Icahn Puts Money Into Hedge Funds as Outside Investors Leave

Date: Friday, November 7, 2008
Author: Miles Weiss, Bloomberg.com

(Bloomberg) -- Carl Icahn is putting more money into his $6.6 billion of hedge funds as losses mount and outside clients abandon the activist investor.

Investors plan to withdraw about 15 percent of the fund's total assets at year-end, according to regulatory filing yesterday by Icahn's New York-based holding company. Icahn and the company, publicly traded Icahn Enterprises LP, have injected $500 million into the funds since June 30.

Icahn, 72, is one of several activist investors, including Ralph Whitworth, a former adviser to T. Boone Pickens, and Roy Disney, the former vice chairman of Walt Disney Co., who have been hit with redemptions this year. All had sought outside capital to bolster efforts to shake up their targets, only to get hit with steep losses on concentrated investments in companies such as Home Depot Inc., Yahoo! Inc. and Motorola Inc.

``Holding an activist position in the face of a very violent decline in the market has become an expensive proposition,'' said Randy Lampert, a managing director at the New York-based investment bank Morgan Joseph & Co. who helps corporate clients fend off attacks by hedge funds. ``They are prodding companies to put themselves up for sale, but the number of buyers who have cash resources readily available is much lower now.''

All of the redemptions from the $6.6 billion hedge fund group will be by outside clients, Keith Meister, vice chairman of Icahn Enterprises GP Inc., said in a conference call today. The clients had $4.3 billion in the funds on Sept. 30. Another $2.3 billion belonged to Icahn and the publicly traded holding company, in which Icahn owns a 91 percent stake.

Cash on Hand

Icahn's investment-management business had about $2.9 billion in cash, according to the SEC filing, a stockpile that would allow the hedge funds to meet redemptions and also take advantage of new opportunities.

The cash holdings may have also helped Icahn best the Standard & Poor's 500 Index. His funds declined almost 17 percent through the first nine months of the year, according to the filing, while the U.S. benchmark fell 21 percent.

``We, like others, have not been immune from the dislocations in global financial markets,'' Meister said. ``Like many others, we will not be immune from redemptions at year- end.''

Icahn changed the way he bills clients at the beginning of the year. Icahn, who doesn't pay any fees on his investments in the funds, eliminated the annual flat levy of 2.5 percent on outside assets under management, replacing it with a sliding scale tied to fund profits. There haven't been any of those this year, and as a result, the management company has received no fees.

The funds have ``significant internal capital from Carl Icahn and Icahn Enterprises,'' Meister said today. Their most recent contributions of capital ``illustrate our belief that the current dislocations in the market'' will ``present an opportunity for attractive returns over the long term.''

To contact the reporters on this story: Miles Weiss in Washington at mweiss@bloomberg.net;