Warren Lichtenstein, the activist investor, has had probably the worst 18 months of his professional life.
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Steel Partners, his New York-based hedge fund group, has been dragged through the courts by angry investors, led by erstwhile collaborator Carl Icahn, seen its assets under management more than halve to $2.25bn and reported a 39 per cent fall in the value of its flagship fund in 2008.
But in a rare interview, Mr Lichtenstein sounds far from despondent. “The last time I looked $2bn was still a lot of money. When we started we had $600,000.”
The 44-year-old has every reason to believe the worst may be over. The controversial conversion of his flagship Steel Partners II fund into a publicly listed industrial holding company, spanning energy, aerospace and insurance, has passed its last legal barrier, performance is stabilising and Mr Lichtenstein is settling into a new role as a bank chairman. Last month SP Acquisition Holdings, a special purpose acquisition vehicle controlled by Mr Lichtenstein, bought Frontier Financial, a struggling Washington state bank with $4bn of assets, in one of the few such deals to have occurred since the onset of the financial crisis. The deal, which will recapitalise the bank with a $400m capital infusion, thus providing it funds to lend, is unlikely to be the limit of Mr Lichtenstein’s banking ambitions. He is typically upbeat. “If people have available capital, the financial world and banking in particular is unbelievably attractive,” he says, arguing that loan-to-value multiples are at “historically low levels” while the spread between borrowing and deposit rates is “historically high”. “Banking is a pretty simple business if you are disciplined in terms of who you are lending to and what you are lending on. But people got sloppy.” One task high on the agenda is the listing of Steel Partners II, which is scheduled to be floated on a US exchange before the end of the year. Mr Lichtenstein provoked a furore at the turn of the year when he announced plans to list the fund, effectively turning it into a “permanent capital” vehicle. The innovative structure means those investors opting to remain on board will no longer be able to redeem units at net asset value; they can only sell to a buyer at the prevailing market price, which may be well below the net asset value. The 35 per cent of investors who opted to leave have received cash and a pro-rata slice of the fund’s holdings, often small, of illiquid stocks. The move was a reaction to redemption requests from investors speaking for 38 per cent of the fund’s then $1.2bn of assets. It was widely seen as the most radical response to the wave of redemptions then gripping the sector, which led many other hedge funds to suspend or limit withdrawals. Mr Icahn, together with the J Paul Getty Trust and a number of college endowments, filed a lawsuit to block the plan. In June, however, the Delaware Chancery Court refused to grant a temporary injunction which would have stopped Steel Partners from proceeding with the listing. Mr Lichtenstein is unsure whether other hedge funds will follow his lead. “I know that a whole bunch of people are looking at it, but I don’t think it’s something that is easy to do,” he says. In spite of the brightening outlook, he is equally unsure the time is right to be buying into non-financial companies. “At this point in time the world is not too clear to me. “Everybody says we are going to be out of recession and I’m not so sure they are right. We would rather wait for clarity and be very selective.”