SEGANTII Capital Management’s hedge fund faced nearly US$1 billion of withdrawal requests before its decision to shut down, sources familiar with the matter said, highlighting the impact on investor confidence from this month’s insider trading charge in Hong Kong.
While the fund’s rules allowed only monthly or quarterly redemptions before withdrawals were suspended on Thursday (May 23), some of Segantii’s largest investors had already indicated plans to pull their money. Founder Simon Sadler and chief executive officer Kurt Ersoy told staff on a call on Thursday that the fund would close, one of the sources said earlier.
The executives said the hedge fund will wind down in a measured fashion, and deferred questions on compensation and jobs, the source said. Ersoy declined to comment on the specifics of redemption notices.
The closing marks an abrupt end for one of Asia’s largest hedge funds that ran almost US$5 billion in assets as at last month and had attracted global investors for its stellar returns and knack for carrying out complex block trades of stocks.
About 140 employees, mostly in Hong Kong, New York and London, will be affected by the shutdown. Segantii on Thursday separately informed a new hire, slated to start next week, that the individual was no longer needed, a source with knowledge of the matter.
Hong Kong’s Securities and Futures Commission this month charged the firm, one of its former staffers and Sadler with insider trading tied to a block trade in 2017. “Segantii intends to defend itself vigorously against the charge,” the company said at the time.
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Segantii said that the fund’s directors have determined there’s a risk that the legal action may adversely impact the company’s ability to implement its investment strategy, according to a letter to investors seen by Bloomberg. The firm said it’s suspending redemptions “with immediate effect” in order to return cash over time.
“It is in the best interests of our investors to return their capital in an orderly manner,” a spokesperson for Segantii said. “We have always believed at Segantii that it is a great responsibility and privilege to professionally manage money and we have never taken that lightly.”
In a separate investor letter for April, the firm said it could liquidate 84 per cent of its portfolio within a day and 97 per cent within five days. Segantii’s illiquid holdings have included startups Klarna, Ola, Bundl and Enable, a source with knowledge of the matter said.
It’s a remarkable turn of events for Sadler, who earned a reputation as the region’s “block-trade king” and was sought after by Wall Street banks for generating high trading volume. Block trades are off-exchange, privately negotiated transactions involving large amounts of publicly listed shares.
The firm listed nine banks, including JPMorgan Chase, Goldman Sachs, BNP Paribas and UBS Group, as its prime brokers in a March performance update to investors. Global prime brokers with ties to Segantii have been limiting or assessing their positions with the firm, Bloomberg previously reported.
Funds managed by Goldman, and MIO Partners, a subsidiary of McKinsey & Co that invests on behalf of its pension plans, are among Segantii’s current investors, sources with knowledge of the matter said. Representatives for MIO and Goldman declined to comment.
Sadler, a former trader at Deutsche Bank, founded the firm in Hong Kong in late 2007 with US$26.5 million. The company opened offices in London, New York and Dubai, and produced strong investment returns from trading globally with a focus on Asia-Pacific stocks and equity-linked securities.
Segantii’s fund was up 2.9 per cent to April this year, according to the investor letter. Since inception, the fund returned more than 12 per cent a year, topping the 9.9 per cent gain in the S&P 500 Total Return Index, and the 5 per cent gain for a Eurekahedge Asia gauge, according to the update.
The consistent returns won over global investors, helping Sadler amass a net worth of at least US$360 million, which includes his ownership of the UK soccer team in his hometown of Blackpool. The firm had US$4.77 billion in assets at the end of April.
Meanwhile, the insider trading case against Segantii, Sadler and former trader Daniel La Rocca is moving to a higher Hong Kong court that can hand out longer sentences for convictions, according to sources familiar with the matter.
Hong Kong authorities plan to transfer the criminal proceedings to the District Court from a Magistrates’ Court that’s currently handling the case, the people said. The District Court can impose sentences of up to seven years in prison for convictions, compared with two to three years at the lower court.
Sadler and La Rocca appeared in the Eastern Magistrates’ Court on May 2 and did not enter a plea. The next hearing is in June. BLOOMBERG