The unthinkable is happening. Faced with fleeing investors and huge losses, hedge funds are now offering to, gasp, cut their fees.
Here’s the latest offer from Fir Tree Partners, for example. Note the firm intelligently spinning recent horrible performance as a once-in-a-lifetime opportunity.
In October, a number of meaningful positive events were announced that are highly specific to the Funds’ investments. These announcements involve acquisitions of financial institutions that the Funds have large bond/preferred stock investments
in. Our fundamental analysis and downside protections–rendered meaningless in September–are now being validated. These events have and should continue to
deliver strong appreciation for these investments and create large value for the
Given the unique opportunity set, we are accepting new capital from
existing partners and believe you should consider adding to your investment. For
current partners, new capital that comes in will receive the benefit of a 50%
reduction in the general partner allocation until all existing capital is above its high
Catch that? “Given the unique opportunity set,” Fir Tree is accepting new capital. Another way to put it, presumably, would be “Given the major shrinkage in the size of the fund on account of our awful performance and subsequent withdrawals…”
And what does that bit about “reduction in the general partner allocation” mean? It means that the fund is cutting its performance fee in half, from 20% to 10%.
Fir Tree Partners
October 2008 Performance Estimate
+6.17% net MTD
-19.45% net YTD
Capital Opportunity Fund
+8.08%% net MTD
-14.98% net YTD
Mortgage Opportunity Fund
-0.66% net MTD
-1.72% net YTD
See Also: The Hedge Fund Business, Explained
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