More Managers Saying 'No' to New Investors

Add Baupost Group, Louis Dreyfus, Mason Capital and Two Sigma to the list of large hedge fund operators that have cut off new investments amid a turnaround in the fund-raising market.

In some cases, including Baupost and Mason, the firms are closing windows they had opened in the aftermath of the market crisis in late 2008, when investors collectively withdrew tens of billions of dollars from hedge funds. In other cases, managers are barring new investors because their funds are just now reaching capacity. Jeffrey Altman's Owl Creek Asset Management, for example, plans to stop accepting new investors when its Owl Creek funds reach a combined $7.5 billion to $8 billion - something investors expect to happen by the end of September.

The fact that a growing number of fund operators are now turning away investors is further evidence of the industry's dramatic rebound since hitting bottom around the end of 2008. As a rule, the biggest beneficiaries have been large managers that continued to perform well during the financial crisis or at least resisted the temptation to suspend or limit withdrawals when investors needed their money most.

Louis Dreyfus' LD Commodities Alpha Fund will effectively stop accepting capital as of June 30, opening for new investments only with permission from its board of directors. The fund, which launched at the end of 2008, topped $1 billion for the first time on April 1. The Paris firm also launched a more highly leveraged version of the fund on April 1, though it's unclear if that vehicle will remain open after June 30. LD Commodities, managed by Ian McIntosh in Geneva, is one of two hedge funds the firm runs. The other is LDH Energy Opportunities Fund, which Louis Dreyfus co-manages with Highbridge Capital.

Mason, a $5 billion event-driven shop, closed its door to new investors in the first quarter. The New York firm, headed by Michael Martino and Kenneth Garschina, had been closed to new investors before the financial crisis, then re-opened in January 2009. The fund posted a 25.7% gain last year.

New York-based Two Sigma, a $4 billion quantitative-investing shop, is shutting off its Compass global-macro fund to new investments on June 1. The firm's founders, John Overdeck and David Siegel, initially opened the vehicle to outside investors around May 2009. By May 1, 2010, it had reached $989 million, following returns of 20.4% in 2009 and 5% this year through April. The fund is managed by Ken Baron.

Baupost, a multi-strategy fund shop headed by Seth Klarman, had been closed to new investments prior to the market meltdown in 2008. The Boston firm then selectively opened for certain types of limited partners. But in a letter to investors around yearend, Klarman said he was shutting the door once again - and may even insist on returning some investors' capital this year. Baupost has produced an average annual return of about 17% over the past decade by targeting corporate spinoffs and reorganizations, bank debt, commercial mortgage-backed securities, real estate and private equity. The Boston firm has an estimated $18 billion under management.

Owl Creek, an event-driven manager based in New York, has attracted investors with consistently strong returns. Its Owl Creek Overseas Fund gained 21.4% in 2006, 32.4% in 2007, 21.8% in 2009 and 5.1% for the first month of 2010. It lost 10.3% in 2008, when the average hedge fund fell about 19%. The firm, which employs an investment team of 23, currently has $6.5 billion under management - $1 billion to $1.5 billion shy of its self-imposed cap.

Jerome Simon's Lonestar Capital of San Francisco effectively shut down in 2007, returning capital to outside investors because Simon didn't like the market environment. He re-opened to outside investors last year, but within a few months capped his fund at between $750 million and $1 billion - despite the fact that he requires a two-year lockup.

Elliott Management, Paul Singer's $16.7 billion distressed-credit hedge fund firm, is expected to cut off new investments around midyear. The onshore Elliott Associates fund and an offshore version, Elliott International, technically have been closed since a 2008 capital call reaped $3 billion that had already been committed by investors. But the firm has been drumming up fresh capital commitments this year, primarily from existing investors. Following a capital call in the next couple of months, Elliott will again be closed to new investments. Going into 2010, the firm was looking to raise $2 billion.

CORRECTION (5/19/10): This article has been corrected. The original version incorrectly reported the lockup period for Lonestar Capital's hedge fund. It is two years. The article also provided an incorrect year when the fund returned all capital to outside investors. It was in 2007.

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