GOODBYE: TPG Capital Cub Running Quantamental Investment Firm Fudges NAV Numbers
Posted on 02/23/2021
New York-based Infinity Q Capital Management, LLC was founded by James Velissaris in 2014. By the age of 30, Velissaris founded his investment firm with financial support from David Bonderman (known as Bondo), a TPG Capital founder and protégé of Robert Bass. David Bonderman invested US$ 2 million in Infinity Q when the asset manager was formed by Velissaris and also invested in its funds. Bonderman owns at least a 25% stake in Infinity Q. Infinity Q offered its products to retail investors – liquid alternative mutual funds. Asset managers have developed liquid alts for retail investors.
James Velissaris got his chops at Wildcat Capital Management, LLC, a family office for David Bonderman that was formed in 2011. Wildcat also shares its name with the location of Bonderman’s home near Aspen, Colorado. Prior to Wildcat, James managed the quantitative investment strategies and conducted analysis on portfolio construction and asset allocation for Arden Asset Management. He began his career as an analyst at Goldman Sachs. He earned his AB in Economics from Harvard University and his MS in Operations Research with a concentration in Financial Engineering from Columbia University. Velissaris is a former Harvard University football player.
4 Stars for Morningstar
Morningstar gave Infinity Q Diversified Alpha Fund 4 stars, a service that some retail and institutional investors rely on for fund investments. The Morningstar Rating is a measure of a fund’s risk-adjusted return, relative to similar funds. Funds are rated from 1 to 5 stars, with the best performers receiving 5 stars and the worst performers receiving a single star. In 2019, according to SWFI data, Texas Municipal Retirement System committed US$ 125 million to Infinity Q Volatility Alpha Fund.
Uh-Oh
Velissaris was abruptly out kicked of his fund. In a response to a U.S. government inquiry, Infinity Q Capital Management announced it’s shutting a US$ 1.8 billion mutual fund (the AUM amount cannot be officially confirmed). Infinity Q Capital Management learned the U.S. Securities and Exchange Commission is probing whether Velissaris incorrectly valued complex derivatives. There is evidence Velissaris adjusted models used to price swap contracts held by the Infinity Q Diversified Alpha Fund, likely resulting in incorrect valuations being reported to investors, according to a company statement on Monday.
On the previous website of Infinity Q, it read, “Infinity Q Capital Management is a pioneering investment advisor managed by David Bonderman’s family office. The Investment team at Infinity Q develops next generation forecasting models to identify persistent behavioral biases across global markets. Infinity Q uses volatility strategies to manage mutual funds, hedge funds and separately managed accounts.
Our “quantamental” approach combines the depth of private equity with the breadth of quantitative research to blend next generation forecasting models with rigorous fundamental analysis.”
Scott Lindell is the Chief Risk Officer of the firm. On December 31, 2020, the the Infinity Q Diversified Alpha Fund was closed to all new investment, including through dividend reinvestment. From its August 2020 released annual report, “The Infinity Q Diversified Alpha Fund (the “Fund”) attempts to generate positive absolute returns by providing exposure to several “alternative” strategies including Volatility, Equity Long/Short, Managed Futures, and Global Macro. Our strategies are intended to have a low correlation to equity, fixed income, and credit markets.”
“Infinity Q has independently verified that Mr. Velissaris did access and alter the third party’s valuation models but has not yet assessed the impact of those alterations,” the company said. Its website, which says the firm uses a “quantamental” strategy blending quantitative research with a private equity discipline, was in “maintenance mode” on Monday night.
The SEC issued an order approving Infinity Q’s request to temporarily halt redemptions in the fund, which the firm plans to liquidate after determining the proper value for swap contracts that comprise about 18% of its assets. The SEC order reads, “Infinity Q Diversified Alpha Fund (the “Fund”), a Series of Trust for Advised Portfolios (the “Trust”), and Infinity Q Capital Management LLC (“Infinity Q”), hereby submit this application (the “Application”) for an order of the Securities and Exchange Commission (the “Commission”) pursuant to Section 22(e) of the Investment Company Act of 1940 (the “1940 Act”), to suspend the right of redemption with respect to shares of the Fund. The Trust, on behalf of the Fund, and Infinity Q are referred to herein collectively as the “Applicants.” Applicants request that the suspension remain in place until the Fund completes the liquidation of its portfolio and distributes all its assets to current and former shareholders, as described in the conditions, or, if earlier, the Commission rescinds the order requested herein. Applicants further request that such order be made effective as of February 19, 2021, with the suspension of redemption requests to be effective as of February 19, 2021 and the postponement of payment of redemption proceeds to apply to redemption orders received but not yet paid as of February 22, 2021.”
The Infinity Q Diversified Alpha Fund’s institutional shares have gained around 0.96% year-to-date, performance that ranked below most of its peers.
The SEC document adds, “On February 18, 2021, based on information learned by the Commission staff and shared with Infinity Q, Infinity Q informed the Fund that Infinity Q’s Chief Investment Officer had been adjusting certain parameters within the third-party pricing model that affected the valuation of the Swaps. On February 19, 2021, Infinity Q informed the Fund that at such time it was unable to conclude that these adjustments were reasonable, and, further, that it was unable to verify that the values it had previously determined for the Swaps were reflective of fair value. Infinity Q also informed the Fund that it would not be able to calculate a fair value for any of the Swaps in sufficient time to calculate an accurate NAV for at least several days. Infinity Q and the Fund immediately began the effort to value these Swap positions accurately to enable the Fund to calculate an NAV, which effort includes the retention of an independent valuation expert. However, Infinity Q and the Fund currently believe that establishing and verifying those alternative methods may take several days or weeks. Infinity Q and the Fund are also determining whether the fair values calculated for positions other than the Swaps are reliable, and the extent of the impact on historical valuations. As a result, the Fund was unable to calculate an NAV on February 19, 2021, and it is uncertain when the Fund will be able to calculate an NAV that would enable it to satisfy requests for redemptions of Fund shares.”
Infinity Q’s non-executive chairman is Leonard (Len) A. Potter. Potter will take over management of the firm. Potter served as a consultant to Soros Fund Management LLC. Potter oversees Wildcat Capital Management, which managed more than US$ 3 billion at the end of 2019, including capital from David Bonderman. Wildcat had US$ 1.5 billion in assets in 2015.
