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Hedgemedia’s AltInvestment Global News Round-Up: SEC quizzes hedge fund managers over Bear and Lehman rumour-mongering

The US Securities and Exchange Commission has sent subpoenas to more than 50 hedge fund managers, including Citadel and SAC, in its probe to ascert

The US Securities and Exchange Commission has sent subpoenas to more than 50 hedge fund managers, including Citadel and SAC, in its probe to ascertain the part played by rumour-mongering in the decline of the share prices and market standing of Bear Stearns and Lehman Brothers.


Through the subpoenas, sent out over the past couple of weeks, the SEC has asked managers for information on trading and communication with other parties related to short selling and options trading in the two investment banks. The move is part of a broader inquiry that is still in its early days.

Founder John Devaney has decided to liquidate United Capital after the firm was unable to meet a margin call by Deutsche Bank, which wanted United to add extra collateral to back its loans. Deutsche seized and auctioned off securities held as collateral after it failed to meet its demands. Last July Devaney suspended redemptions from four funds under the Horizon banner that invested in junk bonds, and which had lost 90 per cent of their value by September. Some investors have filed arbitration claims against Devaney.

The Children’s Investment Fund Management, headed by star activist manager Chris Hohn, recorded a 12.5 per cent loss last month, equivalent to a decline in assets of USD1bn. Last week TCI finally admitted defeat in its effort to double its stake in Japanese electricity wholesaler J-Power after the Tokyo government blocked the move on hitherto unused national security grounds.

USD15bn fund of hedge funds manager Gottex Fund Management has filed a complaint against Stewardship Investment Advisors and its managing director, Marlon Quan, alleging fraud, intentional and negligent misrepresentation and breach of the covenant of good faith and fair dealing.

Gottex bought some USD100m worth of class A shares in Stewardship’s credit arbitrage fund between 2005 and 2007. But when it threatened to withdraw its money in 2006 because of low returns and high fees, Stewardship agreed to lower its management fees. Despite agreeing to allow Gottex to withdraw funds this year, it paid out mainly in participatory notes, dividends collected from underlying securities that are provided to investors.

Former Lehman Brothers finance chief Erin Callan has joined Credit Suisse as global head of the bank’s hedge funds business. Callan was demoted from the opposition of chief financial officer after the New York bank reported an embarrassing USD2.8bn loss in the second quarter, just six months after being appointed. Meanwhile, Lehman is considering whether it should go private, an idea floated by Fox Pitt Kelton analyst David Trone in a recent report. Going private would protect it from shorting, fuelled by rumours that have hammered its stock in recent months.

Metals and mining giant Arcelor Mittal has launched two venture funds to invest in clean technology and carbon. The Luxembourg-based firm, the world’s largest steel producer, will invest alongside firms including Bessemer Venture Partners, Khosla Ventures and Kleiner Perkins.

Ronald Cohen, co-founder of British private equity firm Apax Partners, has bought a stake in Millennium Global, a USD15bn firm run by Michael Huttman, and Jacob Rothschild’s investment trust RIT Capital has increased its minority stake. Huttman, a former Goldman Sachs manager, established the hedge fund manager in 1994.

Melissa Ko, a former star trader at Bear Stearns Asset Management, has set sail with her own firm, Covepoint Capital, and launched its inaugural fund with nearly USD1bn in assets. At Bear, Ko ran a strongly performing emerging markets macro fund that at its peak had assets of USD2.4bn.

Financial Risk Management, which manages USD15bn in funds of hedge funds, has hired Au King-Lun as chief executive of its Hong Kong office. He previously worked for 11 years with HSBC’s global asset management business, most recently as head of institutional business for the Asia-Pacific region. He will join in September and will be responsible for FRM’s operation in Asia, excluding Japan and Korea.

Thomas Mahala and Jason Miller have joined BNP Paribas. Mahala, who will co-head its hedge fund relationship management business along with Chris Lane, previously worked at Banc of America Securities, as did Miller, who comes on board as senior relationship manager.

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