07/01/2009

Polygon Offers Low Fees to Retain Investors

Polygon, a big multi-strategy hedge fund firm that got clobbered last year, has begun soliciting capital for a pair of single-strategy funds that offer unusually low fees to existing investors.

The London firm, run by Reade Griffith and Paddy Dear, is prepping one fund that would focus on European equities and another that would target convertible-bond arbitrage. The firm is trying to lure investors from its flagship Polygon Global Opportunities Fund, a $4 billion multi-strategy vehicle that lost 30% last year through October and is now unwinding.

To retain its existing investors, Polygon is offering sharply discounted performance fees. Investors who commit before Aug. 1 would be charged no performance fee for the life of the their investment - a feature that may be unprecedented in the hedge fund industry. They would pay only a 1.5% management fee.

Existing investors who join the new funds after Aug. 1 will be permitted to carry over their high-water mark from the multi-strategy fund. They, too, would pay a 1.5% management fee.

New investors presumably will be charged the standard 20% performance fee and a 1.5% management fee.

Polygon has said it wanted to evolve from a multi-strategy shop into a single-strategy manager, after seeing assets under management in its Global Opportunities Fund fall by about a third last year. The firm believes investors have grown disillusioned with multi-strategy vehicles and are now seeking the expertise of single-strategy managers.

Polygon's planned European Equity Opportunity Fund would be run by Griffith, once a top portfolio manager at Citadel Investment. The Convertible Opportunity Fund would be run by Michael Humphries, who joined Polygon shortly after he began shutting down his own firm, London-based MKM Longboat, in September. Polygon is aiming to launch the vehicles in the third quarter.

The move comes nine months after the firm told investors it was suspending redemptions from its multi-strategy fund so it could begin liquidation. Last week, Polygon started returning a portion of investors' money. Details are sketchy, but investors appear to have received about 20% of their capital.

Whether those same investors will be willing and able to support the new funds is unclear. Some investors were miffed by the extent of illiquid investments in the multi-strategy fund.

Polygon isn't the only battered fund manager trying to win back disgruntled investors with attractive terms. Chris Hohn, founder of London-based The Children's Investment Fund, told investors in New York last week that he was considering a new share class that would charge a performance fee over a multi-year period, rather than annually. TCI also will offer a share class with looser liquidity terms.

Griffith and Dear, a former executive at UBS Warburg, were joined in the 2002 launch of Polygon by Alex Jackson, a Highbridge Capital alumnus who left Polygon in July 2008 amid tumult at the firm. Early on, investors stampeded to invest with Griffith, who built a stellar track record at Citadel. At one point, Citadel threatened to expel any investors who also invested with Polygon.

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