Hedge Fund Firm Pequot Capital to Shut Down Amid Probe

Pequot Capital Management, a prominent and well-connected hedge fund firm run by Arthur Samberg, told investors on Wednesday it will shut down its doors amid a revived government insider-trading investigation.

“Public disclosures about the continuing investigation have cast a cloud over the firm and have become a source of personal distraction,”…Samberg, the firm’s founder and one of the industry’s elders, wrote in a letter.
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Pequot, which most recently managed $3 billion, became the target of a Securities and Exchange Commission and U.S. Attorney’s office investigation several years ago. While regulators and prosecutors brought no charges and closed the probe in 2006, the government reopened the case in 2008. [via Reuters]

As recently as 2001, Pequot managed close to $15 billion, making it one of the largest hedge funds in the world.

Here is Samberg’s Letter to his investors:[via WSJ]

May 27, 2009

To Our Clients and Friends:

I am writing to you, our loyal clients and friends, to let you know that I have reached the painful conclusion that it is necessary to wind down Pequot’s business.

In the coming months, we plan to liquidate the Core Funds and return cash to investors while spinning out Matawin under the leadership of Mike Corasaniti and Special Opportunities under the leadership of Rob Webster and Paul Mellinger.

As you know, my trading in 2001 on behalf of the Core Funds has been the subject of investigations by the SEC and US Attorney’s Office. Those agencies closed their investigations in 2006 without bringing any charges, but Pequot nonetheless suffered from adverse publicity. In late 2008, the government reopened its investigation. Public disclosures about the continuing investigation have cast a cloud over the firm and have become a source of personal distraction. 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 advisor.

I am enormously proud of Pequot’s long-term track record. A client who invested in the Pequot Partners Fund at inception earned a net annualized 16.8% return over 22 years vs. the S&P’s 8.5% return during this period. More recently, the Pequot Partners Fund has generated net annualized returns of 10.1% over the past five years and 1.8% in 2009 through April 30 vs. the S&P’s declines of 2.7% and 2.5%, respectively.

We intend to distribute to Core Fund investors a significant amount of cash by June 30, with the remainder substantially paid out over the next few months, pending completion of the year-end audit, liquidation of certain less liquid assets and payment of expenses. Details for each individual fund will be forthcoming. Pequot will retain the necessary infrastructure to support the wind down process.

The Matawin and Special Opportunities funds will become independent entities no later than year-end, and we will take steps to ensure a smooth transition. These funds will have a robust infrastructure and we believe they will be well positioned to deliver strong returns in the years to come. Investors in these funds will receive information about the process shortly.

I know this news may come as a surprise to you, but I am convinced it is the right decision for all concerned. I remain grateful to all who have contributed to Pequot’s success over the years. This has been an extremely difficult decision for me, especially because of the impact it will have on our talented and dedicated employees. The Pequot team is the best of the best, and I thank them as I thank you for many years of loyalty and friendship.

Sincerely,

Arthur J. Samberg

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