A British media mogul has sued GLG Partners over a £20 million loss he suffered on a 2007 derivatives deal.
Richard Desmond, head of Northern & Shell, which owns, among other things, the Daily Express and OK! magazine, alleges that the Man Group unit failed to warn him of the risks of investing in constant proportion portfolio insurance. Desmond sunk about a quarter of his £200 million fortune into the swap, which his lawyers called "incomprehensible except to an expert."
According to Desmond's lawsuit, GLG misled him about the risks inherent in the transaction and failed to note that there could be "unpredicted, unpredictable or unmanageable losses." He is seeking £20 million.
For its part, GLG scoffed at the idea that Desmond didn't know what he was doing, and that, in any event, it hadn't advised him in the transaction. The swap was linked to the performance of GLG's funds.
Desmond is a "sophisticated investor with significant prior experience of investing in hedge funds and structured products," including GLG funds, the firm said. And he invested in the swap "in full knowledge of the risks associated with investing in hedge funds" after deciding "independently… to enter into the transaction, having had the benefit of specialist advice and input from a team of skilled and experienced advisers."
Desmond suffered his loss when he asked that the investment be unwound in 2008. According to GLG, he did so knowing "that by terminating the transaction, he would lose the benefit of capital protection and was likely to suffer substantial losses, but he hoped to identify the most advantageous moment to unwind the transaction and limit his potential exposure."
Desmond has also sued Credit Suisse, which structured the swap. A judge in October combined his claims against the bank and the hedge fund and scheduled a trial for next January.