Following Andrew Lahde' s remarkable missive, here's another which seems to be gaining traction and alot of coverage - being compared to Tom Cruise's character's manifesto in Jerry Maguire. Not a particularly great comparison but you can try: The New York Post, 1440 Wall Street or Hedge Fund Blogger - for a little commentary. Here's the text of the letter.
MAXAM Capital Management LLC
RE: AN IMPORTANT LETTER TO HEDGE FUND INVESTORS
Dear Sir/Madam:
I was one of the earliest investors in hedge funds. I made my first investment in 1985 when the industry was exclusive to the United States and there were only 68 funds in existence. As such, I have watched the industry grow from a small private investment club to its current state managing in excess of a trillion dollars with more than 10,000 funds. I was an early proponent of the fund of funds business which enabled smaller investors the ability to access the talent pool, and gain diversification with lower minimum investment. I once was proud of the industry, now I am very concerned.
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. The increased use of gating, side pocketing, suspension of redemptions, failure to post an NAV, fund liquidations that favor management are just a few of activities that are giving this industry a bad name. Worse, there are managers who are attempting to get their money out ahead of investors, attempts to eliminate high water marks, asking investors to increase fees to pay for fund expenses, receiving fees on liquidating funds, receiving fees on illiquid securities, and mispricing their books.
We have seen funds which claimed to have no leverage, in fact, facing margin calls that wipe out capital. And managers who have received millions of dollars in incentive fees, walking away and leaving investors with nothing. 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.
I was in favor of SEC registration and oversight and 2008 is certainly a poster child for the need for better regulation. Now, I feel that investors need to form an organization to protect against the egregious hedge fund manager. Hedge fund managers do not disclose their investors and we are each operating in a vacuum. We should be able to unite to change how this industry operates. I am proposing that we form the “Hedge Fund Investors United Forum” to propose reform in the industry that would protect our clients' and our own interests.
Carl Icahn has started his shareholders group to change the behavior of corporate America. I urge everyone to go to his blog and join, because corporate America has lost its way. Corporate management needs to get back to running companies to make money for shareholders, not for personal gain. We need to get hedge fund managers to work for their investors and not for their personal gain.
As a group we can influence the future of the industry. We can start to define neutrally beneficial terms, not punitive investor terms. If we want to survive, we have to restore confidence and reshape the industry. I am not saying everyone out there is a bad apple, but there are too many bad apples for my taste and it only takes a few to bring the industry to its knees.
If you are interested in joining with me to bring reform to this industry, please email me and together we can start the process.
With great concern,
Sandra L. Manzke
Chief Executive Officer
Hedge Fund News
FiNTAG
Hedge Fund Blogger
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