There were plenty of signals to warn investors away from Infinity Q’s $1.8 billion Diversified Alpha Fund long before the redemption gates went up, according to a quantitative analysis by Markov Processes International.
The fund, a mainstream version of a hedge fund called a liquid alternatives fund, had grown quickly on the back of the prestigious roots of its founder. (Infinity Q Capital Management, founded by James Velissaris, spun out of the family office of TPG’s David Bonderman.) But according to MPI, which uses a returns-based style analysis, the now-liquidating fund produced excess returns in a highly consistent way, which is clearly attractive to investors, but rare in the real world.
An Infinity Q Capital Management investor is taking legal action against the embattled firm, with the expectation that others will join in the class action lawsuit.
The complaint, filed in the Eastern District of New York on February 26, alleges that Liang Yang and other investors “suffered significant losses and damages” after Infinity Q’s chief investment officer altered the firm’s pricing models.
The lawsuit follows news that Infinity Q would gate and liquidate certain portfolios after learning from the Securities and Exchange Commission that its CIO, James Velissaris, had intervened in the fund valuation process.
A statement on the firm’s website says it independently verified the SEC’s findings and that Velissaris has been “relieved of his duties.”
A Hedge Fund for the Masses
On Monday, Feb. 22, disaster struck Infinity Q Diversified Alpha Fund (IQDAX). The SEC announced that Infinity Q’s management had asked the commission’s permission to deny redemptions for Diversified Alpha, meaning that its investors would be unable to sell their shares. Shortly thereafter, Infinity Q fired the fund’s portfolio manager, James Velissaris, who was also the company’s founder. (Neat trick, that.)
Why the fund closed its doors (the SEC granted the request) and dismissed its portfolio manager I will divulge shortly. First, though, let’s run through the indicators that should have concerned the fund’s investors. There were many.
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As news broke Monday that investment firm Infinity Q Capital Management was gating and liquidating a fund portfolio, its chief investment officer James Velissaris seemed to disappear from the internet.
His LinkedIn profile is now defunct. The Infinity Q website, which now only includes a statement about the situation, said Tuesday that it was undergoing maintenance.
But Velissaris couldn’t vanish from the internet altogether. News articles, his own research, and a defunct version of Infinity Q’s website paint a picture of what led up to his time at the firm.
Late last week, the Securities and Exchange Commission told Infinity Q’s non-executive chairman that it had found evidence that Velissaris had been altering the third-party valuation models for its $1.8 billion Diversified Alpha Fund. The firm said it had independently confirmed this but had not assessed the impact of those changes.
Months Before SEC Investigation, Infinity Q s CIO Touted Strong Performance institutionalinvestor.com - get the latest breaking news, showbiz & celebrity photos, sport news & rumours, viral videos and top stories from institutionalinvestor.com Daily Mail and Mail on Sunday newspapers.