Icahn Gives Son $3 Billion to Prove His Worth

Posted by - Thursday, August 16th, 2012

No matter how parenting styles differ, most parents have one thing in common: the desire to see their children succeed and live well.

This isn't any different for the billionaires of the world. Whether they encourage their children to be successful on their own or choose to give them a boost, their innate wishes are the same.

And recently, Carl Icahn decided to push his son down his own path. To see if his son was cut out for the investment world, he allocated $3 billion to him for investments only.

Brett Icahn, together with partner David Schechter, will enter into a legal agreement to invest the $3 billion in companies valued between $750 million and $10 billion.

This isn't the first time Brett has handled a portion of investments for his father. In April 2010, his father allocated $300 million to him and Schechter for companies with stock market values under $2 billion.

The two must have had a knack for it, because the portfolio returned a 96% gain, incentive for Icahn to test them with even more.

Carl Icahn told Bloomberg:

“These two guys doubled our money over the last two years. You can't complain about that.”

$2.4 billion of the investment fund will come from Icahn Enterprises LP (NASDAQ: IEP), Icahn's company, while the additional $600 million will come from High River LP, a company in which Icahn invests.

Carl Icahn is 76 years old. The arrangement with his son and Schechter will end in four years, when he turns 80.

While in part it will allow Icahn to focus on larger investments and his company, it will also further his 33 year old son's experience in investing and possibly set him up as a managing heir.

Schechter has been with Icahn Enterprises since 2004. He is on the board of WebMD Health Corp. (NASDAQ: WBMD) and Federal-Mogul Corp. (NASDAQ: FDML), companies in Icahn's portfolio, and he previously worked with an investment division at Citigroup Inc. (NYSE: C).

Brett has also served on the boards of a number of companies, including Take-Two Interactive Software Inc. (NASDAQ: TTWO) and Hain Celestial Group Inc. (NASDAQ: HAIN).

From Bloomberg:

“You see this in the larger investment houses,” said Gary Goldstein, the chief executive officer of New York-based Whitney Group LLC, an executive search firm that focuses on financial services.”Steven Cohen does a very similar construct and Julian Robertson had a very similar concept,” Goldstein said, citing two hedge-fund managers known for hiring young traders who go on to form their own firms.

Following the agreement with the elder Icahn, Brett and Schechter may go on to create their own fund. High River and Icahn Enterprises would invest $20 million in this fund in exchange for 15% gross management and incentive fees.

Under the agreement, the two must report to Icahn for approval on certain investments. They will receive a payment of 7.5% on profits exceeding an annual 4% compound hurdle rate.

The agreement was reached on July 24.

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