If Carl Icahn Lost 20% in 2016, What Hope is There?

Carl Icahn is one of the most notable investors in the United States and, likely, in history. His views are so widely known and respected that the "Icahn lift" was termed to describe the rise in stock prices that typically occurs once the billionaire begins to invest in a failing company, based solely on the confidence that Icahn has made a good bet. And so, when Barrons and Bloomberg both reported that the investment titan had reported losses of more than 20% from his $6 billion hedge fund in 2016, many analysts' ears perked up. Considering Icahn's status, what could this mean for the investing world as a whole?

2016 was in fact the second year in a row in which Icahn's fund posted astonishing losses. 2016's loss of 20.6% topped the decline of 18% that he saw in 2015, according to information available from a regulatory filing and pertaining to Icahn Enterprises. What could have caused the losses?

One possible reason is the broader climate for hedge funds. 2016 saw criticism of the hedge fund model come to a climactic high point, as investors across many areas decided to pull assets from many funds in search of safer investment waters elsewhere. These disgruntled investors tend to see hedge funds as stuck in an old mode of business, including high fees and maintenance responsibilities. These may have once been worth the trade off in exchange for excellent returns, but with returns across the industry slipping, many feel that they are no longer a good investment.

Icahn may also have been troubled by his persistent bearish position, with his fund maintaining a major short position in U.S. equities even as the S&P 500 climbed by 10%. Icahn's determination to remain fixed in that position is admirable: his fund had a net short position totaling 138% for the third quarter of 2016.

Icahn, who was one of the major supporters of Donald Trump among Wall Street elite, interestingly was unable to make impressive gains off of the market rally that occurred in the period immediately following the election. Although he did say that his fund purchased a sizable amount of stock on the night of the election, it seems likely that these moves may have been primarily to reduce his net short position. In the end, the fund lost approximately 8% in the fourth quarter, compounding losses of 12.7% for the first three-quarters of the year.

Could Icahn's losses mean the end for the hedge fund industry? Possibly, but there are nonetheless other investors looking for new ways of securing comparable returns to the hedge fund days gone by. Icahn may have to revitalize his thinking in order to remain in the top, though.