Basswood, Citadel, Raptor

Bloomberg reports that major hedge funds returned single digits year to date. Following unusual for them losses, to attract assets, they slash expenses and fees.

Basswood Partners LLC, the New York-based hedge-fund firm that returned most of its outside cash to investors four years ago, is taking new deposits, according to a person briefed on the matter.

The firm, which bets on rising and falling stock prices, gave back almost $1 billion in June 2006 after a clash with clients over performance expectations, according to the person, who asked not to be named because the fund is private. Chief Operating Officer Marc Samit declined to comment.

Basswood, run by twin brothers Matthew and Bennett Lindenbaum, began planning to seek fresh money about eight months ago, and considered using third-party marketers, the person said. The firm instead earlier this month hired Jim Sheehan, who previously worked at Ivy Investment Management and Brencourt Advisors LLC, to head the effort.

Investors putting in cash will be offered a fee structure that rewards long-term commitments, the person said. Hedge funds are cutting fees after $286 billion in net withdrawals in 2008 and 2009, according to data from Chicago-based Hedge Fund Research Inc. Firms took in $23.3 billion in the first half of this year, data from Hedge Fund Research show.

Basswood, which oversees about $400 million, will charge a 1.5 percent management fee on new deposits, compared with the industry standard of 2 percent, according to the person.

Investors will pay 10 percent of annual gains as a performance fee if they lock up their money for three years, instead of the traditional 20 percent. That levy climbs to 15 percent for those who commit for two years and to 20 percent for customers who need 90-day access to their cash. The investment minimum is $2 million.

Basswood started in 1994 and didn’t have a losing year until 2008, when it declined 7.5 percent, according to the person familiar with the firm’s plans. It returned 12.5 percent in 2009 and about 1 percent this year through Aug. 31. At its peak in early 2006, the firm managed more than $2 billion.

Citadel LLC, based in Chicago, is considering lowering fees (expenses) on its main funds to attract investors after losses two years ago, according to two people with knowledge of its plans.

James Pallotta, who shut his Boston-based Raptor Global hedge funds in June 2009 after declining almost 29 percent since the start of 2007, is again soliciting investors and won’t charge performance fees until previous clients recoup losses, the New York Times reported on Sept. 17.

(source: Bloomberg Business Week, September 21, 2010)