FrontPoint looking Unhealthy

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New York – Earlier this week, news sources reported that FrontPoint partners has let go its entire 12 person Healthcare team.  The team, headed by Chip Skowron, had previously managed a $1.5 Billion fund that was liquidated last month after the SEC brought insider trading charges alleging that a hedge fund manager, later identified as Skowron, received a tip on a drug trial from doctor Yves Benhamou.  For a more detailed description of the events leading FrontPoint to its current situation, here is our previous article on the topic.

The firing of the healthcare team coincided with the firing of 28 non-investment staff at the fund, which together means about 20% of the staff at FrontPoint has been let go since the story first hit the newswires.

Undoubtedly, the news of the firings at FrontPoint highlights the difficulties that any fund would face after being brought into an insider trading scandal, difficulties which are further highlighted by the fact that FrontPoint has also had approximately $3 billion worth of redemptions since early November, a figure that amounts to approximately 40% of the AUM at the fund.  The AUM of the firm now sits at approximately $5 billion.

With the reported number of subpoenas issued by the SEC at anywhere between 50 to 80, some observers are expecting large redemptions in the first quarter related to the insider trading investigation.  As we mentioned earlier this week, some funds have responded by classifying all third party research as expert networks, and reducing their usage.  We suspect that independent research providers, whether they are connected with primary research or not, will best case get queries from clients, and worst case see client attrition.

Eventually, we hope (and expect) that the hysteria will die down, that the regulations enacted as a result of all this won’t restrict the efficiency of the markets too much (as we said yesterday), and that third party providers can get back to providing the kind of research and data that can’t be found anywhere else.  In the meantime, Integrity is happy to offer opinions on compliance best practices to help navigate the changing environment.

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