Investment firm Infinity Q Capital Management LLC has asked the Securities and Exchange Commission to stop buyouts from one of its mutual funds and ban its investment manager from trading after discovering problems with ‘valuation of the fund’s assets.
The SEC informed the investment firm last week that it had evidence that chief investment officer James Velissaris “adjusted the parameters” of the pricing models used to value derivatives in the fund’s portfolio, the company said. . As a result, incorrect valuations have likely been reported to investors.
Infinity Q had about $ 3 billion in assets under management at the end of January, including about $ 1.8 billion belonging to its Infinity Q Diversified Alpha fund, according to an SEC filing. The fund has used so-called alternative strategies, including volatility and betting on and against stocks, according to the disclosures.
Stopping redemptions is an unusual decision, as mutual funds offer the freedom to cash out at any time, and it suggests serious problems within the business. Third Avenue Management LLC halted buyouts of one of its credit funds in 2015, a move that shocked the market, left a black mark on the company and raised concerns about the overall bond market.
Infinity Q said in a statement that the company was “cooperating with the SEC investigation” and had cut Mr. Velissaris’ access to the trade.
The SEC approved Infinity Q’s request to halt buybacks on Monday, and a spokesperson for the commission said the company was required to “put protections in place to help preserve shareholder assets and s’ ensure that they are kept informed of the status of their investment ”.
The company has tried to value the swap positions and is working with an independent valuation expert to do so, an effort that will take days and weeks, the file says. Infinity Q also attempts to determine if the previously calculated values for other positions are reliable.
“The fund was unable to calculate a net asset value on February 19, 2021, and it is uncertain when the fund will be able to calculate a net asset value that would allow it to meet redemption requests for shares of the fund” , indicates the deposit.
Lawyers for Mr. Velissaris, the chief investment officer, said in a statement that he “had acted in good faith” and had always focused on “creating and preserving value for investors”. A spokeswoman for Mr Velissaris said he was on “administrative leave”.
Documents obtained from an archived version of the company’s website show that the Infinity Q Diversified Alpha Strategy was launched in October 2014 to provide returns “uncorrelated to the equity and fixed income markets.” On Tuesday, the company’s website said it was “currently undergoing scheduled maintenance.”
“The candidates believe that the best course of action for current and former shareholders of the fund is to liquidate the fund within a reasonable period of time, determine the extent and impact of historical valuation errors and return the maximum amount of the fund. product to these shareholders. », Declare the deposit.
contributed to this article.
Write to Gunjan Banerji at Gunjan.Banerji@wsj.com
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Appeared in the February 24, 2021 print edition under the title “ Interrupted buyouts of $ 1.8 billion fund. ”