Lampert Uses $393 Million in AutoNation for Redemptions

Edward Lampert used $393 million of shares in AutoNation Inc. to meet client redemptions from his main hedge fund, whose investment in Sears Holdings Corp. has led to volatile returns.

Lampert’s ESL Partners LP on June 10 distributed 9.09 million AutoNation shares, or about 41 percent of its stake in the auto retailer, to investors who were redeeming their interests in the fund, according to a regulatory filing June 12. The fund also used part of its stake in Orchard Supply Hardware Stores Corp. to meet redemptions, filings show.

With Sears struggling, clients have been pulling money out of ESL Partners. Gross assets declined 24 percent to $5.1 billion at end of 2012 from a year earlier, and the number of investors in the fund dropped to 164 from 250, filings show. The moves by Lampert leave the remaining investors in the hedge fund even more concentrated in Sears, whose shares have slumped 19 percent since it reported a fiscal first-quarter loss of $279 million on May 23.

Steven Lipin, a spokesman for ESL who works for Brunswick Group LLC, didn’t return a telephone call seeking comment. Lampert’s firm, ESL Investments Inc., is based in Bay Harbor, Florida.

Lampert Stake

Lampert, who controls a majority stake in Sears through his personal holdings and those of his firm, took over as the Hoffman Estates, Illinois-based retailer’s chief executive officer in February after sales had declined for five consecutive years. Sears rose 4.8 percent to $47.21 yesterday.

ESL Partners issued the AutoNation shares this week “on a pro rata basis to limited partners that elected to redeem all or a portion of their limited partnership interests in June 2013,” the fund manager said in a Schedule 13D filed with the U.S. Securities and Exchange Commission.

By issuing some of its holdings instead of cash to clients who are withdrawing capital, ESL Partners can avoid selling investments on the open market and protect its remaining clients from being hit with capital-gains taxes. In February 2012, the fund used $351 million of shares in AutoNation and AutoZone Inc. for withdrawals.

Lampert, 50, formed ESL Investments Inc. in 1998 after working on the merger arbitrage desk of Goldman Sachs Group Inc. While the firm’s main hedge fund, ESL Partners, produced average annual returns of about 25 percent for the first 14 years, its subsequent performance has been volatile.

Volatile Returns

ESL Partners declined 27 percent in 2007 and 33 percent in 2008, and rebounded with gains of 55 percent in 2009 and 16 percent in 2010, two people familiar with the fund said last year. ESL Partners fell 4 percent during the first nine months of 2011, the most recent information available from these people, who requested anonymity because the information is confidential.

ESL in November distributed 5.9 million Sears shares to limited partners for 2012 redemptions, according to a regulatory filing. Lampert used $130 million of personal funds last year to acquire Sears shares held by ESL Investors LLC, a partnership that he formed for the Ziff family that follows the same strategy as ESL Partners.

At the end of last year, ESL Partners and several affiliates held U.S.-traded stocks with a market value of $3.84 billion, with Sears accounting for about 39 percent of the total.