Carl Icahn is returning all of his outside money to investors in his hedge funds, citing, in part, the possibility of another big drop in the stock market in the future.
In a regulatory filing Tuesday morning, the 75 year-old one-time corporate raider alluded to the 35 percent or so loss he incurred in his funds in 2008 and his inability so far to return to his high water mark.
He stressed that unlike many other hedge funds he did not erect “gates” to prevent investors from withdrawing their funds immediately after he incurred the loss. So, to meet redemptions, he said rather than liquidating positions, Icahn Enterprises L.P. put its own capital into the funds which provided cash for withdrawing investors.
As a result, fee paying assets now constitute only 25 percent, or $1.76 billion, of the $7 billion in total assets in the funds.
He also said he does not want to experience again what occurred in 2008.
“While we are not forecasting renewed market dislocation, this possibility cannot be dismissed,” Icahn said in a regulatory filing Tuesday morning. “Given the rapid market run-up over the past two 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. After careful consideration of all relevant factors, we have determined to return all fee paying capital to investors.”
Icahn himself owns nearly 93 percent of Icahn Enterprises L.P., so really it is Icahn who put the capital into the funds. Icahn Enterprises is structured as a master limited partnership. It is a holding company for eight business segments: Investment Management—which comprises the hedge funds--Automotive, Gaming, Railcar, Food Packaging, Metals, Real Estate and Home Fashion.
Icahn’s hedge funds were up about 15 percent gross in 2010 and 33.3 percent gross in 2009, according to his filing.
He is also up about 8.7 percent through February this year.
He said that despite the losses in 2008, since inception of his funds in late 2004 he has generated gross returns of 106.9 percent.
“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,” he said in the filing.
Icahn said payments will be made in cash in April based upon values at March 31 and will be funded through cash on hand and borrowings under existing lines and not through the sale of securities in the funds. He expects that 95 percent of March 31 capital balances will be returned by April 30, and that the balance will be returned within 30 days of completing the March 31 audit, which will not be later than June 30.
This is the latest in a string of setbacks suffered by Icahn of late. He has been rebuffed in a number of activist situations, most recently Dynergy. However, he recently said he will put up two of his people for election at the power company’s annual meeting.
On Monday evening, Dynegy announced it is extending the deadline for stockholders to provide notice of their intention to nominate directors for election at the 2011 Annual Meeting until March 11.