While corporate agitator Carl Icahn has always credited his son Brett Icahn, 35, and Sargon portfolio co-manager Schechter, 39, with bringing him the lucrative Apple and Netflix Inc. (NFLX) investment ideas, yesterday he elevated their profiles by including the pair in his public correspondence and in live, meandering, phone-in interviews on Bloomberg Television, CNBC and Fox Business News.
Icahn Sr., 78, also revealed their investing prowess. Icahn Jr., a Princeton graduate who’s worked for his dad since at least 2002, and Schechter, a former vice president of special situations at Citigroup Inc. (C), have generated annualized gross returns of 36.5 percent since starting their portfolio April 1, 2010, according to the Apple letter. Such returns outperformed most long-established hedge funds -- even at the rounded-down 31 percent Icahn Sr. boasted on
their behalf on television before being entertainingly corrected by the pair live on air.
The spotlight sharing came after two conflicting Wall Street Journal reports in May and September, in which people familiar with the situation first said the pair were leaving to start their own hedge fund, and then that they had changed their minds and would stay put. It also comes one year after regulatory filings detailed a disagreement between Icahn Sr. and his Sargon co-managers over the sale of about half his Netflix shares.
In 2012, Carl Icahn, seen here, agreed to allocate as much as $3 billion to Brett Icahn... Read More
Netflix Bet
Sargon has $6.6 billion of assets under management and about 30 percent of that portfolio is movie- and TV-streaming service Netflix, Schechter said yesterday. The Los Gatos, California-based company has a lot more revenue growth potential as it expands internationally while its biggest cost -- content -- remains relatively fixed, a recipe for ballooning profits, he said.“Netflix is a highly strategic asset for many of the big players,” Schechter said yesterday in the interview with Bloomberg TV about acquisition speculation. “However the company’s standalone prospects are and remain so bright, that we think it would be extraordinarily difficult for a larger guy to ever get the company.”
Schechter, a University of Pennsylvania economics graduate, joined Icahn Enterprises LP (IEP) in 2004 from a Citigroup unit that used the bank’s capital to invest in distressed companies. He has 17 years of industry experience, according to a July presentation by Icahn Enterprises.
Expanded Role
Schechter often serves on the boards of companies targeted by Icahn -- presently speech-recognition software maker Nuance Communications Inc. and engineering-software designer Mentor Graphics Corp. He was formerly a director at targets including medical site WebMD Health Corp., organic snacks maker Hain Celestial Group Inc. and auto-parts supplier Federal-Mogul Holdings Corp.In 2012, Icahn Sr. agreed to allocate as much as $3 billion to Icahn Jr. and Schechter, expanding their role in running the billionaire’s investments. According to a 46-page agreement filed with federal regulators, Icahn Jr. and Schechter would get to invest the boss’s capital in companies with stock market values of $750 million to $10 billion.
Icahn Sr. had already allocated $300 million to the management duo in April 2010 to invest in loans and securities of companies with less than $2 billion in equity value. Their investments, known as the Sargon portfolio, generated a gross cumulative gain of 96 percent by the end of June 2012, according to a regulatory filing.
Track Record
The arrangement expires after Icahn Sr. turns 80 in 2016, giving Icahn Jr. the chance to both prove his mettle as a successor and develop a track record.It hasn’t been all roses. Last year, Icahn Sr. sold almost 3 million shares of Netflix, more than half his stake, even as Icahn Jr. and Schechter made a case that the shares continued to be undervalued.
The Sargon duo made Icahn pay for his decision to sell the shares anyway, with a compensation agreement linked to the performance of Netflix shares that disregards his selloff. The stock is up 43 percent since Icahn Sr. announced his sale in October 2013.
“There comes a time, when you are making 500 percent on your money, that you take your chips off the table. Some of them, anyway,” Icahn said in a Bloomberg Television interview at the time, citing his experience in seven bear markets. “I do not know if it is judicious to have one company with that large of a percent in the portfolio. I basically agree with their arguments, but I still did it.”
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