(updated with correction)
Stark Investments LP, in an effort to stabilize the company and stem redemptions, is offering investors reduced fees in exchange for locking up their money for at least a year.
Caught by the 2008 credit crisis with esoteric, illiquid investments in its flagship hedge fund portfolio, performance — and assets under management — plummeted. Stark's assets plunged nearly 71%, to $4 billion as of July 1 from a peak of $13.6 billion at Aug. 31, 2007.
Stark Investments, founded in 1988, is among the oldest surviving hedge fund managers. It gradually converted to an institutionally oriented shop catering to pension funds, endowments and foundations, as well as hedge funds of funds. About 50% of remaining assets are from institutional investors, said Michael A. Roth, one of Stark's two founding principals.
Investors in Stark's flagship strategy —the offshore Shepherd Investments International Ltd. and the onshore Stark Investments LP — that agree to leave their money in the fund until July 31, 2011, are being offered reductions on the firm's standard 2% management fee and 20% performance fee.
Management fees will range from 1% to 1.875% and performance fees will range from 10% to 18.5%, depending on the size of the investment, according to a client letter obtained by Pensions & Investments.
“We hope this proposal will demonstrate Stark's commitment to the stability of the funds and be seen as a token of our appreciation for the strong faith and loyalty that you have exhibited over the years,” the letter said.
Investors responsible for about 20% of the fund's assets committed to staying, according to the July 9 letter. The decision deadline was July 23. The final percentage of assets that clients agreed to lock up was not available by press time.
In addition to offering incentives, Starks' founding principals Brian J. Stark and Mr. Roth have been methodically stripping non-core investment strategies from the firm's main multistrategy offering that were added during the heady, pre-crisis years of 2006 and 2007 when the firm was awash with cash.
During the past 15 months, Stark principals have been refocusing the fund on its core competencies, namely convertible arbitrage, equity risk arbitrage, credit, distressed, global macro, asset-backed securities and fixed income, Mr. Roth said in an interview from the firm's St. Francis, Wis., headquarters.
To reduce the number of investment teams and cope with a much-reduced asset and client base, the firm cut its head count by 57% to about 200 employees scattered among offices in Wisconsin, London, Toronto and Chicago. At one time, Stark operated 12 offices around the world.
Stark also is re-establishing its culture “that promotes collaboration and a team-oriented approach to portfolio management, a streamlined decision-making process that enables speedy and opportunistic capital allocations, and an incentive model that rewards cooperation,” according to the Stark client letter.