Odey Asset Administration’s combat for survival

Odey Asset Administration is in new and harmful territory after JPMorgan Chase served discover on its settlement to safeguard property for the hedge fund’s purchasers as its custodian.

Having a custodian — banks that maintain buyer securities to stop them being misplaced or stolen — is a authorized requirement for a hedge fund to function within the UK, and Odey Asset Administration could be in breach of the Monetary Conduct Authority’s rule guide if it tried to function with out one, in accordance with one particular person aware of the regulator’s place.

The FCA’s rule guide additionally requires the outgoing custodian to discover a substitute, one thing market sources say could possibly be difficult on this case: most of Odey Asset Administration’s enterprise companions have severed ties within the wake of allegations of serial sexual assault dedicated by the agency’s founder, Crispin Odey, which had been detailed in a Monetary Instances investigation final week. He strenuously denies the allegations.

“Now it’s a three-way recreation between Odey [Asset Management], the regulator and the service supplier,” says a former regulatory official who has beforehand overseen winding downs.

“If there are not any suppliers who’re going to assist Odey [Asset Management], the result is pre-determined, which is that they’re in wind-down, however you do want the regulator to play referee right here and ensure it doesn’t get messy,” explains the previous regulatory official.

In such conditions, the FCA will give attention to making certain that the hedge fund’s underlying buyers are protected, which implies having a custodian for his or her property, in addition to having their funds serviced and managed within the regular manner.

A fund administration knowledgeable stated within the occasion of a wind-down, funds would probably be liquidated to return cash to buyers, though not like the state of affairs with Neil Woodford — the previous star supervisor whose fairness fund was frozen and trapped £3.7bn of buyers’ money — it could in all probability not lead to a hearth sale of property.

The FCA declined to touch upon whether or not it could pressure JPMorgan to remain in place if no different establishment steps up. The Wall Road financial institution declined to touch upon whether or not it had discovered a substitute custodian to tackle the enterprise.

Odey Asset Administration didn’t instantly reply to requests for touch upon whether or not it could be compelled to wind-down if a brand new custodian doesn’t come ahead.

The truth that JPMorgan served its termination discover after the hedge fund agency’s companions voted to take away its founder on the weekend hints on the troubles forward for Odey Asset Administration.

JPMorgan can be one among Odey Asset Administration’s greatest prime brokers, lending the hedge fund cash so it will possibly expand bets, and promoting it derivatives to handle the chance of investments. JPMorgan has additionally served discover on its prime broking relationship with the agency, the FT reported on Wednesday.

Morgan Stanley, Odey Asset Administration’s different huge prime dealer, started slicing ties final week and has up to now not softened that stance. Goldman Sachs’ worldwide chief govt, Richard Gnodde, advised Bloomberg that the financial institution was nonetheless “within the technique of transferring away” from Odey Asset Administration.

The companions who now management Odey Asset Administration have moved to impose order on the state of affairs. On Sunday night time, they introduced plans for the longer term stewardship of the funds that Crispin Odey ran, together with the Odey Europe Inc fund and Odey OIE Mac funds, each of which had been handed to Freddie Neave.

To defend buyers and the agency from giant withdrawal orders, Odey Asset Administration has closed one fund and gated others. The agency this week despatched letters to buyers saying the €117mn Odey Swan fund could be liquidated and cash returned to purchasers. It additionally stopped withdrawals from its Brook Developed Markets and Absolute Return funds, following a surge in redemption requests from buyers.

Ryan Johnson, head of Lloyd Professional Consultancy, which advises the fund administration market, warns extra Odey funds may face gating and closure. “The managers all have credible pedigree that ought to result in them managing different funds and even their very own fund vary if all of the Odey and Brook funds are to shut down,” Johnson stated. Odey declined to remark.

Nonetheless, important hurdles stay, even when Odey Asset Administration can discover new prime brokers and a substitute custodian. Untangling the agency from its founder isn’t easy. Odey personally managed round $1.2bn of property, about half of which is his cash. Earlier than this week, he owned a majority of Odey Asset Administration’s holding firm and subsidiaries.

The partnership had already taken some steps to distance Crispin Odey from the remainder of the fund managers in 2020 when it created the Brook subsidiary to accommodate a few of the agency’s greatest funds forward of his legal trial on a cost of indecent assault of a junior banker. He was discovered not responsible. Others of the agency’s fund managers, together with James Hanbury, had their merchandise rebranded with the Brook moniker.

Odey Asset Administration will now be managed and owned by the remaining companions, they stated, though they haven’t but launched particulars of its new possession construction. “You’ll be able to’t change all of the possession in hours,” stated one particular person aware of the agency’s internal workings.

The agency additionally stays below investigation by the FCA, which was taking a look at company governance points and is contemplating broadening its probe in mild of final week’s allegations of sexual assault and harassment towards Odey, the FT beforehand reported.

A former Odey accomplice stated questions needed to be requested of the agency’s present administration. “All of us left due to our integrity [ . . . ] The straightforward query is: why did you keep when others left?”