Paloma Partners, a longstanding multi-strategy hedge fund, is working to repay $1.2bn in investor redemption requests, but is taking a cautious approach, including pulling capital from some of its external hedge fund investments to do so, according to a report by Business Insider.
Facing mounting redemption requests, Paloma informed investors in the fall that it would need more time to liquidate less liquid assets and fulfil its obligations. Recent details reveal how the fund is managing this process, including the creation of a special-purpose vehicle (SPV) to house assets as part of its repayment plan.
In a move to generate the necessary cash, Paloma is pulling $600m from its investment in Aquatic Capital, a quant fund that has faced performance struggles. Aquatic, which Paloma seeded in 2019, has $360m invested, and the fund is subject to lock-up terms, with redemptions scheduled to occur over the next few years.
Paloma has also placed $240m in commercial-mortgage-backed securities (CMBS) into its SPV, called Dove, which will be sold off gradually. These CMBS were previously managed by Cannae Portfolio Advisors, a credit fund that has been managing Paloma’s capital since 2009. Cannae itself was spun out of Paloma in 2020.
Founded by Donald Sussman in the 1980s, Paloma is known for its role in seeding firms like DE Shaw. However, in recent years, Paloma’s performance has been lacklustre, with the firm returning just 2.5% in 2024, a year that was strong for many other hedge funds, and has averaged only 3.6% over the past three years, well below the industry’s average of 6.6%.
In addition, the firm’s assets have dwindled from approximately $4bn to $1.7bn following the departure of former CEO Neil Chriss, who took over in 2023 but lasted less than a year. He was replaced by Ravi Singh, a former Executive at Credit Suisse and Goldman Sachs.
Amid the redemption wave, Paloma informed investors in November that only 30% of requests would be paid in cash upfront, with the rest to be settled over time as assets are liquidated. As of now, Paloma has managed to pay half of the $1.2bn redemption requests in cash, with the remaining funds slated for distribution as Dove’s assets are sold off. The fund will not charge fees on this SPV, which is managed by PwC.
Aquatic Capital, which focuses on systematic trading strategies, launched with significant backing from Paloma, and although the fund managed to grow its assets, it has struggled to gain traction. For the year ending September 2024, Aquatic reported a 3.3% loss, while the quant hedge fund industry overall posted strong returns of 14.2% in 2024.
While Paloma has been pulling money from external managers, it remains active in investing. Notably, Geoffrey Lauprete, the former CIO of WorldQuant, is expected to launch his own fund later this year, with backing from Paloma. Additionally, Paloma has made several high-level hires, including Michael DeAddio as COO and Louis Molinari as CMO.
