Marinus Capital Closure Said to Be Triggered by Mismarked Trades

  • Credit hedge fund shut down in late April after seven-year run
  • Former money manager’s lawyer says he’s being ‘scapegoated’

The shutdown of Najib Canaan’s credit hedge fund Marinus Capital Advisors in late April occurred after an internal investigation determined the value of some of its trades were overstated, according to people with knowledge of the matter.

Canaan reported the activity to the U.S. Securities and Exchange Commission, and told investors he was closing Marinus as a result, said the people, who asked not to be identified discussing internal matters.

Marinus’s inquiry sought to find whether money manager Swapnil Rege, who left the firm in April, misled management over the trades in which different benchmarks were used on derivatives tied to interest rates, the people said. Rege’s lawyer, Jonathan Sack, said his client “is being scapegoated” and that “his managers directed him and approved all marks. There was no over-inflation.”

Marinus said in an emailed statement: “We have contacted the regulatory authorities regarding the conduct at issue and have no further comment.” Judith Burns, a spokeswoman for the SEC, declined to comment.

Marinus, which traded structured credit and managed about $455 million before it closed, saw double-digit gains last year. The firm’s internal probe examined whether Rege, 42, improperly selected the more attractive of two discount rates -- the London interbank offered rate, known as Libor, and the overnight index swap rate, or OIS -- to inflate marks on swaps contracts instead of consistently using the same benchmarks, the people said. A pattern of irregularities in his trading appeared during the second half of last year through February, they said.

Sack said he’s planning to sue Marinus on Rege’s behalf.

Fund Returns

Rege traded interest-rate volatility using derivatives such as swaptions at the firm. He joined Marinus in 2015 after a brief stint at Nomura Holdings Inc. and more than a decade at Citigroup Inc., where he had traded mortgage securities and interest-rate instruments.

Marinus posted a 13 percent gain in 2016 after single-digit returns in the previous three years, according to an investor letter seen by Bloomberg News. The firm told clients in a year-end letter that about 76 percent of its gains in 2016 came from its “tactical sub-strategy” that had mostly profited from “timely trades in rates volatility and from the rise in interest rates.”

The fund returned 3.3 percent in the first two months of this year. The HFRI Credit Index, which tracks credit hedge funds, returned 8.6 percent last year and 2 percent in 2017 through February, according to data compiled by Hedge Fund Research Inc.

Canaan’s Career

Marinus told clients at the time of the shutdown that any incorrectly charged fees would eventually be reimbursed in the event of the fund’s net asset value being restated, the people said.

Read more on Marinus Closure

For Canaan, the event mars a career spanning three decades. Canaan had worked at Brevan Howard Asset Management, Blackstone Group LP’s GSO Capital Partners, Nomura and Donaldson, Lufkin & Jenrette before starting his hedge fund in 2010. Based in Darien, Connecticut, Marinus had about 18 employees, according to its latest government filing.

Canaan told Marinus clients that he planned to return about two-thirds of their money by the end of May and the rest by September, people with knowledge of the firm said last month. Marinus had struggled to attract assets, one of the people said.

— With assistance by Dakin Campbell

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