Odey Asset Management is in new and dangerous territory after JPMorgan notified Chase of its agreement to protect assets for the hedge fund’s clients as a custodian.
Having a custodian – banks that hold customer securities to prevent loss or theft – is one legal requirement for a hedge fund to operate in the UK, and Odey Asset Management would be in breach of the Financial Conduct Authority’s rulebook if it attempted to operate without a hedge fund, according to a person familiar with the regulator’s position.
The FCAs rulebook also requires the departing custodian to find a replacement, something that market sources say could prove challenging in this case: Most of Odey Asset Management’s business partners have cut ties following allegations of serial sexual assault committed by the company’s founder, Crispin Odey, they were detailed last week in a Financial Times survey. He strongly denies the allegations.
“Now it’s a three-way game between Odey (Asset Management), the regulator and the service provider,” said a former regulatory official who has previously overseen the winding down.
“If there are no providers that are going to support Odey (Asset Management), the outcome is predetermined, which is that they are being phased out, but you do need the regulator to referee here and make sure that is not the case .” don’t get messy,” the former regulatory official explained.
In such situations, the FCA will ensure that the hedge fund’s underlying investors are protected, meaning that they have a custodian for their assets and that their funds are maintained and managed in the normal manner.
A fund administration expert said that in the event of a liquidation, funds are likely to be liquidated to return money to investors, although unlike the situation with Neil Woodford – the former star manager whose share fund was frozen and £3. 7 billion to investors. cash – it probably wouldn’t result in a forced asset sale.
The FCA declined to comment on whether it would force JPMorgan to stay in place if no other institution steps down. The Wall Street bank declined to comment on whether it has found a replacement custodian to take over the company.
Odey Asset Management did not immediately respond to requests for comment on whether it should wind down if a new custodian does not come forward.
The fact that JPMorgan served its notice after the hedge fund firm’s partners voted over the weekend to remove its founder hints at the troubles ahead for Odey Asset Management.
JPMorgan is also one of Odey Asset Management’s largest prime brokers, lending hedge fund money so it can make bigger bets and selling derivatives to manage investment risk. The bank also disclosed its main brokerage relationship with the British company, the FT reported on Wednesday.
Morgan Stanley, Odey Asset Management’s other major prime broker, began cutting ties last week and hasn’t toned down that stance. Richard Gnodde, the international CEO of Goldman Sachs, told Bloomberg that the bank was still “moving” away from the company.
The partners who now control Odey Asset Management have moved to put things in order. On Sunday night, they announced plans for the future management of the funds Crispin Odey managed, including the Odey Europe Inc fund and Odey OIE Mac funds, both of which were transferred to Freddie Neave.
To protect investors and the company from large withdrawal orders, Odey Asset Management closed one fund and closed others. The company sent letters to investors this week saying that the €117 million Odey Swan fund would be liquidated and the money would be returned to clients. It also stopped withdrawals from its Brook Developed Markets and Absolute Return funds following a wave of investor redemption requests.
Ryan Johnson, head of Lloyd Expert Consultancy, which advises the fund management market, warned more Odey funds could face gates and closures. “The managers all have credible pedigrees that should lead them to manage alternative funds or even their own fund range if all the Odey and Brook funds close,” Johnson said. Odey declined to comment.
Still, significant hurdles remain even if Odey Asset Management can find new prime brokers and a replacement custodian. Untangling the company from the founder is not easy. Odey personally managed about $1.2 billion in assets, about half of which is his money. Before this week, he owned a majority of Odey Asset Management’s holding company and subsidiaries.
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The partnership had already taken some steps to distance Crispin Odey from the rest of the fund managers in 2020 when it created the Brook subsidiary to house some of the firm’s largest funds ahead of its criminal trial on charges of assault against a junior banker . He was found not guilty. Other company fund managers, including James Hanbury, had rebranded their products under the Brook name.
Odey Asset Management will now be controlled and owned by the remaining partners, they said, though they have yet to release details of the new ownership structure. “You can’t change all ownership in hours,” said one person familiar with the company’s inner workings.
The company also continues to be investigated by the FCA, which is looking into corporate governance issues and is considering expanding its investigation in light of last week’s sexual assault and harassment allegations against Odey, the FT previously reported.
A former Odey partner said questions should be put to the company’s current management. “We all left because of our integrity (. . .) The simple question is, why did you stay when others left?”
