Schonfeld Halves Fee to Lure Hedge Fund Clients into New Lock-in

Schonfeld Strategic Advisors is offering a hefty fee discount to clients in its equity hedge fund if they accepted new terms under which it would take them as long as two years to withdraw all their capital.

(Bloomberg) — Schonfeld Strategic Advisors is offering a hefty fee discount to clients in its equity hedge fund if they accepted new terms under which it would take them as long as two years to withdraw all their capital.

The firm is trying to woo Schonfeld Fundamental Equity Fund clients to an investor level gate, which will allow them to take out only 25% of invested capital every quarter once their one-year lock-in period expires, according to a person with knowledge of the matter and an investor document reviewed by Bloomberg News. The new plan kicks off Oct. 1.

The move by Schonfeld is in line with other multi-strategy hedge fund firms such as Millennium Management, Citadel and Balyasny Asset Management, all of whom have also been keeping clients’ cash for longer. It’s part of a broader push by these industry giants to create a stable business that isn’t hit by frequent redemptions or big cuts in annual income, which they can otherwise use for staff retention and technology.

The $3.6 billion Schonfeld equity fund, where multiple teams of traders invest, is up 0.5% this year through August, trailing the 5.4% average gain in equity hedge funds, according to data compiled by Bloomberg.

Schonfeld is offering two choices as incentive. The first option bars investors from withdrawing until the end of next year, with a performance fee of 7.5% under the new system instead of the usual 15%, the person said asking not to be identified because the details are private. The second one waives the lock-in if clients opt in before the effective date, but for a 10% fee. The discount doesn’t carry forward.

A representative for New York-based Schonfeld, which manages $13 billion, declined to comment. The firm employs about 110 portfolio managers, of which about 60 trade for the equity hedge fund.

The performance fee is one piece of the overall pie because Schonfeld also has the so-called pass through charges. These opaque add-ons have become increasingly popular among multi-manager hedge funds because they cover everything from boosting employee pay to covering office rent and even entertainment.

The Schonfeld equity fund started in 2016 and until now operated with fund level gates that lock investors cash for as long as three years with penalty for early withdrawals, but could let them pull all their capital at once after that. Investors not opting for the new offer can remain in their existing share classes.

–With assistance from Katherine Burton.

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