11/07/2008

Gottex sues Stewardship for witholding redemptions

Gottex Fund Management, a $15.7bn fund of hedge funds (FoHF) manager, has filed a lawsuit against Stewardship Investment Advisors and founder Marlon Quan for fraud, arguing Stewardship prevented them from redeeming.

In a complaint filed in the US District Court for the District of Connecticut at the end of May, Gottex argued that Stewardship prevented it from withdrawing money numerous times. According to the suit, Stewardship convinced Gottex that if it remained invested in the fund, it would lower its management fees so Gottex’s returns would be higher.

Gottex began investing in the Stewardship Credit Arbitrage Fund in 2005. Between 2005 and 2007, Gottex invested more than $100m in the Connecticut-based hedge fund. In April, Stewardship notified Gottex that it would be unable to provide redemptions in cash, promised by Stewardship if Gottex delayed their withdrawals.

Stewardship instead issued ‘participation notes’, which, according to the suit, are not actual assets as defined by the by-laws of the fund and “either have no value or have a value that is materially lower than the redemption price.” Gottex’s flagship Market Neutral Fund returned -2.05% year to date through April, according to data provided to BarclayHedge.