Visium Asset Management, a multibillion-dollar hedge fund, has imploded in the biggest scandal to hit the industry in years.
The fund told investors of its plan to close in a letter Friday. It’s the most high-profile shutdown since authorities forced Steve Cohen’s controversial SAC Capital to close in 2013.
A slew of factors – from a brewing insider-trading scandal to a contentious investment by Visium’s founder that rankled investors and staffers alike – led to Visium’s demise.
On top of all of that, Visium’s flagship fund had been reporting dismal performance. Visium is selling one of its better performing funds to AllianceBernstein, it said.
Just days before Visium announced the shut down, one of its top portfolio managers – Sanjay Valvani – was charged with wire and securities fraud. He is accused of using insider information from a Food and Drug Administration official to place trades on drug companies ahead of key FDA decisions from about 2005 through 2011.
Two other former Visium portfolio managers, Christopher Plaford and Stefan Lumiere, were accused of purposefully miscalculating the price of securities so that they could charge investors inflated fees and mislead them about the fund’s liquidity.
The closure of the firm represents a remarkable turnaround: It managed about $7.8 billion firmwide at the start of the year, a 20% increase from the year before, according to Hedge Fund Intelligence.
The investigations Visium is facing would present a challenge for any firm. In a letter to investors announcing the closure, Jake Gottlieb, the founder of Visium, wrote:
[G]iven the uncertainty relative to the final outcome of the recent regulatory developments, the negative impact of the resulting publicity, and the substantial investor withdrawals, it became clear that maintaining the status quo was increasingly untenable for the firm.
Still, there are other issues at play here, too.
For one, Visium’s flagship fund was down 9.3% this year through May, while its competitors were up 0.2%, according to performance figures obtained by Business Insider. It’s a dramatic drop from where the fund had performed over the last several years, beating its index from 2011 up until last year.