Icahn to Return Outside Money in Hedge Fund

The New York Times
March 8, 2011

Carl C. Icahn is returning all outside money in his hedge fund, citing his reluctance to be responsible to investors through another possible crisis.

“While we are not forecasting renewed market dislocation, this possibility cannot be dismissed,” Mr. Icahn wrote in a letter to investors. “Given the rapid market run-up over the past two years and our ongoing concerns about 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.”

Mr. Icahn is the latest prominent manager to decide to close off his fund to outside investors after the financial crisis.

Stanley Druckenmiller, who ran Duquesne Capital Management, and Chris Shumway, who founded Shumway Capital Partners, are among those who have handed money back to investors in recent months.

In his letter, Mr. Icahn reflected on the experience of 2008, noting that while it might 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.”

Mr. Icahn said his firm’s decision not to impose gates during 2008 and 2009 meant many investors withdrew money from the funds. But rather than selling off positions to meet the liquidity demands, his firm pumped its own capital into the fund. As a result, outside money makes up just 25 percent, or $1.76 billion, of fund assets.

Icahn Capital, the fund started in 2004, has earned gross returns of 104 percent since its inception, Mr. Icahn said.

David Shukis, a managing director of hedge fund research and consulting at Cambridge Associates, said of Mr. Icahn:

“He clearly has enough money to do what he’s continued to do without the frustrations of outside investors. It’s unfortunate because the occurrence of really outstanding investors closing their funds and focusing on their own capital is reducing the opportunity set for our clients.”

Mr. Icahn said in his letter that he planned to return 95 percent of outside money in April.