Tuesday, 24 May 2016
Last updated 4 hours ago
Aug 14 2012 | 1:17pm ET
Legendary trader Carl Icahn is giving his son the test of his life.
The 76-year-old activist investor is giving his son, Brett, and a trading partner $3 billion and four years to prove themselves, according to a regulatory filing. The elder Icahn won't give up total control of the money, retaining the final say over much of the younger's portfolio and specifying in a legal agreement that Brett and David Schechter are to invest in companies with market capitalizations of between $750 million and $10 billion.
The agreement ends in 2016, when Icahn will be 80. Icahn Enterprises has some $24 billion in assets; Brett Icahn and Schechter currently manage $600 million of it in what is called the Sargon portfolio.
Carl Icahn handed them $300 million in April 2010, and his son and Schechter have produced total returns of 96% on it.
"These two guys doubled our money over the last two years," he told Bloomberg News. "You can't complain about that."
Icahn Enterprises will kick in $1.8 billion of the new money Icahn fils and Schechter will manage, with Carl Icahn's High River adding another $600 million. But despite their track record, the savvy Icahn isn't giving his son, who joined the firm a decade ago as an analyst, and Schechter, who came about in 2004, a completely free hand.
Carl Icahn retains the right to set the portfolio's investment strategy. In addition, Brett Icahn and Schechter will need his approval to make certain bets. The agreement also strictly limits the duo's hedging strategies.
And while the deal expires four years from now, it also looks beyond, giving Icahn Enterprises and High River a 15% shares of the profits from any fund that Brett Icahn and Schechter launch after the agreement ends. It also gives the two traders the right to disclose their track record after four years, but specifies that they'll only be able to "market a permitted fund." And Icahn and High River get their share of the gross fees "in perpetuity."
For their troubles, Brett Icahn and Schechter will be paid 7.5% of any profits over a 4% annual hurdle.