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Rating:NY Firm to Convert LP to Fund Not Rated 0.0 Email Routing List Email & Route  Print Print
Wednesday, February 19, 2003

NY Firm to Convert LP to Fund

by: Sean Hanna, Editor in Chief

While many fund firms are seeking ways into the hedge fund market, one firm at least is heading for the exit. Baron Capital has filed paperwork with the SEC earlier this month to convert its 11-year Baron Capital Partners, L.P. hedge fund into an SEC registered mutual fund.

Matt Kelly, vice president at New York City-based Baron Capital, declined to comment on the move due to SEC restrictions during the filing period. He did confirm that the firm continues to operate a second hedge fund.

After putting together a run of good years from its founding until 2001, the fund lost 16 percent in 2001 and 18.4 percent in 2002.

Although Baron could not comment on the reasons for the shift, one benefit of converting the fund will be the ability of Baron to market the fund more widely. In addition, Baron may be able to make more money from operating the fund. The fees charged to the fund will rise to 143 basis points from 110 that were taken out when the fund was run as a limited partnership. At least part, and perhaps all, of that increase will reflect the added costs of operating the fund as a Forty Act registered product.

In many cases, though, hedge fund managers split gains with limited partners as a major part of their compensation. The catch is that the manager is not able to split in those gains until the fund has passed its "high-water mark". Based on the previous two years, Baron Capital Partners would have to gain nearly 46 percent to pass it high-water mark. In this market, that could have been an eternity.  

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