SAC's Cohen, Einhorn Raise Money as Most Hedge Funds Shrink
By Katherine Burton
Oct. 30 (Bloomberg) -- Steven Cohen, David Einhorn, Paul Singer and Alan Howard are doing what most hedge-fund managers can't these days -- raising money from investors.
Singer's Elliott Management Corp. added $3 billion in the third quarter and Howard's Brevan Howard Asset Management LLP garnered new cash as they posted investment gains in a year when the average fund has lost 20 percent, people with knowledge of matter said. Cohen's SAC Capital Advisors LLC and Einhorn's Greenlight Capital Inc. have allowed investors into funds that had been closed since 2005, with Einhorn seeking several hundred million dollars this month.
Most hedge funds are shrinking, with client redemptions and investment losses expected to cut industry assets by 32 percent to $1.3 trillion by year-end, according to an Oct. 24 report by Morgan Stanley. Managers raising money can prop up fees while taking advantage of depressed prices created by this year's selloff in stocks, bonds and loans.
``The opportunity has become huge if you have the cash to take advantage of it,'' said Brad Balter, managing partner of Balter Capital Management LLC in Boston, which farms out money to hedge funds.
U.S. stocks have plunged 42 percent this year as measured by the Standard & Poor's 500 Index. Convertible bonds have dropped about 37 percent according to an index compiled by Merrill Lynch & Co.
Executives at the hedge-fund firms declined to comment on their money-raising efforts.
Lehigh Looking
Lehigh University's $1.2 billion endowment is seeking to put money into reopened funds, seeing a chance to invest with top-performing managers who previously didn't want new clients, according to a person familiar with the school's plans.
Lehigh currently has about 20 percent of its assets in hedge funds, which are private, largely unregulated pools of capital whose managers can buy or sell any assets and participate substantially in profits from money invested.
Peter Gilbert, chief investment officer at the Bethlehem, Pennsylvania, university, didn't return a call seeking comment.
James Walsh, chief investment officer of Cornell University's $6 billion endowment, said the unprecedented redemptions in the industry have a silver lining for investors with cash.
``You're seeing good hedge funds that have been closed for years finally opening up again,'' he said at a conference in London last week. Cornell, in Ithaca, New York, has a quarter of its endowment invested in hedge funds.
Money-raising has been easiest for firms that have been profitable in 2008.
$3 Billion
New York-based Elliott, which oversees about $14.5 billion, is in the process of collecting an additional $1 billion, according to investors.
Singer, 64, who specializes in distressed assets, is taking money from current investors and those who are on the firm's waiting list. The fund was up 6 percent this year through September, and has returned more than 14 percent annually on average since Singer founded the firm in 1977.
London-based Brevan Howard, with $27 billion under management, has produced a 17 percent gain this year in its largest Brevan Howard Macro Ltd. fund, which chases macroeconomic trends by trading stock indexes, bonds, currencies and commodities.
The firm, founded in 2002 by Howard, 45, former head of proprietary interest-rate trading at Credit Suisse Group AG, is allowing new investors in to replace clients who are withdrawing money, according to people familiar with the firm.
More investors want to put money into the fund than are leaving, they said.
Track Records
Funds with strong long-term track records are also raising cash, even if they are having their worst years ever in 2008.
New clients are a welcome addition to these managers, since current investors have a high-water mark, meaning they don't have to pay managers fees on any investment gains -- usually 20 percent of the profit -- until all losses are recouped.
Einhorn, 39, raised cash even with his three stock funds down around 15 percent this year through September. New York- based Greenlight, which hasn't opened its funds since November 2005, has returned an average of 25 percent a year since 1996.
Cohen, 52, is opening its SAC Capital International Ltd., its oldest and best-performing fund, to new investors for the first time in three years. Clients will be able to add money starting in January.
That fund, which primarily trades stocks, has dropped 5.5 percent in 2008, Cohen's worst performance since he started the fund in 1996 and well below the 32 percent a year the Stamford, Connecticut-based has averaged since then.
