Pequot Capital Management, a well known hedge fund, is shutting down operations. The fund is closing shop due to a reopened probe by the US government against it on charges of insider trading. The Securities and Exchange Commission (SEC) started a probe into whether Pequot illegally profited in 2001 by trading on inside information about Microsoft Corp. Pequot Capital Management is registered as a Foreign Institution Investor (FII) in India with SEBI and has also invested in an Indian mobile startup.
When the probe was started in 2001, Pequot was the largest hedge fund in the world with $15 billion in assets. Its assets as of May 15 stand at $3.47 billion. John Mack, head of Wall Street investment bank Morgan Stanley, worked with Pequot from 2004 to 2005 before joining Morgan Stanley. Mack was also probed in the investigation.
Pequot’s founder Arthur Samberg said in a letter to investors that “Public disclosures about the continuing investigation have cast a cloud over the firm and have become a source of personal distraction,” reports Reuters. “With the situation increasingly untenable for the firm and for me, I have concluded that Pequot can no longer stay in business as an investment adviser,” he said.
Pequot’s venture capital arm has an investment in Hyderabad based IMImobile, a mobile VAS provider to mobile operators and content providers. Pequot Ventures, the VC arm, was spun out as FirstMark Capital last year. It had invested $10 million in IMImobile in 2006. In June 2005, a group of US investors lead by Pequot Ventures had offered to buy 30% in Aircel for $350 million (Rs 1,581.6 crore). The talks fell though.
The hedge fund will be liquidating the assets of Pequot Partners, Pequot International and Pequot Endowment funds, and returning the capital to investors. Its Special Opportunities and Matawin funds will be spun out and set up as independent entities.