During the financial crisis, many hedge funds refused to let panicked investors withdraw their money. But even with private equity’s big 2009 rally, some are still locked-down.
Katie Benner of FORTUNE has an in-depth look at troubled Greenwich-based hedge fund Plainfield Asset Management, which has angry clients demanding their money after a series of investments gone awry and suits from disgruntled borrowers.
The firm says it oversees $3.3 billion (down from $5 billion a few years ago), but a full $2.74 billion of that represents money from those investors who wanted but weren’t allowed to leave — and won’t until 2012. Meanwhile Plainfield continues to charge everyone 1.25% or 2% management fees.
Benner explains what went wrong:
Despite its expertise in buying cheap, it launched in 2005 when asset prices were soaring, vacuumed up billions — and then had to find something to do with the cash. Not only did Plainfield buy at the top of the market, it compounded that error by holding huge quantities of illiquid assets and striking some ill-conceived deals.
So when investors clamored to cash out, Plainfield was effectively forced to hold their money hostage. Holmes’s best hope — a dramatic turnaround that wins back his investors’ favour — hasn’t come close to happening so far. The result is a slow, smouldering fuse that threatens Planfield’s future.
Among the rotten investments: $88 million in a failed Bahamas resort; “Vati-con” ($3 million lost trying to acquire church property in Las Vegas); and tens of millions of dollars sunk into scandal-ridden “Pay by Touch” biometric business.
And as the fund tries to save itself, Plainfield’s lending practices are now being examined by New York City’s district attorney, according the Benner’s investigation. Ouch.
Read Benner’s full account here.
Image: Max Holmes, Founder and Chief Investment Officer, via Planfield
Business Insider Emails & Alerts
Site highlights each day to your inbox.