March 8 (Bloomberg) -- Billionaire Carl Icahn will return all the money managed for outside investors in his hedge funds, ending a six-year experiment in which he sought to use their cash to gain influence over companies he targeted for change.
Icahn, who buys stakes in companies he considers to be underperforming and then pushes for change, cited concerns about the economy and unrest in the Middle East, according to a client letter filed today with the U.S. Securities and Exchange Commission. Investors had already withdrawn much of their capital from Icahn’s hedge funds, leaving just $1.76 billion of fee-paying assets in the $7 billion funds.
“While we are not forecasting renewed market dislocation, this possibility cannot be dismissed,” Icahn said in the letter. “Given the rapid market run-up over the past 2 years and our ongoing concerns about the economic outlook, and recent political tensions in the Middle East, I do not wish to be responsible to limited partners through another possible market crisis.”
Icahn joins hedge fund managers Stanley Druckenmiller and Chris Shumway in returning outside capital and focusing on managing his own money. The Standard & Poor’s 500 Index has declined 1.6 percent from a two-year high on Feb. 18, as unrest in the Middle East pushed oil prices higher and fueled concerns the economic recovery may slow.
Icahn, 75, who has made activist investments at companies such as Mentor Graphics Corp. and Lions Gate Entertainment Corp., said he doesn’t plan to sell any securities, using cash on hand and existing lines of credits to finance the return of capital.
His funds produced annual returns of 11 percent before expenses from inception in November 2004 through the end of last year, according to a separate filing today with the SEC. The S&P 500 returned 3.9 percent in the period. Icahn’s funds lost 36 percent in 2008, the worst year on record for hedge funds.
“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,” Icahn said in the letter.
Druckenmiller, a former trader for George Soros who rose to fame in 1992 with a $10 billion bet that the Bank of England would be forced to devalue the pound, said last year he’s returning outside money in his Duquesne Capital Management LLC. He’d been worn down by the stress of trying to maintain one of the best trading records in the industry while managing an “enormous amount of capital,” Druckenmiller, 57, told investors in August.
Chris Shumway, an alumnus of Julian Robertson’s Tiger Management LLC, said last month he’ll return client capital in his $8 billion Shumway Capital Partners LLC by March 31. Shumway, 45, who started the Greenwich, Connecticut, firm with $70 million in 2002 and has produced average annual returns of 17 percent before fees, will continue to manage money for himself and his employees.
Icahn said one reason for the withdrawals his funds have seen in the past years was that he didn’t block redemptions during the 2008 crisis, when most investors sought liquidity.
The funds earned gross returns of about 8.7 percent during the first two months of this year, according to the investor letter. Icahn didn’t return a telephone message seeking comment.
Starting in April, outside investors in the funds will receive cash based on the value of investments as of March 31, according to the letter.
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