Boston: In a year when titans Bill Ackman and David Einhorn each lost more than 20 per cent for their investors, David Swensen’s bet on a little-known hedge fund kept making him money.

Nancy Zimmerman’s Bracebridge Capital has gone from $5.8 billion in assets four years ago to $10.3 billion today with a return of about 10 per cent a year since its inception. That makes it the largest hedge fund in the world run by a woman. Zimmerman, who survived a 1990s scandal involving Russia, her husband and Harvard University, is so successful at avoiding the limelight that Leda Braga’s $9.5 billion Systematica Investments Ltd is often cited as the top woman-led firm by assets.

Swensen, who runs Yale University’s $25.6 billion endowment, and Thomas Steyer of Farallon Capital Management originally staked Zimmerman in 1994 with about $50 million. Yale’s investment now is valued at around $1 billion, making it one of the endowment’s most profitable.

“She’s employing this leveraged strategy to exploit pricing differentials in the fixed-income world with an obsessive focus on risk,” Swensen said in an interview.

Bracebridge has had only eight losing months since 2009. The fund’s 2 per cent gain last year eclipsed the industry, which was up 0.6 per cent on average, according to data compiled by Bloomberg. Hedge funds had trouble navigating unexpected market events, including a devaluation in the Chinese currency in August, a rally in European government bonds and a steep drop in oil prices.

Ackman’s Pershing Square Holdings, the publicly traded part of his activist hedge fund, lost 20.5 per cent last year, hurt in part by a drop in the shares of drugmaker Valeant Pharmaceuticals International Inc Einhorn’s Greenlight Capital suffered the second losing year in its history, with its main fund falling 20.4 per cent due to wrong-way stock picks.

“There were a lot of gopher holes that you could step in,” said Gabriel Sunshine, Zimmerman’s partner at Bracebridge. “We managed to miss most of them.’’

Heavyweight Network

Zimmerman, 52, has a powerful network of allies, including former New Jersey Governor Jon Corzine, who was Zimmerman’s boss at Goldman Sachs Group Inc, where he was co-chief executive officer. Among her top investors is Princeton University’s endowment, run by Swensen protégé Andrew Golden.

Corzine said he remembers Zimmerman as a brilliant trader who attracted the brightest of co-workers.

Bracebridge is a relative-value fixed-income fund that exploits small pricing differences in the credit market and hedges against those bets.

Zimmerman offered a typical scenario: Bracebridge buys a corporate bond it considers cheap while at the same time purchasing a credit-default swap on the bond in order to make money even if the company goes bankrupt. Leverage boosts returns.

The strategy hasn’t always come up roses. Long-Term Capital Management, a highly leveraged hedge fund run by John Meriwether, pursued a similar investment approach. In 1998, after Russia stiffed lenders including LTCM, the fund failed and was bailed out by its Wall Street competitors. The demise of LTCM hit other hedge funds, including Bracebridge, which held some of the same assets. Bracebridge lost about 26 per cent, making it the worst year in its history.

Russian Economy

A few years prior, in 1992, Zimmerman’s husband, Harvard economist Andrei Shleifer, signed on to help privatise the Russian economy under the auspices of the university and the US government. Zimmerman bought up beleaguered Russian debt, betting its value would rise, court filings show.

Complaints arose about Shleifer and his business partner allegedly using their position and influence for personal gain, according to court documents. Harvard, Shleifer and the US Justice Department eventually reached an agreement in which the university paid $26.5 million to settle a civil lawsuit and Shleifer paid $2 million. Zimmerman’s company paid $1.5 million to resolve civil claims that it improperly used resources and staff from the government-funded project.

Neither Zimmerman nor her husband admitted wrongdoing in connection with their Russia dealings.

Zimmerman was born and raised just north of Chicago in Skokie, Illinois, the youngest of two girls. While attending Brown University in Providence, Rhode Island, she worked summers at O’Connor & Associates, a Chicago derivatives-trading firm. She stayed with them for three years after graduation, on the raucous floor of the Chicago Mercantile Exchange. Her first job was buying Japanese yen options, she said.

She stands a few inches over five feet with brown hair that she sometimes tucks behind her ears. Though her roots are in the Midwest, she’s a Bostonian now, relishing Red Sox games and working behind the scenes for a number of the city’s philanthropies.

Zimmerman downplays the challenges faced by women in a male-dominated industry: “The bonds don’t know who owns them.”

Cashed Out

Initially, Zimmerman and Sunshine partnered with Steyer’s Farallon, which bought a minority stake in the new management company they called Farallon Fixed Income Associates. They had one employee.

Steyer cashed out after the Russia episode, but Swensen stuck with Bracebridge. “We took a hard look and found no reason to modify our relationship,” said Swensen, who describes himself as a close friend of Zimmerman’s.

After cutting ties with Farallon and changing its name, Bracebridge ended 1999 with $600 million under management.

Bracebridge’s biggest turnaround came in 2009. After losing 18 per cent in the global financial crisis, it posted a 35 per cent gain. That surpassed the 25.8 per cent return on the HFRI Relative Value index.

Zimmerman owns most of Bracebridge, according to a 2015 filing with the US Securities and Exchange Commission. As for the value, the document only says she and Sunshine control 12.6 per cent of the assets. Of the $10.3 billion, that’s about $1.3 billion. It’s split between her and Sunshine and their partners, Zimmerman said, declining to be more specific.

Zimmerman credited her more than 100 employees for the firm’s success. “I’m very proud of the people who come to work here,” she said. “They are focused, intellectually honest and they love to collaborate.”