At the beginning of this year, a hedge fund manager and professor sued one of the most exclusive apartment buildings in New York, for racism.While Alphonse Fletcher Jr was convinced his application for a second apartment in the famed Dakota building was rejected due to racism, the board of the co-op said that he simply was not in a financial position to take on another apartment.
It turns out there may have been something to that reasoning, even though Fletcher said he could easily afford another place.
While Fletcher has said he manages more than $500 million is assets, according to the WSJ, the fund’s assets are actually closer to $200 million:
[Fletcher] appears to arrive at this figure by counting some assets more than once… A more orthodox way of measuring assets under management would produce a figure of about $200 million for one recent year.
Another “unorthodox” practice by Fletcher’s fund includes how the firm calculates its returns.
Fletcher Asset Management has said its flagship fund, Income Arbitrage Fund, did not have one negative month in 11 years.
But according to the WSJ, “the fund didn’t invest directly in the markets. Instead, it held shares in a separate Fletcher vehicle that did make investments, chiefly by putting money in smaller public companies for stock and warrants.”
So even when the shares in that investment vehicle slid by 42.8%, the flagship fund still returned 12.6% due to holding “preferred shares” in that vehicle. When Fletcher “dropped the preferred-shares arrangement for the Income Arbitrage Fund at the end of 2008. Its returns then became much less steady,” the WSJ reported.
Meanwhile, three Louisiana pension board’s that invested with the hedge fund, want their money back. But they can’t get it. Two of the boards tried to redeem in March, but Fletcher issued promissory notes “in satisfaction of this redemption request” that promised a payment within two years.
Fletcher has lived in the famed Upper West Side apartment building, The Dakota, since 1992. After having his application to buy a second apartment in the building turned down, he filed a lawsuit against its board alleging he had been rejected because of racial discrimination.
At the time, we spoke exclusively to a board member of the Dakota who rejected Fletcher’s accusations, and later released the financial documents that had made them wary of granting his application: he was a financial liability.
That wasn’t the first time Fletcher had filed a lawsuit. After a stint trading at Bear Stearns, he landed a gig at Kidder Peabody & Company and sued them because he says they paid him only half of the $5 million to $6.5 million in compensation he was owed.