08/12/2009

Peltz Offers 'Carrot' to Lure New Investors

Trian Fund Management, the hedge fund firm run by corporate raider Nelson Peltz, is cutting fees and loosening liquidity in a bid to attract fresh capital.

Peltz, whose takeover targets have included food companies Heinz, Kraft, Arby's and Wendy's, disclosed the changes in an Aug. 4 letter to investors in his two hedge funds, Trian Partners and Trian Credit. The firm's original fund, Trian Partners, has posted disappointing returns since its inception in 2005. Trian Credit has gained about 15% since its launch last summer.

Both funds were set up with unusually long three-year lockups and standard 2% management and 20% performance fees. The New York firm is now restructuring each fund into two share classes.

Both share classes offer a reduced management fee of 1.5%. One share class also offers better liquidity: a one-year lockup instead of three years. Investors in the other share class will still have their capital locked up for three years, but they will pay a reduced performance fee of 15%. And the performance fee only kicks in after the three-year lockup period expires.

Peltz "is trying to keep existing investors and give a carrot to new ones," one investor said. "It's as simple as that."

Since launching in November 2005, Trian Partners has returned a paltry annual gain of 1.2% on average. The vehicle rose 14% in 2006 and 5.3% in 2007, but it lost 18.9% last year. Trian Partners is up 5% for the first seven months of this year, including a 10.5% gain in July.

Peltz isn't alone among activist managers whose funds got socked by last year's stock market plunge. Dan Loeb, whose New York-based Third Point Capital suffered severe losses, announced in his second-quarter letter that he was introducing improved terms for investors.

It's unclear how big of a hit Trian's assets under management took during the financial crisis. Peltz has amassed a personal fortune estimated by Forbes at around $1.1 billion by buying stakes in underperforming companies. Through a separate entity, Triarc, he bought the Arby's restaurant chain and then, last September, engineered the $2.3 billion takeover of Wendy's. The Trian Partners fund owns a 20% stake in Triarc.

Peltz's hedge fund firm counts university endowments, pension plans and insurance companies among its investors. Peltz runs the firm with his long-time partner, Peter May, and Ed Garden, Peltz's son-in-law. Trian Partners' core positions include Wendy's Arby's Group, Cadbury Schweppes, Heinz, Kraft, Tiffany and Dr. Pepper Snapple Group.

The Trian Credit vehicle, which invests in debt instruments, is managed by Jay Bloom and Dean Kehler.

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