09/14/2011

Eisman’s Team Plans New Fund, Sans Eisman

Steve Eisman’s top lieutenants at FrontPoint Partners have split with the celebrity stock picker and are now gearing up to launch their own hedge fund.

When word got out in June that Eisman would leave FrontPoint after liquidating his two funds, market players assumed he’d take three key investment staffers with him — head trader Danny Moses and analysts Porter Collins and Vincent Daniel. As it turns out, the three have set up their own firm, Seawolf Capital, with plans to begin trading a financial-stock fund in January.

The team of Collins, Daniel and Moses had been working with Eisman since 2006. Together, they ran two of FrontPoint’s best-known vehicles: FrontPoint Financial Services Fund and FrontPoint Horizons Fund. Eisman and his staff are best known for their early bet against subprime-mortgage bonds — a trade chronicled by Michael Lewis in “The Big Short.” In 2007, the financial-services fund delivered a 66.2% return.

Eisman is expected to launch another fund under a new umbrella, though details have yet to emerge. Some market players said the former FrontPoint team may find it more difficult to raise capital separately than they would have as a unit. One problem investors may have is analyzing their performance at FrontPoint — that is, who gets credit for the funds’ returns.

“It’s not positive,” said a fund-of-funds operator. “Not that one or both can’t be successful, but it certainly gives one pause.”

For their part, Collins, Daniel and Moses intend to invest a combined $30 million to $40 million of their own money in the Seawolf fund. Their goal is to launch with $150 million to $200 million, and the plan is to stop raising capital once the vehicle reaches $500 million.

The trio plans to open an office in New York on Oct. 15. Joining them as Seawolf’s chief financial officer is Ed Fasano, who previously held the title of executive director for portfolio finance at FrontPoint.

FrontPoint is among the biggest victims of the government’s ongoing insider-trading probe. The trouble started with the arrest last November of former FrontPoint portfolio manager Jeffrey “Chip” Skowron, who last month pleaded guilty to insider trading. Soon after the arrest, FrontPoint investors began withdrawing in droves.

Eisman’s funds weren’t implicated in the probe, but that didn’t insulate them from redemption requests. The vehicles’ assets, which stood at a combined $1.3 billion before Skowron’s arrest, quickly fell. FrontPoint as a whole had some $7 billion under management last November. The firm’s assets now stand at $1.4 billion.

There’s no official word on why Eisman and his former partners decided to go their separate ways. Some market players speculated it may have something to do with public comments Eisman made earlier this year hinting at his intention to eventually leave FrontPoint. “He was becoming a more public person than they were comfortable with,” an insider said.

“I am sure the feeling is mutual between Eisman and the colleagues who used to be on his team,” a rival equity manager said. “Both feel they can do well without the other, and both feel the other held them back for the last couple of years.”

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