Icahn to return his clients' money

BOSTON Tue Mar 8, 2011 5:32pm EST

Investor Carl Icahn speaks at the Wall Street Journal Deals & Deal Makers conference, held at the New York Stock Exchange, June 27, 2007. REUTERS/Chip East

Investor Carl Icahn speaks at the Wall Street Journal Deals & Deal Makers conference, held at the New York Stock Exchange, June 27, 2007.

Credit: Reuters/Chip East

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BOSTON (Reuters) - Billionaire hedge-fund manager Carl Icahn is returning capital to outside investors, marking the end of an era as he joins other prominent stock pickers who no longer want the headaches of handling other people's money.

Icahn, known for a knack of picking winners and his ability to face off with the captains of industry, says he has grown weary of managing outside money as markets become more unpredictable and investors more demanding.

"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," the 75-year-old wrote in a six-paragraph-long letter sent to his clients. "I do not wish to be responsible to limited partners through another possible market crisis."

A copy of the letter, dated March 7, was released in a regulatory filing on Tuesday morning. Icahn did not return calls for comment.

Wealthy investors have roughly $1.75 billion in Icahn's $7 billion Icahn Capital hedge fund, which the activist investor launched in 2004 in part to let him flex his financial muscle in pushing for change in corporate boardrooms.

With some $5 billion of his own money left, Icahn should have plenty of firepower to keep battling resistant targets.

"I don't think Carl Icahn is ever going to go away," said Damien Park, a managing partner at Hedge Fund Solutions, which helps clients place money with activist investors. "Investing is in his blood, it is in his DNA and he's still got plenty of capital to continue rattling cages."


Most recently, Icahn has battled for control of power company Dynegy Inc and urged a shake-up of the board at biotechnology company Genzyme Corp. He is in the early stages of seeking a buyer for auto parts supplier Federal Mogul Corp, Reuters reported on Monday.

Over the years, Icahn's returns have been strong and 2011 started on a good note -- the fund has gained 8.7 percent in the first two months of the year, far more than the average fund's 2.08 percent return during the same period. Since 2004 Icahn's funds have returned 106.9 percent, he wrote.

The shares of companies pursued by Icahn do not always perform as well. About one-third of Icahn's targets are taken over within 18 months of his investment and outperformed the stock market. But the majority, which remained independent, suffered an average loss of 60 percent, according to a recent study by Texas A&M professor Vinod Venkiteshwaran and Oklahoma State professor Ramesh Rao.

In the $1.9 trillion hedge-fund industry, the news caught investors off guard, especially after Icahn gave no indication in recent interviews of wanting to cut back.

"I was surprised, certainly" said Charles Gradante, co-founder of industry consultants Hennessee Group. "He's an icon in the industry and we are still trying to figure out what kind of an effect this will have on the industry."

By taking this step, Icahn joins a number of other well-known hedge-fund managers, including George Soros' protege Stanley Druckenmiller and Julian Robertson's former employee Chris Shumway, who recently returned their investors' money.

The moves come just before hedge funds will face fresh regulation as part of the Dodd-Frank Act. Funds with over $150 million in client assets will be forced register with the Securities and Exchange Commission later this year.

One of Icahn's top lieutenants, Keith Meister, announced he was leaving the firm in December and would open his own shop with financial backing from Soros.

To some investors, Icahn's exit marks the end of an era of elder statesmen such as Soros, Robertson and Icahn managing vast hedge-fund assets and handing the baton over to a younger generation, including William Ackman and Dan Loeb.

During the financial crisis, when many managers restricted investors' exits, Icahn let his clients take money out, something he was clearly proud of, but which shrank the size of outside money in the fund.


And Icahn's letter included a warning of a possibly weaker market environment this year.

"While we are not forecasting renewed market dislocation, this possibility cannot be dismissed," Icahn wrote.

Icahn grew up in Queens, New York. He graduated with a degree in philosophy from Princeton University in New Jersey in 1957. He enrolled in medical school at New York University, but quit and went to work on Wall Street, where he opened his own investment firm in 1968.

One of the most notorious corporate raiders in the 1980s, Icahn was involved in the takeover battles for RJR Nabisco, Texaco and Viacom among many others.

Icahn's son, Brett, also a Princeton graduate, has been working with his father for the past decade. The portfolio Brett manages with David Schechter, has seen a 50 percent return in the last eight months, Icahn told Reuters last week.

"There really is no nepotism, if anything it's more difficult for him, but he's proven out really well," Icahn said in an interview last week.

In that interview, Icahn gave no indication he wanted to cut back.

"I enjoy doing it," he said. "It's sort of like a chess game. I find it fascinating ... What else would I do?"

(Reporting by Svea Herbst-Bayliss; editing by John Wallace, Gunna Dickson, Dave Zimmerman and Andre Grenon)