Monday, October 22, 2012

Icahn to Return Hedge Fund Investors’ Money

Carl Icahn, billionaire hedge fund manager, has headed for the exits, along with other managers who have decided that the headaches of risking other people’s money are not worth it.

According to Reuters, the 75-year-old magnate has taken the step of returning outsiders’ money that was invested in his Icahn Capital Hedge Fund. That amounts to approximately $1.75 billion out of $7 billion.

Icahn’s investors received a six-paragraph-long letter, a copy of which accompanied the regulatory filing, that said in part: "While it may sound 'corny' to some, the losses that were incurred by investors in our funds in 2008 bothered me a great deal more, in many respects, than my own losses. I do not wish to be responsible to limited partners through another possible market crisis."

Icahn was proud of the fact that during the financial crisis, when many managers restricted withdrawals, he allowed his investors to withdraw their money.

The letter also warned of potential rough seas ahead in the markets: "While we are not forecasting renewed market dislocation, this possibility cannot be dismissed."

While Icahn's choices have not always done well—approximately two-thirds of the companies he's gone after have dropped about 60% in value—overall returns have been good and so far in 2011 the fund gained 8.7%. Average funds have only risen by 2.08% during the same two-month period. The news was a shock to the market, because Icahn had given no indication in interviews that he was even considering such an action.

Other hedge fund managers who have taken similar actions are Stanley Druckenmiller, a protégé of George Soros, and Chris Shumway, a former employee of Julian Robertson. Both have returned money to investors recently.

Perhaps Dodd-Frank is to blame. Funds with more than $150 million in client assets will have to register with the SEC later this year.

The firm also saw the announcement in December of the departure of Keith Meister, who left to start his own firm with backing from Soros.

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