Scout Weighs Dropping Final Fees After Clients ComplainKelly Bit
Scout Capital Management LLC, the $6.7 billion hedge-fund firm that is shutting on April 1, said it’s weighing whether to charge clients its management fee for the final quarter after investors complained.
The firm, run by James Crichton and Adam Weiss, told clients Jan. 29 that it was closing because Weiss wanted to step back from managing outside capital. Scout said more than 80 percent of the portfolio was in cash, and the rest in easy to trade securities. Some clients have since objected to paying a management fee for the current quarter, given the high cash level in January and the fact that some investment staff had already left.
“While Scout’s documents provide for a full management fee during this period, Scout is telling investors they are sensitive to the issue and are considering ways to address it,” said Josh Pekarsky, a spokesman for New York-based Scout at Longview Communications Inc., who confirmed that some investors were upset about being charged the fee.
The contention at Scout shows how some clients are pushing back against hedge funds, which have traditionally had the upper hand when it comes to fees and contract terms. Gerald Kerner, the lawyer for Stan Druckenmiller’s family office, presented a paper on unfair hedge-fund practices at two conferences last month in which he urged clients to prompt managers to make changes in their contracts, such as removing clauses that allow them to unilaterally suspend redemptions.
Crichton, 43, plans to start a new firm that manages money for clients and may team up with Scout employees. Weiss, 46, will oversee his own wealth and write a book about investing, the two managers said in January.
Their fund returned 21 percent last year, beating the 11 percent average gain recorded by equity hedge funds, according to data compiled by Bloomberg.
Scout, founded in 1999, will return 95 percent of the firm’s capital by April 1, with the remainder following the completion of the funds’ respective audits. Scout’s main fund charges a 1.5 percent management fee annually.
“For the time being, they are focused on efficiently and prudently moving the portfolio to an all-cash position in a manner that they believe best protects investor capital,” Pekarsky said.