When I write mea culpas, which doesn’t happen often, I hate for them to be overshadowed. You know how it is. I want people to pay attention to the fact that I am saying sorry, but everyone will be focused on the special deal I’ve put on the table, wherein investors can elect to pay a performance fee on any gains made after 1/02/09 (even if we haven’t hit the high watermark), which is pretty generous, considering we closed down near 30 percent. Anywho, that’s why I put all that jazz in a separate letter, the news of which HFA broke today. Full deal after the jump
January 22, 2009
Re: Option to Modify Investment Terms
Dear Shareholders:
We always welcome, and appreciate, your thoughts and comments. Consequently, at the
suggestion of some of our investors, we are offering the following two options: First, we will allow you to modify your election with respect to the percentage of your interest in the Fund that can be allocated to Special Situation Investments. Second, we will allow you to adopt a “modified high water mark” for the calculation of incentive fees, whereby a reduced incentive fee (10%) would be paid as your losses are recovered but 250% of the actual losses must be recovered before the incentive fee rate reverts back to 20%. Please consider these options in light of your individual investment goals.
Special Situation Investments: You may elect to change your allocation of future Special Situation Investments (excluding unfunded commitments on existing sidepockets) from the current election to a maximum of 0%, 15% or 30% of the net asset value of your shares. New elections will take effect as of March 1, 2009. Please submit your election in the form attached as Exhibit A no later than 5pm EST Thursday, February 5, 2009.
Incentive Fees (Modified High Water Mark): In lieu of maintaining your existing incentive
fee terms (including the ability to carry forward losses for one year), you may convert
your shares to a series of a class that pays an annual incentive fee (an “Incentive Fee”),
calculated from January 1, 2009, equal, initially, to 10% of the net realized and net
unrealized appreciation in the adjusted net asset value of the series above its prior high
net asset value. The Incentive Fee would remain at the 10% rate until the series recovers
two and one-half times the amount by which it depreciated in the fiscal year 2008.
Thereafter, the Incentive Fee switches back to the full 20% Incentive Fee. If the net
asset value depreciates in the future, the Investment Manager will again earn a 10%
Incentive Fee as the losses are recovered, rather than a 20% rate. Two and one-half
times the amount of the losses will have to be recovered before the Incentive Fee rate
switches back to 20%.
Shares purchased in the future by a shareholder making this election will comprise a
new series. If the series suffers losses, an Incentive Fee will be earned at the 10% rate
until two and one-half times the amount of the losses is recovered. The modified Incentive Fee calculation will be described in detail in a revised Explanatory Memorandum, which will be distributed to interested shareholders.
In the event you are interested in electing the Incentive Fee (Modified High Water Mark)
option described above, please contact Investor Relations at [redacted] no later than 5pm EST Thursday, January 29, 2009. No changes will be made to your existing investment terms unless you complete the appropriate documentation by Thursday, February 5, 2009. The Investment Manager will disregard any election received after 5pm EST Thursday, February 5, 2009.
New Investments
We are pleased to offer existing and new shareholders the opportunity to purchase
additional shares in the Fund as of March 1, 2009, on the same terms and conditions
currently available. Shareholders may elect, with respect to newly purchased shares (i) to
participate in future Special Situation Investments up to a maximum of 0%, 15% or 30% of
the net asset value of such shareholder’s new shares and (ii) to pay an Incentive Fee on the basis described above. We will provide interested investors with subscription documents for the new shares upon request.
If you have any questions regarding this matter, please feel free to contact [redacted] or [redacted]
CONFIDENTIALITY NOTICE
This letter is confidential and intended solely for the use of shareholders in connection with
their investment in the Fund. This letter and its contents may not be shared with any other
person except your legal counsel and accountants without the prior written permission of
Investment Manager. Notwithstanding anything to the contrary herein, each shareholder
(and each employee, representative or other agent of such shareholder) may disclose to any and all persons, without limitation of any kind, the tax treatment and tax structure of (i) the Fund and (ii) any of the Fund’s transactions, and all materials of any kind (including
opinions or other tax analyses) that are provided to such investor relating to such tax
treatment and tax structure.
EXHIBIT A
SPECIAL SITUATION INVESTMENT ELECTION FORM
The undersigned shareholder of Perry Partners International, Inc. (the “Fund”) acknowledges that it has received and reviewed the letter from the Fund dated January 22, 2009 indicating that each shareholder may elect to change its allocation of future investments that are illiquid and lack a readily ascertainable market value (“Special Situation Investments”) from its current allocation election to a maximum of 0%, 15% or 30% of the net asset value of such shareholder’s shares. This does not apply to unfunded commitments on existing Special Situation Investments.
The shareholder elects to change its allocation and to participate in future Special Situation Investments up to:
__ 0% __ 15% __ 30%
Please note that a shareholder’s election may not be changed without the express consent
of Perry Corp. (the “Investment Manager”). The Investment Manager will deem any election received after 5pm EST on Thursday, February 5, 2009 as an election not to change the applicable shareholder’s allocation with respect to Special Situation Investments.
IN WITNESS WHEREOF, the undersigned has executed this Special Situation Investment
Election Form this ____ day of ______________, 2009.
INDIVIDUALS ENTITIES
Signature
Print Name of Entity
Print Name
By:
Authorized Signature
Additional Investor Signature
Print Name and Title
Print Name
As you are aware, we meant to lose money this year…
Wow for a guy who’s never had a loss before he is really taking this one hard…..even trying to sublet his office space. I guess this means more layoffs if investors arent stupid enough to pay incentives for bad performance. I just dont get why he never takes advantage of all the great opportunities he mentions in his letters.
mea culpa….hmm not exactly the way a member of the tribe should be stating their fault anyways…Halfbreed maybe?
Is he finally vacating the GM building or just sub leasing part of the space?
#4 Considering 2 rounds of layoffs and $8B less in AUM I think a lot depends on how foolish the rest of their investors are. It’s crucial that investors support as much of Perry Capital’s lavish needs as possible. For now it’s sub leasing part of the space.
this is disgusting
Further, we forgot to tell you that beginning in Q1 2008, our Fund was managed by Matthew Perry.
What happened to the consumer retail PM at Perry? Was he fired? Do you know when he ended up.. I heard he was trying to get a deal at Millenium…
What happened to the consumer retail PM at Perry? Was he fired? Do you know when he ended up.. I heard he was trying to get a deal at Millenium…
He like most Retail PMs is hittig the unemployment line these days!
Rediculous…How can he justify that office space, chefs and all when he has lost all his investors money? He should be moving the firm to Fulton Street right next to the purveyor of cheap African artifacts.
@11 Not only are you incapable of spelling “ridiculous” (I should have stopped reading your drivel right there), but you don’t understand HF economics, either. Hedge funds aren’t structured like public companies, and office rental expenses are not paid by the shareholders – they come out of fees and carry, which are fixed based on assets under management and performance. You could argue that Perry should charge a lower management fee, but that’s a separate issue from where he chooses to (mis)allocate those fees. If he ran a sweatshop in a closet rather than one in nice office space with a chef, it would only mean more money for the partners, not his investors.
#12 you are a moron. He is trying to keep up the lifestyle by asserting new fees on his clients because of his failure. He wants to be paid incentive on failure.
@13, if you could add, you’d understand that he’s giving his clients an option: (1) Stick with the high watermark as is and don’t pay me a dime until I get back in the black vs. 2008, or (2) pay 10% up to 250% of losses before switching back to 20%. If his investors believe that Perry will actually recover 250% of the losses, (2) is a better deal economically (once again, add it up, genius). (2) also helps him pay his good people if they make money in 2009.
It’s a question of risk tolerance and investment horizon, hence his comment about “individual investment goals.” Letting his investors decide for themselves and be compensated (lower fees on the upside from 2 – 2.5x) for believing in the fund doesn’t seem unreasonable. It’s not mandatory.
@14, you are neglecting a few important considerations. Namely, it will take a long time to get back to the high water mark. Assume someone invested 100, it is now worth 60. If the fund goes up 10% a year (net of mgmt fee), investors won’t get back to 100 until during yr 6.
Can his fund survive that long without being able to pay employees? Probably not, so they have no choice but to ask investors for more money, which is kind of ridiculous considering the performance.
The whole thing shows how stupid the incentive structure of hedge funds has been. Once more regulators / congresspeople / obama see deals like this and understand what is going on, the hedge fund model will implode. How can it not?
Don’t disagree with you 15. The structure was not built to withstand losses of this magnitude, but I actually give Perry credit for trying to craft a solution. Closing up shop is the easy/cowardly answer but screws your investors, and the more honest approach of honoring the high watermark is difficult because you still have to pay employees – as you note, it will take strong performance over several years, at least, to make the money back.
I’m not saying I would take the deal if I were an investor (which I’m not), but having the option is at least a sustainable chance to get your money back – given, as you say, that the current 2/20/watermark model is broken.
YOU ARE ALL IDIOTS…READ THE PERRY SUB DOCS, INVESTORS PAY ALL EXPENSES I.E. RENT, SALARIES, BONUSES, ETC.
NOW TRY DEFENDING THE MURSE CARRYING CRIMINAL!
If Perry has faith in HIS fund let him pay it out of the firm’s retained earnings. He was one of the highest paid managers last year. Gee this is his first down year and he already can’t survive? This is a man that is suppossed to advise companies on how to manage? Wow looks like he was ready to handle the storm. #16 you said they couldnt withstand losses of this magnitude. Perry said in his letters he knew this was coming…..all he speaks of is huge opportunity??? What’s the problem. Looks like a great way for a fund to milk their investors while never achieving the high water mark they know they can’t hit.