LTCM could reap fees from profits after bailout
Thursday December 24, 1:53 pm Eastern Time
LTCM could reap fees from profits after bailout
NEW YORK, Dec 24 (Reuters) - The partnership running troubled hedge fund Long-Term Capital Management could make millions of dollars in incentive fees this year, even after suffering such large losses that it had to be bailed out this autumn, sources said on Thursday.
The fund, which received $3.625 billion from a group of 14 banks in late September after losing staggering sums in global bond markets, has since gained about 11 percent or $400 million through the end of November, Wall Street sources familiar with the situation said.
Under an agreement, the partnership behind LTCM, whose ranks include former Salomon Brothers bond trading whiz John Meriwether and a Nobel laureate, is entitled to 15 percent of all profits made on new money, once the fund has matched the return of the average London Interbank Offered Rate, or Libor, these sources said.
A spokesman for the Greenwich, Conn.-based fund said any payments to the partnership first would have to be approved by the consortium of banks involved in the bail-out, which includes J.P. Morgan & Co. Inc. (NYSE:JPM - news) and Morgan Stanley Dean Witter & Co. (NYSE:MWD - news), and the oversight committee.
''All compensation, and especially partnership compensation, has to be approved by the full board of the consortium,'' he said. A spokesman for the consortium declined to comment.
The partnership could make as much as $50 million in fees, a source on Wall Street familiar with the situation said, although the fund must also cover its costs. LTCM would collect a 1 percent annual management fee from the consortium but a source said this might not be enough to meet expenses like restructuring costs.
LTCM, which faced bankruptcy just a few months ago, saw its fortunes turn around after a rebound in global debt markets. The hedge fund, which invests on behalf of wealthy clients, lost nearly $4 billion during the summer's financial turmoil, when investors sought safety by buying U.S. Treasuries and caused the yields compared to other bonds to widen more than many had expected. |
