NEW YORK: Infinity Q Capital Management is shutting a US$1.8bil mutual fund after learning that the US Securities and Exchange Commission is investigating whether the firm’s chief investment officer incorrectly valued complex derivatives.
James Velissaris, the chief investment officer and majority owner of the firm, has been placed on administrative leave, Infinity Q said in a statement on Monday. The SEC informed the company that investigators obtained evidence that Velissaris adjusted models used to price swap contracts held by the Infinity Q Diversified Alpha Fund, likely resulting in incorrect valuations being reported to investors, according to the statement.
The SEC issued an order approving Infinity Q’s request to temporarily halt redemptions in the fund, which the firm plans to liquidate after determining the proper value for swap contracts that comprise about 18% of its assets. An outside expert is being hired to handle the valuation and sale of the assets.
“Infinity Q is cooperating with the SEC investigation and shut off Velissaris’s access to all trading activities and removed his authority to access any accounts, ” the firm said. “Infinity Q has independently verified that Velissaris did access and alter the third party’s valuation models but has not yet assessed the impact of those alterations.”
Velissaris couldn’t immediately be reached for comment.
“The Commission required, as a condition to its approval of the order, that the fund put in place protections to help preserve assets for shareholders and ensure that they are kept informed about the status of their investment, ” an SEC spokesperson said in a statement.
Velissaris, 36, founded the firm after working as a portfolio manager for Wildcat Capital Management, originally a family office for David Bonderman, the co-founder of private equity firm TPG Capital.
Bonderman invested US$2mil in Infinity Q when the money management firm was formed by Velissaris in 2014 and also has investments in its funds, according to the company. — Bloomberg
Infinity Q was using models provided by an outside pricing service to determine the value of the swap contracts, according to the request filed today with the SEC for permission to suspend redemptions. Based on information provided by the SEC, Infinity Q found out last week that the firm’s CIO had been “adjusting certain parameters” within the models that affected the valuation of the swaps, the firm said in the filing.
The Diversified Value Fund held swap contracts with a market value of US$449mil at the end of November, equaling about 26% of its US$1.71bil in net assets at the time, according to its most recent portfolio report to the SEC. This included so-called variance swap contracts written by a wide range of Wall Street banks that were tied to the volatility of global market benchmarks, such as the S&P 500 index.
Leonard Potter, Infinity Q’s non-executive chairman, will take over management of the firm. Potter is the owner of Wildcat Capital Management, which managed more than US$3bil at the end of 2019, including capital from Bonderman.
The Diversified Alpha Fund’s institutional shares have gained almost 1% year-to-date, performance that ranked below almost 90% of its peers, according to data compiled by Bloomberg. -- Bloomberg