Last week, Coatue Management announced plans for its first-ever interval fund, a new direction for the firm that will significantly widen its potential investor base while providing more flexibility in investment duration.
Unlike a traditional fund, this closed-end structure will allow LPs to cash out at regular intervals, with Coatue’s formation allowing withdrawals once per quarter. The firm plans to deploy the fund’s capital across its public hedge fund strategies and private growth and venture markets, while maintaining a healthy cash reserve to manage risk.
“We tried to design something that plays to our strengths,” said Coatue’s founder Philippe Laffont. “Our strength was we got the public markets, we got the private markets, and then we've got risk management with the cash and knowing when to be in and out. I would suspect that other firms will do the same” and copy the structure.
Laffont said the traditional investing model has become too rigid and formulaic, leaving little room for true active management. “In essence, the BlackRocks and the Vanguards of the world make it that almost everybody wants to invest in an index. And as a result of that, the people who are still active managers: they're all basically closet indexers.”
He added, “Since everybody needs to be indexed, everybody needs to be fully invested at all times. I'm like…why is it that you want to be fully invested when you're already down 10%. Things are not working? Why not raise cash a lot? You know, freshen up your ideas a little bit. Go take a long walk on the beach and try to understand that maybe you've made some mistakes.”
Because it is structured as an interval fund, Coatue will offer significantly lower fees since investors are committing their capital for longer periods, though not permanently. The fund will charge a 1.25% management fee plus 12.5% of annual profits, a meaningful reduction from the typical 2% and 20% fee structure. LPs will also benefit from a simpler tax process, receiving a standard 1099 form instead of multiple complicated K-1s typically associated with private funds.
Coatue is additionally changing who gets to participate as well. Normally, their minimum check size is $5 million, but this new fund structure lowers that to $50 K.
“The number of people that can join the fund is much greater and the amount of money they can put in is also much smaller,” Laffont said. “As a result of that, you're reaching a wider audience....I look at it a little bit like this is the democratization of tech investing, and I really believe in it. I've been doing my thing for 30 years for institutional investors. Why can't I do it for people who don't have access?”
When asked about the fund’s target size, Laffont said he approached it with a bit of humor: “I had read — and I don't know if it's true — that the largest fund that was ever launched was one of Blackstone’s first at $1.3 billion. Then I said, okay, I need to launch a fund that's $1.301 billion so I can claim that it's the largest launch ever.”
Coatue’s new fund has already received an early $1 billion commitment from the Bezos and Dell (the PC company) family offices and will be accessible to the broader investor base through major wealth management firms like UBS and J.P. Morgan.
Learn more: CoatueCTEK.com
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