In the competitive landscape for top investment professionals, negotiations between star portfolio managers and major hedge fund operators are increasingly focused on securing protection clauses against broken promises and guarantees related to spinouts.
Dan Hunter, co-head of Schulte Roth & Zabel's Investment Management Group, spoke with Hedge Fund Alert on the increase in protection clauses, including break fees, saying he's witnessed a half-dozen recent examples of fund operators including penalties of between $200,000 and $1.5 million in contracts. "My understanding is once the firm starts asking for the break fee, they ask it across the board for any position, not just a trading role," Dan said.
Similarly, there has been an increase in spinoff agreements, with proven, profit generating portfolio managers insisting on contract clauses that compel firms to back them should they decide to spin out independently after a specified period. Spinoff clauses are often contingent on meeting specified performance benchmarks.
Dan noted that although spinout agreements were traditionally the domain of large multi-strategy shops, they are now being adopted by single-manager sector funds and startups seeking to attract top investment talent from larger, multi-strategy rivals.
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