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Hedge Funds

Leon Cooperman’s Omega hedge fund converts to family office

Leon Cooperman

Leon Cooperman, citing a line from the Kenny Rogers song "The Gambler," says he knows when to "fold 'em."

The hedge fund manager told investors that he plans to convert his Omega Advisors at year-end into a family office, managing his own money rather than that of other investors.

"This decision is a very personal one driven not by any health concerns, but solely by how I want to spend my remaining years," Mr. Cooperman, 75, said Monday in a letter to clients. "I don't want to spend the rest of my life chasing the S&P 500 and focused on generating returns on investor capital."

Mr. Cooperman once ran one of the biggest hedge funds. In the late 1990s, only George Soros and Julian Robertson oversaw more money. While other managers later surpassed him in assets, he stayed in the business longer, outlasting other well-known investors including Richard Perry and Eric Mindich, who shuttered their funds in the past two years.

He's cashing investors out when his fund is at an all-time high, according to the letter. The firm's main fund is up 7% this year and he's posted annualized returns of 12.4% since inception.

The firm, which oversees $3.8 billion, will return all outside capital at the end of the year. A little more than half the assets are his and other employee money.

Mr. Cooperman said the hardest part of his decision was having to let many of his employees go.

"I'm going to go from 35 people to 15 and it's painful," he told Bloomberg TV Monday, trying to hold back tears.

The son of a plumber, he bootstrapped his way from the South Bronx to become one of the deans of the hedge fund industry, founding Omega Advisors in 1991 after a 25-year career at Goldman Sachs Group (GS) Inc.

Mr. Cooperman faced one of the toughest patches of his long career in recent years after the U.S. Securities and Exchange Commission accused both him and his firm of insider trading in Atlas Pipeline Partners securities in 2010. Omega reached a settlement with U.S. regulators in May 2017, but the investigation spurred some clients to pull their money and the firm saw its assets slide from about $9.4 billion in 2015.

After the settlement, Mr. Cooperman lambasted U.S. regulators as "abusive," saying he would have won at trial but faced far higher legal costs.

As the industry struggles to gather assets after a nine-year bull market, Mr. Cooperman said hedge funds will come back into fashion during an inevitable downturn to come. But the standard 2% management fee and 20% performance charge won't hold.

"I would say 2-and-20 is part of the past, not part of the future," he said.

Omega's Credit Opportunities Fund, which is overseen by Sam Martini and Eric Schneider, will remain open under a new name, according to the letter. Money manager Rebecca Pacholder will start her own fund focused on high-yield and distressed debt. Mr. Cooperman says he plans on investing in both pools through his family office.

Mr. Cooperman has a net worth of about $2 billion, according to the Bloomberg Billionaires Index, and is a fixture in financial and philanthropic circles. He has long celebrated value investing, and in recent years was an outspoken critic of President Barack Obama and President Donald Trump's campaign rival, Hillary Clinton.

In his investor letter, Mr. Cooperman wrote about attending a Kenny Rogers concert earlier this year and how it reinforced his view that he didn't want to continue chasing returns.

Mr. Cooperman said Mr. Rogers didn't follow the advice of a line in his signature song — "You've got to know when to hold 'em, know when to fold 'em."

"He had great difficulty in getting around the stage and acknowledged that at almost 80, he shouldn't be performing any longer, but that he'd been divorced four times and needed the money! Well, I've been happily married to the same woman for 54 years, don't need the money and know when to fold 'em."