Looking back at Millennium’s big redemptions and investor demand for junky subprime investments

December 01, 2010   Lawrence Delevingne

In this week’s look back at the archives, AR revisits new fees from Elliott; Millennium’s redemptions; the launch of now-defunct Venn Capital; and a Bear Stearns mortgage fund (guess which one) reopening to some unlucky investors.

One Year Ago
»» Paul Singer’s Elliott Management instituted a performance fee for the first time. Beginning in January 2010, investors in Elliott began paying the traditional 2% and 20% fee structure that most hedge funds charge. This was a significant departure for Elliot, which had previously charged investors a 2% management fee and all of the firm's operating expenses, along with a 1.75% fee at the time of both their entry and exit into a fund.

The new fees didn’t hold back investors. The firm increased assets to $16.9 billion as of July 1 from $14.1 billion a year earlier, according to the AR Billion Dollar Club. As part of a further institutionalization of the firm, Paul Singer recently extended equity to three executives and promoted one to serve as co-chief investment officer.

»» Israel "Izzy" Englander's Millennium Management lost about 30% of its investor capital after loosening its redemption terms to make it easier for investors to withdraw capital, a move announced in August 2009. Millennium received $3 billion in redemptions by mid December. The firm’s assets declined to $7.4 billion by January 1, 2009 from $10.76 billion a year earlier.

Millennium survived as strong returns kept investors in the fold. This year, Millennium International was up 9.77% through October, and the firm managed $8.1 billion as of November 1.

Five Years Ago
»» Three Duquesne Capital Management alums—Kim Walin, Sender Cohen and Gene Lange— laid out the specifics of their soon-to-launched hedge fund Venn Capital Management.

They said the global long/short equity fund would use bottom-up research to target companies in North America, Europe, Japan and developed Asia with market capitalizations of $2 billion to $3 billion and focus on the consumer, technology, telecommunications and industrial sectors, with the firm taking the position that U.S. consumers can serve as leading indicators of global trends.

Eighteen months later, Venn shut down after producing lackluster returns with less than $100 million under management. Venn’s business plan called for the partners to hold equal ownership and run the firm by committee—a traditionally difficult formula for hedge-fund startups. Venn lost about 1% between January and July 2006, its first seven months in business. Its returns were said to have not exceeded the single digits.

»» The now-infamous Bear Stearns High-Grade Structured Credit Strategies fund reopened to new investors. Fund managers Ralph Cioffi and Matthew Tannin planned to take advantage of opportunities in structured credit markets "both in the higher-rated tranches as well as in the below investment grade classes," according to a letter.

The fund, then managing $1.4 billion, planned to raise at least an additional $250 million through the first quarter. Ninety percent of the fund's portfolio consisted of structured finance securities rated at least AAA and AA- and employed 10 to 1 leverage. The fund was up 8.28% through October 2005 and had not suffered one losing month in 25.

The fund, of course, was one of two Bear Stearns subprime mortgage-focused hedge funds to blow up, harbingers of the investment bank’s demise and of the 2008 financial crisis. Tannin and Cioffi stood trial for misrepresenting the health of the funds to investors but were acquitted in November 2009.

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