In one of the Electra’s 8,300 square foot penthouse apartments, you’ll find the abode of Seeta Dell, the famous Indian hedge fund manager. Seeta’s rise to the top echelon of hedge fund billionaires is truly inspiring. Life was good for Seeta from the very beginning. He came to the U.S., along with his parents and grandmother, as a young child, the only son of a prime brokerage executive and his television-personality wife. They settled in Chicago, where Seeta attended an exclusive private elementary school. He continued his private education through college, when he was accepted to Harvard on a full merit scholarship. Seeta went to Harvard, but turned down the scholarship so someone else could benefit from it.
In the Harvard dorm room he shared with his friend Jurgen, he quickly became bored with the curriculum, and started dabbling in stock trading to amuse himself. Using knowledge picked up at this father’s knee, he soon was trading stocks and convertible bonds profitably. Jurgen, a mathematics major, became interested as well, and they teamed up to create a trading algorithm based on convertible bond arbitrage – the risk-free trading of convertible bonds and their underlying stock.
The key to arbitrage is mispricing. Convertible bonds are, well, convertible, into common stock. There is a set ratio in the bond-to-stock conversion rate, which creates an implied price for the bond based on the stock price. If the bond was trading at a price different from its theoretical one, an arbitrage was possible. Basically, if the bond was underpriced, Seeta would buy it and simultaneously short the underlying stock. He would do the reverse for an overpriced bond. He waited until the convertible bond eventually moved to its correct theoretical price, then sold out, capturing the original amount of mispricing as profit. Jurgen worked out the quantitative formula for calculating the buy and sell points of each position, and the scheme was immediately successful.
Through family friends, Seeta was introduced to Mel Schwartz, who ran a fund of hedge funds. Mel advanced Seeta a million dollar in capital, and Seeta quickly grew the hedge fund investment to $100 million. Despite a falling out with Jurgen, he was able to start his eponymous hedge fund within three years. The last time we checked, his fund stood at $10 billion, and Seeta was planning on expanding it into an investment bank and prime brokerage. After a dozen years in Chicago, Seeta bought several properties around the country, including his condo in the fabulous Electra in San Diego.
Seeta’s father would have been proud.