The Wall Street Journal – FrontPoint to Transfer Handling of Credit Fund
By Jenny Strasburg, August 20, 2011
FrontPoint Partners LLC, the hedge-fund firm rocked by an insider-trading case involving one of its former managers, continues to shrink.
The Greenwich, Conn.-based investment firm has agreed to transfer management of its three-year-old Strategic Credit Fund, one its few remaining hedge funds, to MatlinPatterson, the New York firm best known for its private-equity business, according to a letter sent to FrontPoint clients signed by the fund’s co-managers. The development was confirmed by a MatlinPatterson executive.
MatlinPatterson manages $9.5 billion in assets and has been expanding its hedge-fund assets by acquiring investment teams. The FrontPoint Strategic Credit team is expected to bring over between $150 million and $180 million in assets Oct. 1, according to a person familiar with the matter.
Parent firm FrontPoint Partners will be left with about $1 billion in assets, down from $10 billion at its peak and $7.5 billion last fall when insider-trading accusations surfaced involving one of its former fund managers.
Most of the firm’s remaining $1 billion is in a direct-lending fund that required clients to commit money for several years, say people familiar with the firm.
A FrontPoint Partners spokesman declined to comment. Noelle Savarese and Marc Rosenthal, co-managers of the FrontPoint credit fund that is separating from FrontPoint Partners, didn’t respond to requests for comment Friday. They said in the letter that they will continue to oversee the FrontPoint fund at MatlinPatterson.
The credit fund had about $500 million in assets earlier this year, according to a public filing, but it has been hit by redemptions like the rest of the firm, and has shrunk to around $160 million.
Earlier this year, FrontPoint Partners closed its biggest hedge fund after executives, in consultation with investors, decided the firm’s assets had shrunk too much to support the many underlying investment teams and administrative costs. Pension funds and other big investors were spooked by the insider-trading scandal, even though FrontPoint and its executives weren’t accused of wrongdoing.
This past week, the former FrontPoint manager involved in the insider-trading case, Joseph F. “Chip” Skowron III, pleaded guilty to criminal charges that he used secret tips from a French doctor working on clinical drug trials to avoid millions of dollars in trading losses. The 42-year-old fund manager admitted to directing trades in six FrontPoint health-care funds in January 2008 based on inside information. At his hearing in Manhattan federal court, Mr. Skowron said, “I knew my actions were wrong and I deeply regret my participation in these activities.”
In April, FrontPoint agreed to pay $33 million to regulators for alleged losses that it avoided by selling shares. FrontPoint funds were named as relief defendants, meaning they were asked to disgorge the money without admitting or denying wrongdoing.