a guy like me.”

A Battered Industry
It’s a familiar story. Managers of equity funds, once accustomed to beating the S&P 500, have, as a group, been thrashed in each of the past six years, according to an index of equity funds tracked by Hedge Fund Research in Chicago, and have bested the index in just three of the past 12.

Explanations—or excuses—abound: There’s more competition now as some 10,000 hedge funds look for stuff to buy with $3 trillion they’ve collected from pensions, endowments and rich people; the U.S. Federal Reserve’s dovish interest rate policy won’t let the market fall; hedge funds do better in down years, and the U.S. stock market hasn’t had one in six years.

Nobel laureate Daniel Kahneman wrote in his 2011 book, Thinking, Fast and Slow, that stock-picking managers exist because of an “illusion of skill” and add no value compared with passive—and cheaper—index investing.

“It’s very difficult to do what these people are trying to do,” says Matthew Litwin, head of manager research at Greycourt.  “Most people will fail.”
Macnguyen isn’t buying into any illusion of skill. He agrees that most managers will fail. He just doesn’t intend to be among them.

Saved By Buddha
Macnguyen’s arc toward an absurdly high net worth is as unlikely as any American’s. He was born in Cam Ranh Bay in 1968, the same year the North Vietnamese army surprised the south with the Tet Offensive, taking the Vietnam War to a new, bloodier level. His family moved to Saigon, now Ho Chi Minh City, and his father served in the navy, then in the South Vietnamese congress. They planned to stay, even as the Viet Cong took over in April 1975.

Then his mother had a dream about falling off a cliff and being saved by the hand of the Buddha. Early that morning, his parents packed up eight of their 10 kids—two had gone to the U.S.—and rushed to Saigon’s harbor, where his father commandeered a boat and chugged out to sea with 500 refugees.

The Macnguyens made it to the Philippines, then to a military camp in Arkansas, and finally to Hyde Park, N.Y. Curtis’s father sold vacuum cleaners door-to-door. His mother worked in a factory making candy canes.

Macnguyen didn’t speak a word of English when he arrived in the U.S. at the age of 6, the baby of the family. He learned it, worked at McDonald’s, and spent one summer with a sister in Hawaii, picking heart-shaped anthurium flowers off the rain-soaked slopes of the Big Island for $2.17 an hour, illegally. He’d come home covered in leeches.

He worked equally hard in school, captained the tennis team, and went to the University of Pennsylvania to study engineering. A tedious summer job writing computer code in a cubicle prompted a transfer to the Wharton School, even though he knew nothing about finance. He graduated summa cum laude in 1990.

He worked in New York at Morgan Stanley for less than a year before landing a spot at Gleacher & Co., the investment bank founded by Eric Gleacher, who had advised Kohlberg Kravis Roberts on its record-setting, $30 billion buyout of RJR Nabisco in 1989. Gleacher paid more than other banks, and Macnguyen’s salary doubled, to $100,000.

The place turned out to be a hedge fund incubator. At least five other analysts who worked there went on to start funds, including Larry Robbins, later the founder of Glenview Capital Management, which now has $10 billion under management.

The place was perfect for a gambler like Macnguyen. “We’d play Nerf basketball for thousands of dollars,” says former co-worker Raji Khabbaz, who also launched a fund. “Some of those games got pretty expensive.”

A New Course
Macnguyen started Ivory in 1998. He chose the name in part because, over time, he’d spent days spelling Macnguyen on calls, and also because, in Southeast Asia, the elephant and ivory are symbols of good fortune. In its first three years, Ivory Flagship beat the S&P 500 by 7 percentage points, 26 percentage points, and 19 percentage points, respectively.

New York began to wear on Macnguyen, and he decided to make a move he’d long contemplated, to Los Angeles, where he had often traveled for work. “Every time I got off the plane, I had the best feeling in the world,” he says.
In his new suite in Brentwood, Macnguyen had healthy returns for years, in all sorts of markets. True to conservative form, he protected investors from disaster in 2008. He caught the rebound in 2009.

Then the Federal Reserve flooded the market with money, lifting almost all boats. But not Macnguyen’s. Amazon rose in his face, and Hospira fell. Nothing seemed to work. He got beaten by index funds, which just shouldn’t happen.

The slump changed his core beliefs about his business. Before, he thought he could build a company that would outlast him. Now, that seemed impossible. If he was off his game, then the whole firm lost. No one seemed to step up.

So Macnguyen stepped back into the trenches. In Brentwood, he had allowed himself a private office. Now, he knocked out the wall that separated him from his six analysts. Everyone sits, stands and mills around in one big room, and he hears everything the analysts say, not just what they choose to report to him in meetings. “A lot of times, it’s the thing that they don’t tell me that’s important,” Macnguyen says.

He has honed a system for avoiding investors who aren’t in for the long haul: He looks for stocks that are mired in a trench, of sorts: 50% below a two-year high and within 20% of recent lows. Within that band, the number of shares traded must exceed all of the outstanding shares. “By then, everyone who is nervous is already gone,” he says.  After his systems find a stock that fits, Macnguyen and his team do deep research, calling the company, visiting and scrutinizing earnings calls.

“The perfect idea for Curtis,” says Jim Vincent, a managing director at AllianceBernstein who has been pitching ideas to Macnguyen for years, “would be a company that’s profoundly oversold and hated and has a new CEO who has a chip on his shoulder and a heavy ownership of stock that’s locked up for a long time, in a cyclical business that just troughed.”

Boston Scientific met many of those criteria. It showed up on Macnguyen’s churner screen in 2012, after it had fallen below $6 from $14 back in 2008. Ivory started looking at it and learned that the company had been struggling since 2006, when the U.S. Food and Drug Administration barred it from releasing some new products until it resolved manufacturing problems. The FDA lifted the ban in 2010, but the company kept losing money. It hired a new CEO in 2011. Ivory started buying in 2012. The swooning revenue stabilized in 2013, and that was enough to lift the stock to $12 from $6. On April 9, it closed at $18.10. “We try to find really good setups, where you have to be a little bit right to make a lot of money and a lot wrong to lose a little bit of money,” Macnguyen says.

The victories are adding up for Macnguyen, and he says he feels better about things than he did in the depths of his slump. Not content, by any means, but better. Ivory Optimal returned 28.3% in 2013, compared with 32.4% for the S&P 500. But the Optimal fund’s net exposure to the market—its longs minus its shorts—was just 24.3%. In 2014, Optimal rose 11.4%, lagging the market by about 2 percentage points. Its net exposure was 33%.

Making big money like that with limited risk isn’t easy. Nor is carrying a boulder underwater. These days, Macnguyen can go about 30 yards before he has to drop it and come up for air, probably longer if there’s money on the line. Then he goes back down and lifts it off the sandy bottom for another run.