Hedge fund activist makes news;
Manzke ‘Disgusted’ by Hedge Funds, Seeks Investor-Rights Group
By Katherine Burton
Nov. 21 (Bloomberg) -- Sandra Manzke, an investor in hedge funds for more than 20 years, wants her peers to band together to stop what she calls “outrageous” behavior in the $1.5 trillion industry.
Manzke, 60, who founded Rye, New York-based Tremont Capital Management Inc. in 1985, sent an e-mail this week to 500 wealthy individuals, money managers and fund of funds calling on them to fight high fees and practices such as limiting or suspending client withdrawals. Her e-mail was forwarded to so many people that she’s gotten more than 500 responses, she said. All of them have been positive.
“While we all recognize the difficulties of the current market environment, I am appalled and disgusted by the activities of a number of hedge-fund managers,” she wrote in the missive, which asks investors to form a group -- the Hedge Fund Investors United Forum -- to protect clients’ rights. She declined to name specific funds until she compiles a list of those that aren’t acting in the best interest of clients.
Hedge funds are facing their worst year on record, with losses averaging 16 percent through October, according to Chicago-based Hedge Fund Research Inc. Since the beginning of the year, more than 75 funds have liquidated, suspended client withdrawals or limited redemptions. Others have instituted side- pockets, which place some securities in a separate account so they can’t be sold.
‘It’s Outrageous’
“Every day, I get a notice from another manager who is side-pocketing investments or suspending redemptions,” Manzke, who now runs Darien, Connecticut-based MAXAM Capital Management LLC, said in an interview earlier this week. “It’s outrageous.” MAXAM advises wealthy individuals and institutions on hedge-fund investing. The New York Post reported her letter earlier today.
One hedge fund suspended redemptions a week before the withdrawal deadline, even though clients had given a six-month notice that they would pull their money, she said. Other funds charge fees of 1 percent of assets as they liquidate a fund over three to five years. They shouldn’t charge anything, Manzke said.
She also complained about managers who are still using borrowed money to make trades in the most volatile stock and bond markets in recent history.
“You are supposed to be the smartest and brightest in the industry. How can you still be trading on margin?” she asked.
Her hedge-fund investing started in 1985, when there were just 68 hedge-fund firms, she said, as opposed to about 3,100 now. In those early days, investors paid a fee of 15 percent or 20 percent on any gains the fund made. An additional management fee -- now traditionally 2 percent of assets -- was added later, she said.
‘Lucrative Wages’
“We have managers who have received millions of dollars in incentive fees, walking away and leaving investors with nothing,” Manzke wrote in her letter. “Further, management fees have crept up to outrageous levels and hedge-fund organizations are paying employees lucrative wages, while investors are bearing these costs, unjustified by mounting losses.”
Hedge funds are largely unregistered pools of capital that cater to wealthy individuals and institutions and allow managers to participate substantially in profits from investments. They try to make money in rising as well as falling markets.
To contact the reporter on this story: Katherine Burton in New York at kburton@bloomberg.net
bloomberg.com
Last Updated: November 21, 2008 12:28 EST |
