Mutual fund manager Bruce Berkowitz has opened his hedge fund to outside investors with the goal of reaching $1 billion in assets in a year, reports Juliet Chung for The Wall Street Journal.
Berkowitz, who is the president of Fairholme Capital Management LLC, started the fund at the beginning of the year and has raised $140 million so far, but that money mostly came from people at Fairholme. Berkowitz has hinted about the fund in the past, and has been very open about the face that mutual fund rules don’t necessarily fit his investment style.
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“Mutual funds are great vehicles,” Berkowitz said in an interview with Bloomberg. “They’re transparent. They give investors daily liquidity–highly regulated. But they’re also constraints that go along with that, in terms of how much you can own of one type of company, how much you can have in concentrated positions. And it’s fine. But it’s proven not to be the perfect vehicle for non-public companies or illiquid investments.”
Berkowitz asking for minimum $5 million
Berkowitz has also complained in the past about investors who leave when things look tough, forcing him to sell stocks into a bear market. Opening a hedge fund lets him solve both problems by forcing investors to lock up their money for a fixed amount of time, and letting him go deep on an investment idea (don’t be surprised when he pours money into a company no one else is looking at).
Institutional investors who are interested must put at least $5 million into the Fairholme Partnership LP hedge for one, three, or five years. The hedge fund won’t collect any management fees and instead will collect performance fees: 15 percent for five years, 20 percent for three, and 25 percent for one year.
Berkowitz looking for long term investors
At this point, the fund is still closed to retail investors, probably because Berkowitz only wants to work with investors who share his long-term outlook and won’t get spooked when the market goes sour on a stock he believes in.
“It’s just like going grocery shopping,” he said. “If you know what your favorites are and you know it’s a good product, you don’t get upset if it goes on sale.”