Morgan Stanley is moving ahead with plans to spin off its FrontPoint Partners hedge fund through a management-led buyout in March after an insider-trading scandal threatened to derail the effort.
In a memo to employees obtained by The Post, FrontPoint Co-CEO Daniel Waters said the management-led buyout was on track after top executives and portfolio managers agreed to revise the deal terms with Morgan Stanley.
The memo, sent late Thursday night, came after Morgan Stanley said it would take a $126 million charge on the planned sale of its controlling interest in the hedge fund, which it acquired five years ago for $400 million.
FrontPoint’s decline in value stems from an insider-trading investigation involving one of its managers.
In November, prosecutors accused a French doctor of leaking confidential information about a drug trial to a hedge-fund manager later identified as FrontPoint’s Joseph “Chip” Skowron III.
Although FrontPoint wasn’t accused of wrongdoing and it suspended Skowron, the taint of the probe prompted clients to head for the exits and complicated the management-led buyout, which had been initiated in October.
FrontPoint’s $7 billion in assets has fallen to about $5.4 billion in just months.
Sources said the scandal has been quite vexing for FrontPoint hedge fund manager Steve Eisman, who rode to fame betting on the subprime mortgage crisis and was featured in Michael Lewis’ bestseller “The Big Short.”
In the memo, Waters tried to downplay a report in The Wall Street Journal that the high-profile Eisman was considering leaving FrontPoint to launch his own fund.
“Since the end of last year we have been in active discussions with Steve regarding evolving the nature his relationship with FrontPoint,” Waters wrote.
“This evolution would entail giving Steve more operating flexibility and control over his own destiny. . .As a part of the agreement we have been working on, Steve will continue managing money on behalf of clients for years to come.”