More hedge fund agita is spreading through Stamford, Conn., the small coastal city that is home to some of the largest and most successful hedge funds in the US.
One of those giants, Diamondback Capital Management, which survived insider-trading-related FBI raids in 2010, is shutting down due to an unexpected flood of investor redemption requests.
Despite posting better- than-average 6 percent returns in 2012, investors have asked for withdrawals of $526 million, or 26 percent of the fund, according to a letter to investors that was obtained by The Post.
The withdrawals, set to go out the door Dec. 31, will leave the firm with assets of just $1.45 billion, the letter said. That is too little cash to continue the firm’s strategy, sources said.
“Rather than continue to manage this reduced level of assets, we have decided that the most prudent course is to wind down and terminate the funds and return investor capital,” the firm’s founders, Richard Schimel and Larry Sapanski, said in the letter.
Schimel and Sapanski founded Diamondback in 2005 after leaving Steve Cohen’s SAC Capital Advisors. The firm has only had one year of negative returns since its founding, a person familiar with the firm said.
Among investors pulling the plug is the New York State Common Retirement Fund, headed by State Comptroller Thomas DiNapoli, a person with knowledge of the matter told The Post.
New York had $252.3 million in Diamondback as of March 31, but began redeeming earlier this year and is still in the process of withdrawing its money, this person said. He added that it was an “investment decision” and not related to any headline risk associated with the firm.
Diamondback had roughly $5.3 billion in assets when it was raided by the FBI in November 2010. It was able to survive after convincing both investors and the government that top brass was unaware of the illegal tips, which were coming from tech titans Dell and Nvidia.
Jesse Tortora, a technology analyst with Diamondback, pleaded guilty to insider trading. His former boss, Todd Newman, is currently on trial in Manhattan federal court for profiting from Tortora’s tips.
The founders said they anticipate the majority of investor capital will be returned in January. No management or incentive fees will be charged for January, they said.