FrontPoint Partners LLC plans to close down its $1.5 billion health-care hedge funds after a portfolio manager allegedly received tips about the results of Human Genome Sciences Inc. trials for the drug Albuferon, according to a person briefed on the firm’s plans.
The firm expects to return capital to clients before the end of this month, said the person, who asked not to be named because the funds are private.
Dr. Yves Benhamou, 50, a French doctor and former adviser to Rockville, Maryland-based Human Genome, was charged Nov. 2 by prosecutors in the office of Manhattan U.S. Attorney Preet Bharara with insider trading and conspiracy. He was granted $3 million bail by a New York judge on Nov. 17.
FrontPoint, a Greenwich, Connecticut-based money-management firm that’s being spun out of Morgan Stanley, said on Nov. 2 it is “cooperating fully” with federal authorities. Dr. Chip Skowron the co-portfolio manager of the firm’s health-care funds who allegedly received the tips from Benhamou, was placed on leave pending the outcome of the probe, FrontPoint said.
The firm, which manages about $7 billion, and Skowron haven’t been accused of wrongdoing. Steve Bruce, a spokesman for FrontPoint, declined to comment.
Benhamou, who was arrested this month in Boston, repeatedly shared nonpublic information he gleaned from working for Human Genome with a co-conspirator at an unnamed hedge fund, prosecutors alleged in court papers. For example, on Jan. 18, when the company asked Benhamou for advice on a news release to disclose negative information about the Albuferon trial, he immediately shared the development with his co-conspirator, prosecutors said. The co-conspirator at the hedge fund seven minutes later directed a trader at the fund by instant message to “sell the HGSI” and “all of it,” prosecutors said.
The alleged tip allowed the fund to avoid about $30 million in losses, according to a lawsuit filed by the U.S. Securities and Exchange Commission in early November against Benhamou.
Before joining FrontPoint, Skowron was an analyst at hedge funds Millennium Partners LLC in New York and SAC Capital Advisors LLC in Stamford, Connecticut, according to the firm’s marketing documents.
Morgan Stanley, the sixth-largest U.S. bank by assets, is spinning out FrontPoint four years after acquiring it as part of a push into alternative assets. FrontPoint’s managers, led by co-Chief Executive Officers Daniel Waters and Michael Kelly, will gain a majority stake in the asset manager and replace New York-based Morgan Stanley’s affiliates as the funds’ investment adviser and general partner.
The FrontPoint Healthcare Flagship Fund returned 0.7 percent this year through September and 6.4 percent annualized since inception in 2003, according to an investor letter. The FrontPoint Healthcare Flagship Enhanced Fund rose 2.2 percent this year and 9.2 percent a year since its 2006 start. The firm also runs the FrontPoint Healthcare Horizons Fund.
Hedge funds climbed an average of 4.2 percent this year through October, according to data compiled by Bloomberg.