Biglari Launches Second Lion Hedge Fund

Jul 17 2013 | 5:02am ET

Sardar Biglari, the Texas investment manager known for his aggressive approach to company takeovers, has launched the Lion Fund II, according to a filing with the Securities and Exchange Commission.

The new hedge fund carries a minimum investment of $5 million and has already raised $335 million from two investors.

Biglari's original Lion Fund was founded in 2000 with the stated objective of exceeding the returns generated by the stock market over the long term. In a letter to investors, Biglari explained, "Our partners have the option of buying the S&P through an index fund at low cost, a move that in the long run is sure to beat the results obtained by the majority of money managers. Thus, unless we outshine the index . . . we bring nothing to the table."

Detailed information about the Lion Fund is not available, but in preparation for a Harvard Business School case study of The Friendly Ice Cream Corp. (a Biglari control investment target), Harvard professors Fabrizio Ferri, V.G. Narayanan and James Weber had the opportunity to view The Lion Fund investment results through early 2007 and reported that “From the time of its founding in 2000 through early 2007, the Lion Fund succeeded in reaching its performance objective. Its average annual returns exceeded 20%, while the S&P 500 ran close to a 1% average return over the same period.”

Biglari, who first attracted notice with his successful proxy battle for the Steak 'n Shake company in 2008, has butted heads with a number of company boards over the years, including those of Friendly's Ice Cream and Cracker Barrel. He's been pushing the latter for a seat since acquiring 20% of its stock and his Biglari Holdings was fined $850,000 last September by the Department of Justice for failing to give notice that it sought to play a role in Cracker Barrel's management.

Biglari is also facing a lawsuit, filed on July 2 by a Biglari Holdings shareholder who objects to a deal Biglari struck with the board in January giving him 2.5% of the company's revenue for five years for the right to keep using his name if he were removed from management.

But Biglari, one of San Antonio's best-paid executives whose compensation in 2012 totaled $10.9 million, has been unapologetic in his estimation of his own value to the company:

“Biglari is a jockey stock,” he wrote in his 2011 letter to investors. “You are choosing the jockey; I am choosing the horses. It would be asinine to bet on a jockey and then deny him the saddle or whip.”

 


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