The elusive hedge fund overlord Stevie Cohen is oepning his firm’s flagship fund to new investors with a change in structure that will allow investors to pull money out every quarter with no lock-ups. The new fund rules are set to take effect June 1, according to our friend Bess Levin over at DealBreaker.
The changes to the fund mark a dramatic departure for investors in Cohen’s SAC Capital. In the past, investors were required to agree to a three-year lock up, meaning they could not withdraw any funds for three years. Under the new rules there will be no minimum investment period. Instead, investors will be permitted to withdraw up to 25% of their funds in any quarter. This would allow a potential investor to withdraw any funds within 1 year of the initial investment.
The fund will also do away with the traditional “gates” that have irked many hedge fund investors during the financial crisis. Under the traditional gating rules, hedge fund managers can halt withdrawals if overall redemption requests become so high that the manager feels he would need to sell assets at distressed prices or the size of redemptions threatens the investment strategy and returns. Cohen’s fund will now have no “gates” at the fund level, which means that there will be no barrier to redemptions beyond the 25% per quarter limit.
The fund will still charge the astronomical fees that have made Cohen an extremely wealthy man. Investors will have to pay a 3 per cent fee on assets and 50 per cent of the returns. DealBreaker reports, however, that the fund may also offer a lower fee option, closer to the industry strandard of 2-and-20, that will include a lock-up period. In other words, investors would have the choice of higher liquidity with higher fees, or lower liquidity and lower fees. The thought is that this lock-up and lower fee structure might be appealing to some institutional investors.
Cohen is also breaking with past practices by actually meeting with potential investors. He has flown to London and Geneva, and recently stopped by an event hosted by Goldman Sachs. In the past, the intensely private fund manager–who actually tries to buy up each and every picture of himself–has refused to meet with investors. (The lack of publicly available photos of Cohen is why we illustrated this item with a lego mock-up of the shark in a tank art piece he famously bought for millions.)
Levin also says that Cohen may change the way his portfolio managers are compensated, passing on more of the risk to investors. Under the current structure, portfolio managers are paid for the performance of their individual portfolios but the fund receives its incentive fees from investors only for the overall performance. This means that if the overall performance is low, Cohen himself must pay the out-performing portfolio managers out of his own account. The new structure could involve a “pass-through” to investors, which would mean that investors would pay a fee for the performance of individual managers rather than for the overall performance.
(On a sidenote, we’re continually impressed by Levin’s hedge fund sources. That girl talks to all the right people. If you’ve got a good hedge fund story, email me at [email protected])