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March 15, 2017  

Shrinking Pine River Dangles Fee Reduction

With its assets down steeply and performance languishing, Pine River Capital is attempting to lock in investors with the promise of lower fees.

The effort encompasses the creation of two new share classes for the Minnetonka, Minn., firm’s Pine River Fund that offer reduced fees for limited partners who meet minimum commitment sizes and agree to pre-specified liquidity provisions. While the exact terms remain unclear, it’s known that the fees range from 1% to 1.25% of assets and 10% to 17.5% of profits, based on a sliding scale that corresponds to the amount of capital an investor pledges.

The fund’s standard shares carry a 1.5% management fee and a 20% performance fee, with looser liquidity terms. That class allows quarterly withdrawals upon notice of 45 days and a gate provision for redemptions of more than 25% of each investor’s position.

Holders of the standard shares are allowed to move their capital into the new classes.

The outreach comes amid two years of contraction for Pine River, due to outflows and the unwinding of several funds. The firm’s overall assets stand at $9.8 billion, down from $14.6 billion in January 2016 and $15.5 billion a year earlier.

Pine River Fund, meanwhile, has contracted to $1.7 billion from $3.9 billion a year ago and $4.6 billion in April 2015. The fund employs a multi-strategy format, based in part on strategies used by Pine River’s other vehicles. Among them: equity, fixed income, capital-structure arbitrage, convertible-bond arbitrage, distressed equity, distressed debt and government bonds.

While the fund has produced gains in seven of the last eight months and has posted an annualized return of 9.3% since its 2002 launch, it was up a mere 0.9% last year. And that followed a 2.75% loss in 2015 and a gain of 4.6% in 2014.

The creation of the new share classes places Pine River among many firms that have offered lower fees to their clients. Founder Brian Taylor foreshadowed the move upon announcing in June 2016 that the firm’s Pine River Fixed Income Fund would shut down, writing that the shop would “reduce fees for those investors who are willing to commit longer-lock capital to our investment ideas.”

Pine River Fixed Income was running about $1.6 billion at the time, down from $4 billion. The contraction coincided with a period of losses and the departure of Steve Kuhn, a highly visible co-portfolio manager who now is working on charitable projects.

Business-development head Richard Knight also exited Pine River in mid-2016 (see The Grapevine on Page 8). Sushma Gambhir has taken over his responsibilities.

The shuttering of Pine River Fixed Income, which still appears to be unwinding, dovetails with a broader effort by Pine River to streamline its offerings — with its fund roster shrinking to six from 11 over the past two years. The nixed vehicles include Pine River Ultra Master Fund, Pine River Tail Hedge Master Fund and Pine River Convertibles Master Fund. The firm also has been promoting a $1.7 billion separate-account business called Precision.

“A key goal of our reorganization has been to rationalize our product offering and focus on core products. Over the past year we have announced the closure of some of our smaller and less scalable funds including the Pine River Asia Fund, Pine River Credit Relative Value Fund and Pine River Ultra Fund,” Taylor wrote in the announcement about Pine River Fixed Income.

Pine River Convertibles was the only other fund to employ a sliding fee schedule, taking 1% to 1.5% of assets and 16-20% of profits. It finished unwinding at yearend.

With its total assets under management diminished and Pine River Fund offering lower-cost options to investors, meanwhile, Pine River stands to collect less fee income overall. It hasn’t been all bad news for the firm, however. Its $1.7 billion Pine River Liquid Rates Master Fund, for example, has performed well of late — with gains of 17.3% last year and 13.5% the year before.