Little Rhode Island Delivers Devastating Blow to Hedge Funds

According to a recent article published in FINtech, the Rhode Island State Investment Commission has announced its decision to redeem $534 billion invested in seven hedge funds.

This enormous sum does not include the $51 billion it plans to redeem from Viking Global. This reduces Rhode Island’s exposure in Viking Global by 50 percent and brings the total of hedge fund redemptions to a whopping $585 billion from eight firms. In comparison to the seven hedge fund firms from which the state is withdrawing all invested monies, this may be interpreted as a vote of confidence in Andreas Halvorsen’s Viking Global.

In as much as FINtech disclosed the identities of the hedge fund firms that the Rhode Island State Investment Commission will hit with a one-hundred percent redemption, drilling down into these seven firms may provide insights into the reason(s) behind this move.

Ascend Partners

Malcolm Fairbairn’s Ascend Partners is down just under five percent year-to-date. One probably needs to look no further than this.

Brevan Howard Fund

Brevan Howard’s Brevan Howard Fund is in the red, just below three percent year-to-date. Again, there is likely no reason to delve further into the reasons behind the Rhode Island State Investment Commission’s decision.

Brigade Capital Management

Donald Morgan’s Brigade Capital Management pursues a credit strategy, and although no specifics could be found with respect to year-to-date performance, it is widely acknowledged that hedge funds pursuing this strategy can usually be found near the bottom of the performance heap.

Emerging Sovereign Group

No derogatory information was unearthed regarding J. Kevin Kenny’s Emerging Sovereign Group. This redemption may boil down to philosophical differences revolving around Yum Brands Inc. (YUM), which the fund sold-off even as its market valuation was on the rise.

Och-Ziff Capital Management

Daniel Och’s Och-Ziff Capital Management found itself embroiled in an FCPA criminal investigation that resulted in a settlement of around $413 million. Apart from being the first hedge fund ever to be charged for a violation of the FCPA, the Och-Ziff African subsidiary acknowledged wrongdoing. These facts could offer sufficient motivation for the Rhode Island State Investment Commission to part company with Och-Ziff Capital Management.

Partner Fund Management

Chris James, limited partner and portfolio manager of Partner Fund Management is suffering a major distraction in the dust-up with Theranos after having invested just over $96 million in the company. Theranos has acknowledged being under criminal investigation by the U.S. Department of Justice and under civil investigation by the SEC. The Rhode Island State Investment Commission may feel this ongoing litigation will prove a distraction for the firm. It also is possible that Partner Fund Management’s judgment is in question…or both.

Samlyn Capital

Robert Pohly’s Samlyn Capital may be a similar case to that of Emerging Sovereign Group – one of philosophical differences. The fund sold off a substantial portion of its stake in Constellation Brands Inc. (STZ) as share prices were rising.

What Does This Mean for Hedge Fund Jobs?

It means that just as prospective employers vet you, so should you vet prospective employers. Be wary of signing up with under-performing funds and funds that stray from their chosen strategy. It is also a good idea to steer clear from those employers who have had an unsuccessful brush with the law.




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