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Trian Fund Management Aims for $2 Billion Fund

Fresh from taking a 7.3 percent stake in Ingersoll-Rand, the industrial conglomerate, Trian Fund Management is aiming to raise $2 billion for a private equity-style fund.

Trian Fund Management — which recently took a 7.3 percent stake in Ingersoll-Rand — is trying to raise as much as $2 billion for a new fund.

The new fund, Trian Partners Strategic Investment Fund II, is the New York City firm’s second private equity-style drawdown fund, according to Trian’s first quarter report sent to investors. The company hopes to raise the money over the next 18 months.

The Strategic Investment Funds come with a very long lock-up — six years. They invest roughly in the same core long positions as the firm’s equity hedge funds. They do not invest in noncore positions, do not use leverage, do not take short positions and do not retain cash.

“We believe these funds provide our hedge fund investors with two meaningful benefits,” the company states in its letter. “First, it allows us to take larger stakes in our core positions while affording us greater flexibility and time to execute our value creation plans. Second, the stability offered by the longer locked capital in these funds allows us to offer added flexibility to our hedge fund investors in the form of greater liquidity.”

Trian was founded in November 2005 by Nelson Peltz, Peter May and Ed Garden. Peltz and May are long-time activist investors who first made a name for themselves in the 1980s when they built Triangle Industries into a Fortune 100 company, before selling it to Pechiney in 1988.

They have traditionally emphasized investing in a small number of major consumer brands. They also frequently try to influence management by securing seats on the board of directors of the companies in which they invest.

For example, Peltz is currently nonexecutive chairman of the board of Wendy’s and a director of the H.J. Heinz Company and Legg Mason. May is a director of Wendy’s. Garden has been a director of Wendy’s since December 2004 and had served as vice chairman from December 2004 through June 2007 and executive vice president from August 2003 until December 2004. He is also currently a director of Family Dollar Stores.

Trian managed $3.7 billion at the end of the first quarter, mostly in three hedge funds. Trian Partners, Ltd., an offshore fund, was up 1.3 percent in the first quarter, 3.9 percent last year and the mid-teens the two prior years. Trian Partners, L.P., the onshore fund, was up 1.2 percent in the first quarter, 5.6 percent last year and mid- to upper teens the two prior years.

Trian Partners (ERISA), Ltd., which was launched at the beginning of 2011 was up 5.4 percent in the first quarter and lost 0.9 percent last year. “Over the long term, our objective is to outperform regardless of the market environment, down less in a bad market and up more in a good market,” Trian tells clients in the letter. “However, periodically, we will have months or even quarters where we underperform the market.”

The funds had eight core positions at the end of the first quarter — Family Dollar, State Street, Legg Mason, Domino’s, Tiffany, Kraft, Heinz and Wendy’s.

Last week Trian reported a 7.1 percent stake in Ingersoll-Rand, an industrial conglomerate. It is best known for its Schlage security systems, Thermo King transport temperature control systems, Trane heating and air conditioning systems, and its Club Car electric vehicles such as golf cars and similar types of vehicles.

In a regulatory filing, Trian said it believes the shares are undervalued and represent an attractive investment. It added it plans to meet with the company’s board and senior management to discuss business and strategies to boost the stock’s price.

“During these discussions, the Trian Group intends to communicate its view that while the issuer has an attractive collection of businesses, total shareholder returns and profitability have lagged peers, and that there is an opportunity to enhance shareholder value by improving certain key financial, operational, compensation and corporate governance metrics and by considering various strategic alternatives, including a restructuring of its key business segments,” it added. Trian also said it wants to work with the company on ways it can boost operating margins to levels comparable to those achieved in peer businesses, considering the use of prudent amounts of leverage to increase the size of the company’s stock repurchase program, taking additional steps to better align management compensation with performance and improving the company’s corporate governance profile, including the addition of several new independent directors to the board of directors.

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