FrontPoint Inundated With Redemptions

Nov 29 2010 | 11:26am ET

FrontPoint Partners could lose as much as 40% of its assets under management following the arrest of one of its former advisers on insider-trading charges.

The Greenwich, Conn.-based firm told investors that is has received redemption requests totaling about $3 billion. The hedge fund, which is being spun-off from Morgan Stanley, currently manages about $7.5 billion.

Half of the redemption requests came from investors in FrontPoint's healthcare hedge funds, the firm said. Earlier this month, FrontPoint said it would close those funds following the suspension of lead healthcare manager Joseph Skowron. Skowron is believed to be the unidentified "co-portfolio manager" named in the case against Yves Benhamou, the French doctor accused of passing a tip about a disappointing drug trial.

FrontPoint has acknowledged that it is one of the unidentified hedge funds referenced in the Benhamou indictment. Neither the hedge fund nor Skowron have been accused of any wrongdoing.

FrontPoint told investors that it is "managing the situation."

The firm also said that it had finished liquidating its healthcare funds on Wednesday. Investors received 97% of the funds' net asset value in cash. FrontPoint also expressed optimism that "several clients" would rescind their redemption requests, and estimated that the firm would manage $5 billion after those requests not rescinded were filled.

"We would like to emphasize that FrontPoint remains stable operationally and financially," CEOs Daniel Waters and Michael Kelly wrote. "We are confident that the business will continue to thrive and deliver our investors superior risk-adjusted performance, client service and investment-team diversification."

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