(Bloomberg) -- Jeff Talpins’s Element Capital Management will return about $4 billion to external clients, telling them it wants to be smaller to improve performance and move toward managing mostly its own capital. 

The hedge fund, which lost about 20% of investors’ money after three straight years of declines, isn’t returning capital on a pro rata basis, according to people with knowledge of the matter. Instead, it’s kicking out select smaller clients and allowing larger ones — some of whom pay higher fees — to stay in and potentially recoup their losses. The fund climbed 6.7% in the first quarter.   

Element charges most of its clients a 2% management fee and 40% of profits, though charitable groups such as endowments and foundations, which tend to be smaller, pay 2% and 20%.  

While Talpins is cutting the amount of client money his firm manages, he’s adding $500 million of his own capital to the hedge fund. 

Element will have roughly $5 billion of assets after the money is given back, split almost evenly between external and internal capital, said one of the people, asking not to be identified because the details are private.

A representative for New York-based Element, which communicated the decision to clients on Monday, declined to comment. The firm currently manages about $8.5 billion and will return the money by the end of this month. 

Read More: Downsizing Element Capital Aims to Run Mostly Internal Cash

Large hedge funds sometimes stop accepting new money and even return capital to avoid becoming too big, because size can be a drawback when navigating volatile markets. Generally, cash is returned on a pro rata basis. 

Element has been closed to new money since 2018. The latest capital return is its fourth in the past five years and takes the total cash it has given back to clients to $12 billion.  

Talpins has produced an annualized 14.8% return since he started trading for his hedge fund, which oversaw $18 billion at its peak. In an audacious move in July 2019, his firm raised performance fees to 40%. That caused some clients to redeem, helping to reduce capital by a fifth. 

Read More: Talpins Hikes Fees to 40% at Element Fund, Defying Industry 

Element started as part of Vega Asset Management before Talpins — who previously worked in fixed-income trading at Citigroup Inc. and Goldman Sachs Group Inc. — spun it out in 2007. His net worth is about $2.4 billion, according to the Bloomberg Billionaires Index.

(Updates with details about affected clients in second paragraph.)

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