08/08/2008

Investors fear FrontPoint staff exits

Institutional investors have become wary of investing their assets with FrontPoint Partners, fearing its investment teams will leave due to a clause in the deal struck with Morgan Stanley when it acquired the $5.5bn hedge fund in 2006.

As a result of the acquisition, FrontPoint’s investment teams were required to sign two-year lockup contracts – and these contracts are due at the end of the year.

The $500m Health Care Foundation of Greater Kansas City (HCF) has decided to wait out the year, lest FrontPoint loses any key staff when their lockups expire in December. HCF’s investment committee met with the hedge fund in June while hearing presentations from numerous managers for its first hedge fund investment.

Committee members wanted assurance that FrontPoint team members would not leave following expiration of their lockup contract. FrontPoint vice president Darya Kovalchuk and managing director Thomas Weaver told the foundation that the firm believes it has a tremendous flow of capital and the ability to attract new teams, along with the team’s autonomy, which will provide a level of comfort to the committee, according to the minutes of HCF’s June meeting.

HCF members voted to hold off on FrontPoint until 2009, stating “HCF would have a lot to lose if those teams walk away”.