Carl Icahn Forced to Deal with Unhappy Investors of his Own
Carl Icahn, the legendary activist investor who has been a thorn in the sides of many CEOs, has been forced to pour more of his own money into Icahn Enterprises GP Inc. to deal with a flood of redemptions, according to a recent article on Bloomberg.com.
According to the article, Icahn and his holding company, Icahn Enterprises LP, have injected half a billion dollars into the hedge fund group since the beginning of the summer.
The reason? An acceleration of withdrawal requests as of late. Bloomberg reports that outside investors plan on withdrawing an estimated 15% of the fund's assets by the end of the year. This would represent nearly a billion dollars in total fund outflows, as Icahn Enterprises GP Inc. currently has about $6.6 billion under management. Of this $6.6 billion, $4.3 billion belongs to outside investors. Icahn and his holding company own the remainder of the funds under management. Icahn has a 91% stake in Icahn Enterprises LP.
Icahn Enterprises GP Inc. is suffering the same fate as many other hedge funds. They have had a dismal year so far (Bloomberg reports that they were down 17% through the end of September - October was a horrific month for many hedge funds though, so you can bet that the loss is much larger after October), and many investors have decided to pull funds from the hedge fund industry en masse. Pension funds and "fund of funds" that are facing their own redemption demands have been particularly aggressive as of late when it comes to requesting their money back.
Icahn is an "activist" investor who takes large positions in companies that he feels are undervalued. He will take these large positions and then attempt to "shake things up" by requesting changes in management and attempting to secure seats on the company's Board of Directors. The fact that he holds very concentrated (and large) long-term positions in companies makes him particularly vulnerable to redemption requests, which is the reason that he is injecting his own capital into the funds. He doesn't want to have to sell shares in companies he is heavily invested in to meet these redemption requests.
Many activist investors have been stung this year. Yahoo! and Motorola, for instance, have drawn a high amount of interest from activist investors, and they have both had terrible years.
In the end, Icahn Enterprises GP Inc. hasn't been able to escape the same fate that has fallen on many high-profile hedge funds - heavy losses in the global stock markets have resulted in terrible years and a flight of capital from the funds. In the end, significantly fewer hedge funds will be left standing when this vicious cycle finally finishes.
Filed under: Hedge Fund News | Trader Profiles | The Economic Meltdown