After a short detour at Matador Capital Management she, in November 2006, started her own hedge fund called Lane Five Capital Management.
I am of course talking about Lisa Rapuano.
At Lane Five she really made headlines in the hedge fund world when, instead of the normal 20% yearly performance fee, she structured her fund so that she receives a 40% performance fee but only calculated after three years (triennial).
With this fee structure Lisa addressed the most common criticism of hedge funds that they only participate in the upside in good years but not on the downside. In other words there are no negative performance fees.
Apart from the November 2006 fee structure for your new fund of 20% performance fee that is calculated triennially instead of once a year and the November 2007 Value Investors Congress presentation you have been very quiet.
What have you been up to?
Lisa Rapuano First let me give you an update on that experiment in fees.
As you mention, I launched my fund with an innovative fee structure — wait three years and then charge only on the positive returns over the market. I also was lucky enough to have a set of long-term Limited Partners who were willing to commit to a three-year lock up.
The lock-up and delayed fees worked together.
We finished our first triennial period at the end of 2009. We were not good enough to earn any performance fee at all, since it has to be both positive and ahead of the market.
Additionally, given the changes in the marketplace we simply did not think a three-year lock-up was a tenable proposition under any circumstances. So, in changing to a one-year lockup, we had to abandon our three-year fee structure as well.
Our new terms remain incredibly client-friendly, fair and well matched to our process: 20% of positive returns over the S&P 1500 on an annual basis with a traditional high water mark.
I think, however, that it was an experiment worth trying. It communicated a "money where our mouth is" commitment to long-term investments.
What I was extraordinarily surprised by however, was how little this matters to many potential investors. There is an institutional imperative that has evolved in hedge funds that is very similar to that which has evolved in long-only funds.
Being different, no matter how right it may be, doesn't help.
Having had to change the terms, we remain true long-term investors. We will not get a performance fee unless we truly earn it and clients will not pay for the beta inherent in a long-biased, non-volatility constrained portfolio.
I am convinced more than ever that managing for the short-term increases errors, increases risks and promote poor analytical judgment. Since we manage a portfolio of all public, relatively liquid stocks, we think we can stay true to concentrated, long term value investing while providing clients more reasonable liquidity terms.
Outside of the fee changes, Lane Five and I have simply pursuing our passion for uncovering value in good long-term businesses.
I've not been intentionally quiet; I've just been working on building my portfolio and business with single-minded focus.
Link to entire interview: http://www.eurosharelab.com/newsletter-archive/464-the-hedge-fund-manager-that-gave-back-fees?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+Eurosharelab-newsletter+%28EuroShareLab+Newsletter%29
I am of course talking about Lisa Rapuano.
At Lane Five she really made headlines in the hedge fund world when, instead of the normal 20% yearly performance fee, she structured her fund so that she receives a 40% performance fee but only calculated after three years (triennial).
With this fee structure Lisa addressed the most common criticism of hedge funds that they only participate in the upside in good years but not on the downside. In other words there are no negative performance fees.
Apart from the November 2006 fee structure for your new fund of 20% performance fee that is calculated triennially instead of once a year and the November 2007 Value Investors Congress presentation you have been very quiet.
What have you been up to?
Lisa Rapuano First let me give you an update on that experiment in fees.
As you mention, I launched my fund with an innovative fee structure — wait three years and then charge only on the positive returns over the market. I also was lucky enough to have a set of long-term Limited Partners who were willing to commit to a three-year lock up.
The lock-up and delayed fees worked together.
We finished our first triennial period at the end of 2009. We were not good enough to earn any performance fee at all, since it has to be both positive and ahead of the market.
Additionally, given the changes in the marketplace we simply did not think a three-year lock-up was a tenable proposition under any circumstances. So, in changing to a one-year lockup, we had to abandon our three-year fee structure as well.
Our new terms remain incredibly client-friendly, fair and well matched to our process: 20% of positive returns over the S&P 1500 on an annual basis with a traditional high water mark.
I think, however, that it was an experiment worth trying. It communicated a "money where our mouth is" commitment to long-term investments.
What I was extraordinarily surprised by however, was how little this matters to many potential investors. There is an institutional imperative that has evolved in hedge funds that is very similar to that which has evolved in long-only funds.
Being different, no matter how right it may be, doesn't help.
Having had to change the terms, we remain true long-term investors. We will not get a performance fee unless we truly earn it and clients will not pay for the beta inherent in a long-biased, non-volatility constrained portfolio.
I am convinced more than ever that managing for the short-term increases errors, increases risks and promote poor analytical judgment. Since we manage a portfolio of all public, relatively liquid stocks, we think we can stay true to concentrated, long term value investing while providing clients more reasonable liquidity terms.
Outside of the fee changes, Lane Five and I have simply pursuing our passion for uncovering value in good long-term businesses.
I've not been intentionally quiet; I've just been working on building my portfolio and business with single-minded focus.
Link to entire interview: http://www.eurosharelab.com/newsletter-archive/464-the-hedge-fund-manager-that-gave-back-fees?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+Eurosharelab-newsletter+%28EuroShareLab+Newsletter%29
