Carl Icahn's new life as a hedge fund manager
By Andy Serwer

(FORTUNE Magazine) – IT'S AN ANCIENT WALL STREET SAW: "How much money is enough?" someone asks the billionaire. "A little bit more than I have," he responds.

I was thinking about this while perusing an offering for a new hedge fund that Carl Icahn is starting. Icahn, as you doubtless know, is among Wall Street's most successful predators. He's one of the few 1980s corporate raiders to have built a massive fortune--$5 billion--plus in his case--with staying power. I've learned never to be surprised by Icahn's moves, because being unpredictable and contrarian are at the heart of his MO. Still, I'm a little flummoxed by Icahn as a hedgie. Carl remarked over dinner a few years back how much he enjoyed not having to answer to scads of meddlesome outside investors. And running a fund invites heightened scrutiny. So Carl has to be doing this for "a little bit more" money, right?

Make no bones about it: Icahn Partners (that's the fund's name) should be quite the green machine, if you know what I mean. The fund, which requires a $25 million minimum investment, is in the middle of raising a stunning $3 billion--of which Icahn is said to be putting up $300 million. Here's how he would make out: Carl & Co. will take a 2.5% annual fee and 25% of the net annual profits (compared with the 1% and 20% that are typical for hedge funds). Say Carl raises $2.7 billion from investors. That means they'll be paying $67.5 million in annual fees (2.5% of $2.7 billion). Then let's assume that Icahn returns 15% a year (which might be conservative since the proposal shows that Icahn has generated annual returns between 48% and 53% since 1990). A 15% return on $2.7 billion is a profit of $405 million. Take 25% of that and you get just over $100 million. So the new fund could generate $167 million for Icahn--in a subpar year.

Lucrative though that may be, I'm still not convinced that cash is the only motivation. It's likely that Icahn, 68, makes hundreds of millions a year running his own money. But he enjoys playing to win more than he does high living. And though Icahn isn't speaking publicly about the fund, a possible hint may be found on page 11 of its marketing materials. There Icahn answers the question "Why start a hedge fund now?" He points out that in the wake of the Sarbanes-Oxley law and with institutional shareholders becoming more outspoken, more investors are interested in Icahn's method of buying up shares of an underperforming company and agitating for change.

The marketing materials note, "Significant opportunities [exist] among companies with large capitalizations," and add, "Size serves as an advantage for the Partnership." Aha! I thought of another Wall Street saw: "Size always matters." Simply put, Icahn could be using this new fund to trade up.

If you look back over Icahn's 25-year record, you'll find a list of a couple of dozen target companies. Many are familiar names, such as RJR, Marvel, Marshall Field, TWA, and Western Union. Still, you have to wonder if Icahn has felt limited by the size of his operation. In the case of RJR, for instance, he committed $1.3 billion. That was a huge chunk of change for him, but it would probably be inadequate if he was gunning for larger game today. Consider three underachieving Dow stocks: GM, Hewlett-Packard, and Coke, which have market capitalizations of $22 billion, $60 billion, and $100 billion, respectively. To take on companies of that size, Icahn would require a bigger war chest. Memo to CEOs of those companies and others like them: Now Carl will have one.

ANDY SERWER, editor at large of FORTUNE, can be reached at Read him online in Street Life on and watch him on CNN's American Morning and In the Money.