Friday, 21 October 2016
Last updated 14 min ago
Oct 11 2013 | 1:01pm ET
One of the oldest fund of hedge funds in the country has been brought to the brink by a "personal transgression."
Portland, Ore.-based Common Sense Asset Management has seen more than 90% of its assets evaporate following the arrest of its CEO in a prostitution bust in August. Common Sense managed about $3.2 billion at the time of James Bisenius' arrest, but the 22-year-old firm will have less than $150 million at the end of the year, CNBC reports—assuming that more clients don't file to redeem.
After Bisenius' arrest, Common Sense said that he would remain its CEO and chief investment officer and would deal "with this recent event as the personal matter that it is." But investors apparently didn't feel that the arrest was merely a "personal transgression" that "bears no reflection on this outstanding team of professionals or the quality of portfolio management." Three public pension funds quickly redeemed, and wealth manager Americh Massena, which has invested with Common Sense for two decades, advised its clients to pull their money as well.
At least, investors feared that other clients would redeem due to the arrest.
"The biggest reason people pulled wasn’t to penalize them for the personal transgression," a source told CNBC. "It was more that everyone else might get out. 'Let's not be the last one to leave' was the mentality."
"It's a tough issue," Phillip Kapler, administrator for the Fresno County Employees' Retirement Association, one of the redeeming investors, added. "From our vantage it's a personal issue first and foremost and does not affect the business. But if it affects the morale or key people at the organization and it becomes detrimental to our interest, it would be a problem."
For others, the arrest may simply have been the last straw: Common Sense's returns have sagged, and two top portfolio managers left he firm earlier this year.
"I'm not surprised their assets have dropped," a source told CNBC. "There was already poor performance, lots of change in leadership. With this, it was like, 'OK, quit hitting your head against the wall.'"