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UNOFFICIAL REASONS FOR RETIREMENT

Despite the official reasons given for retiring or reorganizing a hedge fund, there may be other unofficial underlying reasons—some conscious, others subconscious. Topping the list are the incentive fee/high-water mark issue, assets reaching a ceiling, too much focus on short-term performance, succession problems and lack of infrastructure, frustrating markets due to volatility in technology stocks, longing to be something other than a great money manager, age and/or longevity in the markets, and a difficult environment for global macro managers.

INCENTIVE FEE/HIGH-WATER MARK

Under the hedge fund incentive fee structure, when performance falls the high-water mark kicks in. If a hedge fund manager loses money in a year, the manager doesn't get any incentive fee until the losses are made up. It is the incentive fee that provides the bulk of a hedge fund manager's compensation. In 1999 and 2000, when Tiger was down 19 percent and 14 percent respectively through the end of the first quarter, Robertson would have to earn the fund at least 43.6 percent before Tiger would get back to par. Soros's Quantum Fund was down 20 percent through the end of April.

Enormous overhead compounds a bad performance year. For ex-