Carl Icahn: market bear or savvy manager?

On the eve of the bull market's second anniversary, billionaire investor Carl Icahn had an unsettling message for his investors: Take your money back.

Icahn told investors in his hedge funds that he didn't want to be responsible to them for "another possible market crisis," especially given the rapid increases over the past two years. Stocks have nearly doubled since hitting 12-year lows on March 9, 2009.

Icahn, who has built a fortune from taking stakes in well-known companies and then pressing for changes, also said he was concerned about the economic outlook and political tensions in the Middle East. Icahn'stargets over the years have included Yahoo Inc., RJR Nabisco and Revlon.

"While we are not forecasting renewed market dislocation, this possibility cannot be dismissed," Icahn said in a letter to his limited partners. The letter was dated Monday and disclosed in a regulatory filing Tuesday.

Outside investors make up just 25 percent, or $1.76 billion, of the $7 billion in assets Icahn oversees. Despite losses in 2008, the funds have had returns of 106.9 percent since their inception in 2004. In the first two months of the year the funds have returned 8.7 percent.

Not everyone believes Icahn is returning his investors' money because he's bearish about the markets.

Jack Ablin, chief investment officer at Harris Private Bank, said Icahn is likely trying to avoid regulatory scrutiny. Under new laws, hedge funds have to register with the Securities and Exchange Commission and allow the agency to inspect them.

"Why submit yourself to regulatory scrutiny when you don't have to?" asked Ablin. "But I think if he had spelled it out that way, it wouldn't have gone over too well."

Icahn is known as a corporate raider with a personal fortune estimated by Forbes to be worth $11 billion, mostly from forcing changes at companies in which he invests.

"When you have that kind of money, why bother with limited partners? Most hedge fund managers dream of managing just their own money," said Michael R. Levin, who writes the blog The Activist Investor.

In his letter, Icahn said he was bothered by the losses the funds incurred in 2008 and the fact that many of the investors withdrew large amounts of cash at the time.

For the kind of activism that Icahn is involved in, it didn't help that investors were pulling their money out. Activist investors operate in some ways like private-equity funds, said Damien Park, managing partner at Hedge Fund Solutions, which advises investors and companies on shareholder activism.

Park said that such flight of capital hurts their longer term strategies since they need to have ample capital on hand to manage an activist campaign, which can run as long as two or three years.

By allowing his investors to cash out, Icahn is back to relying on his own funds.

"At the end of this, he will still manage a sizable fund and he is still Carl Icahn," says Park.