Following in the footsteps of Kleinheinz Capital, the hedge fund Diamondback Capital Management is also closing its doors to business. The fund has decided to close after a number of investors asked for reimbursement of invested capital. The fund founders told its investors that the decision was made after it received requests for re-compensation of 26 percent of the total assets under management. After returning the capital, the fund will be left with $1.45 billion in AUM.
“We are grateful to have had the privilege of managing your money and developing a seven-year track record of which we can be proud,” wrote the fund’s founders Richard Schimel and Larry Sapanski in the investor letter.
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Diamondback Capital used to manage $5.8 billion in 2010, the assets plummeted after the fund was accused of insider trading and its offices were raided by FBI agents. The government investigation on the trading case was spread over the last two years in which the fund made a non-prosecution agreement with the government and paid $9 million in damages. However, Todd Newman, a former portfolio manager at Diamondback, is on trial on charges that he executed trades based on inside tips. Newman is accused of insider trading of technology stocks, a charge to which he pleads not guilty.
In the November, 2010 raid, other funds, like Level Global Investors, were also raided. All the other accused funds had to close shop, but Diamondback continued to operate in the last two years despite the criminal accusations.
The fund managers clarified in the investor letter that the decision to close the fund was only due to the decline in assets, as there have been speculations that the reason for shutdown is the present case in court against Todd Newman.
Currently, the firm manages just close to $2 billion and has 133 employees. The year to date returns for the fund are up 5.85 percent. It is an interesting coincidence that the managers and founders of Diamondback Capital Richard Schimel and Larry Sapanski have previously worked at S.A.C. Capital Advisers with Steven Cohen. A portfolio manager at S.A.C, Mathew Martoma, is also accused of involving in an elaborate setup of insider trading. Steve Cohen is not named himself in the charges.
Other funds who have decided to close this year are, Kleinheinz Capital, Brencourt Advisors LLC, and Weintraub Capital Management LP.