Fairholme Opens up Hedge Fund

[AchilliesValue]

http://online.wsj.com/article/SB10001424052702304441404579119372754344050.html?mod=WSJ_hp_LEFTWhatsNewsCollection

 

Unlike almost all other hedge funds, Mr. Berkowitz isn't charging a management fee, instead taking performance fees tied to how long investors agree to lock up their money. Fairholme collects 15% performance fees on money locked up for five years, 20% for three years and 25% for one year, subject to high-water marks.

 

Mr. Berkowitz said he is interested only in hedge-fund investors who share his long-term philosophy and can stomach volatility.

 

"It's just like going grocery shopping," he said. "If you know what your favorites are and you know it's a good product, you don't get upset if it goes on sale."

 

Long suspected but Journal broke it today as confirmed.  Apologies if this was posted on another thread.  Curious to see when these "different positions" will show up on the 13F or if it will be a separate filing.

[stahleyp]

Thanks for the post, Achillies.

 

I hope this doesn't take too much away from his mutual funds though.

 

I recall Ken Heebner from CGM funds starting a hedge fund a few years back. His Focus fund (CGMFX) was the top performing fund (or very close to it) over the past 10 years at that time. I think it averaged like 17%. After he started his hedge fund...the next 3-5 years it was in the bottom 99-100%. Ouch! Needless to say, I believe the hedge fund has been liquidated too. :P

 

http://quotes.morningstar.com/fund/cgmfx/f?t=cgmfx

[muscleman]

http://online.wsj.com/article/SB10001424052702304441404579119372754344050.html?mod=WSJ_hp_LEFTWhatsNewsCollection

 

Unlike almost all other hedge funds, Mr. Berkowitz isn't charging a management fee, instead taking performance fees tied to how long investors agree to lock up their money. Fairholme collects 15% performance fees on money locked up for five years, 20% for three years and 25% for one year, subject to high-water marks.

 

Mr. Berkowitz said he is interested only in hedge-fund investors who share his long-term philosophy and can stomach volatility.

 

"It's just like going grocery shopping," he said. "If you know what your favorites are and you know it's a good product, you don't get upset if it goes on sale."

 

Long suspected but Journal broke it today as confirmed.  Apologies if this was posted on another thread.  Curious to see when these "different positions" will show up on the 13F or if it will be a separate filing.

 

Nice!

I am surprised that this HF started on Jan 1st but there wasn't any SEC filings to show its positions. Is there a way to see what it currently holds? :P

[nkp007]

Bruce is going to be one of the best hedge fund managers. It's much more difficult to run a mutual fund, especially for those inclined to concentration.

[Kiltacular]

Unlike almost all other hedge funds, Mr. Berkowitz isn't charging a management fee, instead taking performance fees tied to how long investors agree to lock up their money. Fairholme collects 15% performance fees on money locked up for five years, 20% for three years and 25% for one year, subject to high-water marks.

 

This is an intelligent twist -- taking the 'no management / performance fee only' concept one step further.

 

 

[fareastwarriors]

http://online.wsj.com/article/SB10001424052702304441404579119372754344050.html?mod=WSJ_hp_LEFTWhatsNewsCollection

 

Unlike almost all other hedge funds, Mr. Berkowitz isn't charging a management fee, instead taking performance fees tied to how long investors agree to lock up their money. Fairholme collects 15% performance fees on money locked up for five years, 20% for three years and 25% for one year, subject to high-water marks.

 

Mr. Berkowitz said he is interested only in hedge-fund investors who share his long-term philosophy and can stomach volatility.

 

"It's just like going grocery shopping," he said. "If you know what your favorites are and you know it's a good product, you don't get upset if it goes on sale."

 

Long suspected but Journal broke it today as confirmed.  Apologies if this was posted on another thread.  Curious to see when these "different positions" will show up on the 13F or if it will be a separate filing.

 

Nice!

I am surprised that this HF started on Jan 1st but there wasn't any SEC filings to show its positions. Is there a way to see what it currently holds? :P

 

I thought the Fund has to hold assets of $250 M or greater before it has to disclose its holdings with the SEC?

[Mephistopheles]

"When an investment could work for either the mutual funds or the hedge fund, where he could reap larger fees, Mr. Berkowitz said it would be randomly assigned among the funds that could take the investment and that he wouldn't be involved in the selection process."

 

Seems a bit odd. Why not just buy as much as possible/as wanted for both?

[merkhet]

 

I thought the Fund has to hold assets of $250 B or greater before it has to disclose its holdings with the SEC?

 

 

I think the threshold is $150 million.

[stahleyp]

 

I thought the Fund has to hold assets of $250 B or greater before it has to disclose its holdings with the SEC?

 

 

I think the threshold is $150 million.

 

If you guys are referring to the 13F, it's $100 million.

 

http://www.sec.gov/answers/form13f.htm

[merkhet]

Huh. That's lower than I thought.

 

Edit: I think I was thinking about this (http://www.sec.gov/rules/final/2012/ia-3308-secg.htm)

[fareastwarriors]

 

I thought the Fund has to hold assets of $250 M or greater before it has to disclose its holdings with the SEC?

 

 

I think the threshold is $150 million.

 

If you guys are referring to the 13F, it's $100 million.

 

http://www.sec.gov/answers/form13f.htm

 

 

Thanks

[CorpRaider]

Thanks for sharing.  What's the thought process here? That he can employ some leverage and perhaps more importantly, hedge to reduce some of his horrible down years? His ~12% per annum, since inception is good, but its about where Gayner is....and guys like Loeb and Pabrai have crushed this, no?  I guess his fees are a little lower.

[merkhet]

 

Thanks for sharing.  What's the thought process here? That he can employ some leverage and perhaps more importantly, hedge to reduce some of his horrible down years? His ~12% per annum, since inception is good, but its about where Gayner is....and guys like Loeb and Pabrai have crushed this, no?  I guess his fees are a little lower.

 

 

I think he wants to hold five positions versus twenty.

[CorpRaider]

He's going to have 100% in AIG.  hah.

[Liberty]

I know he wishes he could've bought more BAC in his fund (but was limited to 10%). Next time banks get real cheap, I'm sure the hedge fund will load up.

[fareastwarriors]

If the spending limit/debt limit impasse continues, he might get his chance to load up again.

[GrizzlyRock]

No 13F yet per the assets of ~$67 million as of the latest filing.  http://www.sec.gov/cgi-bin/browse-edgar?company=Fairholme+Partnership&owner=exclude&action=getcompany.  Not sure where the $140 came from

 

One item not yet mentioned is the possibility of aggressive actions wrt SHLD.  While we may or may not see the position in future 13Fs (derivatives not disclosed) BB could self-catalyze a SHLD short squeeze...

[nkp007]

Thanks for sharing.  What's the thought process here? That he can employ some leverage and perhaps more importantly, hedge to reduce some of his horrible down years? His ~12% per annum, since inception is good, but its about where Gayner is....and guys like Loeb and Pabrai have crushed this, no?  I guess his fees are a little lower.

 

I never understood hedging. Instead of hedging, just buy less of whatever it is you're buying. Why complicate things.

[Guest wellmont]

i don't think he wll file a separate 13f. I believe all the assets under the umbrella of FCM will be filed in 1 13f.

[Kraven]

Thanks for sharing.  What's the thought process here? That he can employ some leverage and perhaps more importantly, hedge to reduce some of his horrible down years? His ~12% per annum, since inception is good, but its about where Gayner is....and guys like Loeb and Pabrai have crushed this, no?  I guess his fees are a little lower.

 

Any number of reasons.  To state the obvious, the 2 major ones are (1) it's more lucrative and (2) avoid the prohibitions placed on mutual funds.  He may not have a specific thing in mind right now (although he might), but just want to put things in place for the next opportunity that he would have been unable to do as a mutual fund manager.  So in a non-exclusive list this would include leverage, shorting, hedging, position sizes, secrecy, etc.    It is also easier to manage funds that are locked up for a period of time instead of having to provide liquidity to holders at all times.  Will be interesting to see what Bruce does with this new toy.  Frankly, I'm surprised it's taken him so long to do it.

 

[Guest wellmont]

will be interesting. I think he tried this before and shut down his partnerships when fairx had a rough patch. he is on record as saying he really doesn't short. it's not his game. something to monitor.

[GrizzlyRock]

i don't think he wll file a separate 13f. I believe all the assets under the umbrella of FCM will be filed in 1 13f.

 

Hhmm... Is this speculation or are you confident in this?  If so can you describe as such? 

 

I'm not a securities attorney so this is a real question

[Guest wellmont]

i don't think he wll file a separate 13f. I believe all the assets under the umbrella of FCM will be filed in 1 13f.

 

Hhmm... Is this speculation or are you confident in this?  If so can you describe as such? 

 

I'm not a securities attorney so this is a real question

 

look at wellington management. does bay pond partners (a hedge fund they own) file a 13f? here is another example. how many 13f does John Paulson file? How many funds does he have?

[GrizzlyRock]

yep - that seems to make sense.  Thanks...

 

Also, we won't be able to compare the mutual fund reports with the 13F statements as the mutual fund YE is May while the 13F filings are June.  Sneaky

[CorpRaider]

Thanks for the response.  Yeah sorry I could have been clearer; I figured some of the pros from his perspective were greater compensation and more predictable capital via the lock-ups (but not "permanent" to which it seems the big hedgies are moving these days).  I was more hoping to spark discussion from the perspective of a potential investor (and perhaps more interestingly, current mutual fund holders).  The response to the question of "why should I pay you 15% rather than 1%" will be interesting.  Concentration is one answer but, of course, he's already too concentrated for most people (not many of those on this board).  haha. 

 

Since he talked a lot about permanency of capital, I was interested to see if he would follow more of the GLRE, TPRE, (maybe a little like MKL, BRK, FFH) or even what he projects onto ESL via SHLD.  Another passthrough entity with higher fees and lock-ups?  Color me underwhelmed.