Jeff Talpins Gets Investor Exits He Wanted Before Hiking Fees to 40%

(Bloomberg) -- Investors are pulling about $3.6 billion from Jeff Talpins’s macro hedge fund as the firm prepares to hike its fees to a whopping 40% -- and that’s just the way he planned it.

Talpins told investors Thursday that the redemptions just about met his goal of reducing capital by one-fifth and that he won’t need to force clients to exit his $18 billion fund, according to people familiar with the matter. A representative for the firm declined to comment.

The move ends one of the more extraordinary chapters in the hedge fund fee saga, where many are trimming fees and offering concessions to investors frustrated by mediocre returns. In July, his Element Capital Management said it would hike performance fees to 40% by year-end as part of a plan to reduce the capital it managed by one-fifth. Investors displeased with the new fees were given until Sept. 30 to put in redemption requests. If withdrawals had fallen short of the targeted reduction, Element planned to give back the balance.

Despite Talpins being one of the industry’s most revered and sought-after macro managers -- annualizing gains of 20% since his fund’s inception -- the 15-percentage point fee increase was a bridge too far for some investors. Adam Blitz, who oversees $3.3 billion at Evanston Capital Management, said he withdrew his investment in Element after more than six years.

“They’ve done a great job for us, but we have less conviction on their long-term return prospects net of fees going forward,” Blitz said by phone. “We have lots of closed managers who in theory could increase their fees for supply and demand reasons but actively choose not to.”

The decision to hike fees and reduce assets came after the firm conducted a strategic review that concluded the fund’s performance would be optimized at a slightly smaller size, Bloomberg reported in July. New York-based Element also lowered its management fee from 2.5% to 2%, which is still higher than what most hedge fund managers charge. The firm expects to remain closed to investors for two years or more, said the people.

That investors didn’t pull more money is a testament to Element’s standout performance. Indeed, Element told investors Thursday that about a quarter of its clients actually wanted to increase their allocation to the hedge fund, despite the fee hike. Element has annualized 16% over the last four years, while the average macro fund has struggled, making 1.7%.

Last month, Element returned about 2% when the average macro fund lost money, bringing gains in 2019 to 8%, a person with knowledge of the matter said.

To contact the reporters on this story: Katia Porzecanski in New York at kporzecansk1@bloomberg.net;Melissa Karsh in New York at mkarsh@bloomberg.net

To contact the editors responsible for this story: Alan Mirabella at amirabella@bloomberg.net, Josh Friedman

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