|Michael W. Vranos|
|Education||B.A. in mathematics Harvard University, 1983 magna cum laude|
|Occupation||Hedge fund manager and bond trader|
|Employer||Kidder Peabody, Ellington Management Group|
Michael W. "Mike" Vranos is an American hedge fund manager and philanthropist who in the 1990s was referred to by some as the "most powerful man on Wall Street." In 1993, he reportedly earned $15 million from trading mortgage bonds. Fortune Magazine once called him "one of the best bond traders on Wall Street." According to a 2007 Wall Street Journal article, he has continued to be regarded as "the best-known mortgage-bond trader on Wall Street."
Vranos headed collateralized mortgage obligation (CMO) trading in the early 1990s at Kidder Peabody at a time when that firm dominated the marketplace. Seizing the opportunity created by a bear market, he left to start his own firm, Ellington Management Group, in late 1994. That same year, Kidder Peabody fell on troubled times and was sold to PaineWebber. In spite of being affected by fall-out from the Long-Term Capital Management debacle in 1998, as of April 2004, Ellington had delivered a composite annualized return of 15.4%, after fees. Ellington continues to market a variety of investment offerings.
Early life and education
Vranos was born in Worcester, Massachusetts to Alexander and Aglaea Vranos, both of Greek descent. He was then raised in Ellington, Connecticut, United States. In his youth, he worked as a bouncer and earned the title of Mr. Teen Connecticut as a bodybuilder. He earned the nickname "The Arm". Mr. Vranos earned his Bachelor of Arts degree in mathematics from Harvard University in 1983 with both magna cum laude and Phi Beta Kappa honors. He began pursuing a PhD in Mathematics, before beginning his work on Wall Street.
Vranos started work at Kidder Peabody after graduation from Harvard in 1983. He was the youngest Managing Director in the 130-year history of Kidder Peabody. During his reign at Kidder Peabody from 1990–1994, Kidder underwrote over $200 billion in CMOs, which was about 20% of all CMOs issued during that period and nearly double the next largest Wall Street firm. Vranos was noted for having turned his collateralized mortgage obligation trading role into a money-making machine. In 1991, Vranos was named Kidder Peabody’s Man of the Year. His 1992 compensation was estimated at between $10–15 million, according to the USA Today, while The Washington Post reported it in the $5–7 million range. By 1993 he was the highest paid employee at Kidder Peabody, and it was said that as Kidder entered financial trouble in the early 1990s that the profitability of the company was largely on Vranos' back.
Kidder Peabody fell on troubled times during the bear market of 1994. Losses in the mortgage-bonds department headed by Vranos for the second quarter of 1994 were $30 million. Michael Carpenter, the CEO of Kidder from 1989 to 1994 was forced to resign in July 1994. Then, when the number two ranking executive at the firm, Edward A. Cerullo, resigned from Kidder Peabody a few weeks later, Vranos was one of the most watched firm members. During this period, Vranos was highly praised by Jack Welch, chairman of Kidder Peabody’s parent company, General Electric, for his handling of the bear market. However, as market conditions grew more severe, Vranos left to start his own firm in late 1994. Kidder was ultimately sold to Paine Webber.
Ellington Management Group
In late 1994, Vranos founded Ellington Management Group, which grew into a $21 billion company. He founded the firm with Laurence Penn, whom Vranos knew at Havard and who was in charge of Lehman Brother's mortgage securities training before co-founding Ellington with funding from Ziff Brothers Investments. By the end of 1995 the firm had become a three-fund operation with a variety of assets.
Ellington was affected by the Long-Term Capital Management debacle in 1998. For a few days in mid-October, the firm sold mortgage securities to lower its funds' leverage. The firm issued a public statement describing its borrowings to quell public fears, which was quite unusual for hedge funds at the time. It clarified that although it was meeting margin calls by unloading hundreds of millions of dollars in assets over a two-day period, losses were limited. One report suggests some of his hedge funds may have temporarily lost around 25% of their value as he liquidated $2 billion in assets after allegedly missing a margin call from UBS. However from its December 1994 inception through April 2004, the firm delivered a composite annualized return of 15.4%, after fees.
In 2000, Ellington bid on Laser Mortgage Management Inc., a mortgage real estate investment trust that was considering closing, but ultimately did not purchase it. Various of Ellington's funds have invested in distressed mortgage-backed securities over time. By 2004 his $3 billion in hedge fund assets including mortgage derivatives. In October 2007, as the future credit performance of residential mortgages became increasingly uncertain, one of his funds is reported to have fallen in value by 22% and to have temporarily suspended redemptions pending greater clarity around valuations. As of 2007, Vranos and Ellington Management managed $5.4 billion in hedge funds and private accounts, and an additional $1.2 billion in a managed account, while also managing almost $23 billion in collateralized debt obligations.
In June 2007, Vranos launched a private placement of a new entity, Ellington Financial LLC, to institutional investors. The offering primarily targeted investments in non-agency mortgage-backed securities. The deal was underwriten by Friedman Billings Ramsey and although originally slated for a $750 million offering, evolving market conditions only allowed for a $250 million capital raise. Before the private placement, a New York Times columnist noted that a portion of the private placement might be used to purchase risky tranches from bankrupt subprime lender New Century Financial Corporation and noted the potential difficulty in valuing such instruments.
In October 2010, Ellington Financial LLC went public, debuting on the NYSE. As of 2 January 2012[update], Vranos owned (directly or indirectly) over 2.50 million shares. According to its public filings, Ellington Financial invests primarily in non-agency mortgage-backed securities, but also holds agency pools and other mortgage-related securities, and had a total return of 59% between its August 2007 inception and the end of 2011. In the 2010s, Ellington opened a second office in London in order to expand into the European market. Ellington Residential Mortgage REIT, chaired and founded by Vranos, went public on the NYSE after its IPO in late 2013, trading under the ticker symbol EARN. In 2014 Vranos opened an office for Ellington Management in London, England.
In 1981, Vranos was declared Mr. Teen Connecticut in the state's bodybuilding championships, and he became known as "Captain Iron" in bodybuilding circles. Vranos is known for breaking up business meetings to issue armwrestling challenges. Vranos currently lives in Weston, Connecticut. In 2001, Slate.com finance columnist Rob Walker and alternative cartoonist Josh Neufeld featured Vranos in their comic book, Titans of Finance (Alternative Comics, 2001, ISBN 1-891867-05-9). Vranos supported both Christopher Dodd and Barack Obama on the Democratic side and Rudy Giuliani on the Republican side of the 2008 Presidential Election.
Michael Vranos is a director of Hedge Funds Care, Boys & Girls Harbor, the Waterside School in Stamford, and Hopkins school in New Haven. He is a contributor to and former director of Stamford Shelter for the Homeless and the East Harlem School. Hedge Funds Care presented Vranos with its Lifetime Award for Caring in 2007. He also established the Michael and Anna Vranos Graduate Fellowship Fund in the Life Sciences, the Vranos Family Junior Faculty Development Fund for Stem Cell and Regenerative Biology, and the Vranos Family Graduate Research Fellowship in Developmental and Regenerative Biology, all at Harvard University. According to Harvard Alumni, "He has also offered his time and support to Harvard as a member of the FAS Task Force on Balanced Philanthropy, as chair of the Class of 1983 Gift Committee, as af member of the New York Major Gifts Committee, and as chair of the Class of 1983’s 20th and 25th reunions."
- Seremet, Patricia (2004-02-17). "Lea's Valentine Ball, A Living Love Letter For Leukemia Research". The Hartford Courant. Lea's Foundation. Retrieved 2007-12-10.[dead link]
- Reed Abelson (1998-10-13). "THE MARKETS: Market Place; Still Another Hedge Fund Seems to Be in Financial Peril". The New York Times Company. Retrieved 2007-12-09.
- "Ellington: An Experienced and Successful Team". Ellington Management Group, L.L.C. Retrieved 2007-12-09.
- Zuckerman, Gregory (2007-12-06). "Vranos May Try to Reopen Ellington Credit Fund". The Wall Street Journal Online (Dow Jones & Company, Inc.). Retrieved 2007-12-09.
- Pare, Terence P. (1994-09-05). "JACK WELCH'S NIGHTMARE ON WALL STREET The Welch legacy will be scarred by the management fiasco at Kidder Peabody. Here is General Electric's brutal lesson in how not to run a business.". Fortune Magazine (Cable News Network). Retrieved 2007-12-10.
- Abelson, Reed (1998-10-18). "INVESTING: DIARY; Pssst. . .We Have No Problems At This Hedge Fund. Really.". The New York Times Company. Retrieved 2007-12-09.
- "Ellington's Vranos Says He Won't Crash Again Amid Rate Increase". Bloomberg News. 2004-06-29. Retrieved 2009-08-30.[dead link]
- Morgenson, Gretchen (2007-07-22). "Mr. Vranos Has a Deal for You". The New York Times Company. Retrieved 2007-12-10.
- "Michael Vranos". Retrieved February 11, 2014.
- Neufeld, Josh and R. Walker (2000-03-04). "Titans of Finance: The V-Man (fram 2)". TheStreet.com. Retrieved 2007-12-09.
- Nevill, Louise (1998-04-01). "Danger money" (subscription required). The Scotsman. Retrieved 2012-04-22.
- "Michael Vranos '83". June 18, 2012. Retrieved February 10, 2014.
- Nasar, Sylvia with Douglas Frantz (1994-06-05). "Derailment On Wall Street -- A special report.; Fallen Bond Trader Sees Himself As an Outsider and a Scapegoat (page 4)". The New York Times Company. Retrieved 2007-12-09.
- Kadlec, Daniel (1994-03-04). "PAY DIRT ON WALL STREET - Good times, big bonuses are back". USA Today (Newsbank). Retrieved 2008-12-18.
- Mathews, Jay (1993-01-16). "Fat Is Back In Wall St. Paychecks; Big Bonuses Mirror Brokerages' Profits" (subscription required). The Washington Post. Retrieved 2012-04-22.
One executive familiar with bonus levels noted...Michael Vranos...1992 compensation package...is estimated at $5 million to $7 million.
- Terence P. Pare and Tricia Welsh (September 5, 1994). "Jack Welsh's Nightmare on Wall Street". publisher=CNN. Retrieved February 10, 2014.
- Sylvia Nasar (July 23, 1994). "Kidder's No. 2 Executive Quits". New York Times. Retrieved March 18, 2014.
- Nasar, Sylvia (1994-07-23). "Kidder's No. 2 Executive Quits (page 2)". The New York Times Company. Retrieved 2007-12-09.
- Chris Byron. "Another harrowing hedge fund tale". MSNBC. Retrieved February 10, 2014.
- "Digest" (subscription required). The Washington Post. 1998-10-13. Retrieved 2012-04-22.
Ellington Capital Management, a hedge fund run by former Kidder, Peabody trader Michael Vranos, offered $1.5 billion in mortgage securities yesterday, traders said, despite weak investor demand for mortgages.
- "Picking Up The Bond Pieces While Waiting For The Next Shoe To Drop" (subscription required). Post-Tribune. 1998-10-14. Retrieved 2012-04-22.
Monday was a holiday for the bond market, but it was a work day for some trading desks attempting to find buyers for securities and derivatives that leveraged funds were forced to liquidate to meet margin calls. Come Tuesday, the newspapers were reporting that Ellington Fund, run by former Kidder, Peabody mortgage whiz Michael Vranos, had become the latest casualty of the great deleveraging trade of 1998, driven by a huge widening of credit spreads that punished holders - indiscriminately - of all instruments except those issued by the U.S. Treasury.
- "Hedge Fund Firm Says It Covered Its Losses". The New York Times Company. 1998-10-18. Retrieved 2007-12-09.
- "UBS hedge fund exposure" (subscription required). The Independent. 1998-10-17. Retrieved 2012-04-22.
UBS last night refused to comment on reports that it had liquidated $250m of bonds held as collateral after Ellington allegedly missed a margin call this week.
- Jerry W. Markham (2006). A Financial History of Modern U.S. Corporate Scandals: From Enron to Reform. M.E. Sharpe. p. 440. Retrieved March 18, 2014.
- "REIT Considers Closing". The New York Times Company. 2000-10-06. Retrieved 2007-12-10.
- Trincal, Emma (2007-07-31). "Ellington, Citadel, Marathon Emerge as Distressed Players" (subscription required). Daily News. Retrieved 2012-04-22.
- Michael Peltz (June 29, 2004). "Ellington's Vranos Says He Won't Crash Again Amid Rate Increase". Bloomberg. Retrieved March 18, 2014.
- Pulliam, Susan, Randall Smith and Michael Siconolfi (2007-10-12). "U.S. Investors Face An Age of Murky Pricing". The Wall Street Journal Online (Dow Jones & Company, Inc.). Retrieved 2007-12-10.
- "In Hindsight" (subscription required). Investment Dealers' Digest via Highbeam. 2010-10-15. Retrieved 2012-04-22.
- "Ellington Financial Reports Acquisition By Director Vranos (Connecticut)" (subscription required). US Fed News Service, Including US State News. 2012-01-02. Retrieved 2012-04-22.
- "Securities and Exchange Commission EDGAR Filings". Retrieved 2012-04-28.
- Stephen Foley (December 22, 2013). "US hedge funds set to expand in Europe". Financial Times. Retrieved February 10, 2014.
- "EARN IPO". NASDAQ. Retrieved February 11, 2014.
- Stephen Foley (December 22, 2013). "US hedge funds set to expand in Europe". Financial Times. Retrieved April 4, 2014.
- "Feature: Michael Vranos". Muscle Up 4 (15): 17–18. February 1982. ISSN 0279-2990.
- "Titans of Finance: True Tales of Money & Business". Amazon.com, Inc. 2007. ISBN 1891867059.
- McGeehan, Patrick (2001-06-03). "Private Sector; Dumbed Down on Wall St.: Junk Finance, With Pictures". The New York Times Company. Retrieved 2007-12-10.
- "The Huffington Post's Fundrace2008". HuffingtonPost.com, Inc. Retrieved 2007-12-10.
- "Michael Vranos profile". BusinessWeek. Retrieved February 10, 2014.
- "Charity Event Raises US$1 Million-Plus". New York Daily News via HighBeam. November 23, 2005. Retrieved February 10, 2014.
- Maggie Shea (January 29, 2007). "Speaker Pelosi to Address HFC Benefit". New York Daily News via Highbeam. Retrieved February 10, 2014.