F&C rejects 'bully' tag in hedge fund court case

Date: Tuesday, August 10, 2010
Author: Claire Milhench and Laurence Fletcher, Reuters

Barthelemy appears as a witness

F&C case already cost 4.1 million pounds at end-2009

Shows pitfalls for fund firms venturing into hedge funds

F&C Asset Management (FCAM.L) has rejected accusations of bullying made by a hedge fund manager on Monday in a high court battle over a hedge fund joint venture laid low during the credit crisis.

F&C has gone to court after fund managers Francois Barthelemy and Anthony Culligan tried to force the FTSE 250-listed firm to buy them out of a limited liability partnership (LLP) set up before the credit crisis.

"It's very clear in my mind that F&C have tried to bully me," said Barthelemy, under questioning by an F&C lawyer.

An F&C spokesman said: "This is a baseless assertion with no factual evidence to support it."

"Attempting mediation is simply best practice and a route encouraged by the courts," the spokesman said, referring to attempts to secure a settlement.

Barthelemy and Culligan say F&C was content to let the LLP wind down after it made big losses in the 2008 market meltdown, to avoid having to buy them out. F&C denies this.

F&C, which owns 60 percent of the partnership, F&C Partners, is trying to stop the pair exercising a put option that would force F&C to acquire their combined 40 percent stake.

The case illustrates some of the pitfalls of mainstream fund managers' trying to move into the more lucrative hedge fund market, and the difficulties of unwinding such bull market ventures when conditions change.

F&C, in the process of securing a deal to buy Thames River Capital [ID:nLDE63R09I], could be forced to pay up to 40 million pounds ($63.86 million) if a ruling goes against it, according to lawyers for Barthelemy and Culligan. F&C made an underlying profit after tax of 28 million pounds in 2009.

F&C's latest annual report shows the case had cost the firm 4.1 million pounds by the end of 2009, long before it came to court in mid-June. The firm declined to give a latest cost estimate or to speculate on outcomes.

PERFORMANCE

The case, taking place in an 11th-floor courtroom at the Royal Courts of Justice complex on Fleet Street, saw Barthelemy closely questioned on issues that many hedge fund investors see as epitomising their frustrations of recent years.

He was asked what returns hedge funds are meant to deliver and how managers justify their high fees.

"The idea that an absolute return product never... loses value is absurd," said Barthelemy.

"Hedge funds are supposed to make money, even if markets perform poorly, over a period of time."

The main funds run by the LLP were the F&C Balanced Alpha Fund, which was down 22 percent in 2008 in dollar terms, and the F&C Select Alpha fund, which was down 44 percent. The performance in euros was down 30 and 50 percent, respectively.

Barthelemy and Culligan allege that F&C made cuts which undermined the business, including making redundant Fiona Ross, a marketing officer for the LLP's products.

They claim F&C breached the LLP accord, entitling them to exercise the put options, and to claim damages for the loss to the LLP caused by F&C's conduct.

F&C argues that the exercise of the put options was invalid. It has rejected the allegation that there was a secret decision or strategy to close down the LLP. ($1=.6263 Pound)