Former Pine River Partner Kuhn Fighting Fund Over Exit Payout

  • Fund claims Kuhn seeking millions more than he’s entitled to
  • Kuhn countersued claiming Pine River founder reneged on deal

After Pine River Capital Management partner Steve Kuhn announced on live television last year that he was “trying to take a new path in life” to “find ways to help the world,” a bitter legal battle ensued instead.

Pine River sued Kuhn in September, claiming he demanded millions of dollars more in severance than he was entitled to under the company’s Limited Partnership Agreements. Kuhn countersued claiming Pine River’s founder and majority owner Brian Taylor reneged on a deal to boost Kuhn’s stake in the firm, reducing it instead. Pine River asked a judge in February to dismiss Kuhn’s counterclaims, and is waiting for a decision. 

Steve Kuhn

Photographer: Munshi Ahmed/Bloomberg

The legal dispute hasn’t been reported before and some documents were unsealed earlier this month. Much of Pine River’s complaint is redacted, with some financial details in the countersuit also blacked out.

The dispute is another challenge for Pine River. The company, which manages $9 billion, has closed funds and seen staff departures in the past year. The legal fight follows Kuhn’s unusual step last year of announcing in a Bloomberg Television interview that he was stepping back from his role as money manager. He offered to transfer his economic interest in Pine River to the firm’s charitable foundation.

While Kuhn’s “desire to donate to charity is noteworthy, at issue is the terms and payments owing to defendant upon his departure,” the company said in its initial complaint. “Despite all efforts to reach an agreement,” Kuhn refused to accept the fact that the terms of the LPA govern his exit package, Pine River said.

Here is Kuhn’s Bloomberg Television Interview

Kuhn claimed that when he joined in 2008, Pine River was a “struggling” hedge fund where Taylor was using his own money to “stem the bleeding.” Kuhn’s success as the head of the firm’s fixed-income fund “stabilized” Pine River and “catapulted” it into a global brand, he said in court documents.

Because of “the importance of his contributions” Kuhn’s ownership of the firm increased from nothing in 2008 to 18.45 percent in 2014. At that point Kuhn said he made a deal with Taylor to increase his stake to 25 percent, based on the profitability of the partnership. Kuhn agreed to give up his $3.4 million bonus in 2013 in exchange for a 0.75 percent increase in his partnership stake and an additional annual increase of 1 percent for every $50 million in firm profits, capped at 2 percent per year, he said.

Almost as soon as the deal was reached, Taylor began to breach it, Kuhn said. Taylor cut Kuhn’s 2015 bonus to zero, reduced his draw in 2016 by 85 percent to $600,000 and cut Kuhn’s percentage share of the firm’s partnership to less than where it was prior to the 2014 agreement, according to the countersuit.

Fund Closure

Pine River said according to the LPA, the general partner -- Taylor -- has the “sole discretion” to increase or decrease any partner’s interest. The LPA also allows the hedge fund to fire Kuhn at any time, Pine River said.

The $1.6 billion fixed-income fund Kuhn helped oversee lost money in 2015 and 2016, according to investor documents. Two months after Kuhn announced he would step back from active money management, Pine River told investors it was closing the fixed-income fund.

“Mr Kuhn has no comment on the pending litigation and his focus remains on his philanthropic efforts,” said Benjamin Plaut, Kuhn’s lawyer. A spokesman for Pine River declined to comment.

Pine River, whose mortgage bond bets after the global financial crisis helped funds under management surge, is liquidating its $560 million China hedge fund after a second year of losses, a person with knowledge of the matter said last week.

The case is Pine River Performance LP v. Steven Kuhn, 16-cv-3102, U.S. District Court, District of Minnesota.

— With assistance by Saijel Kishan

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