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February 20, 2019  

Diamondback Founders Lining Up Investors

Lawrence Sapanski and Richard Schimel could launch their next hedge fund with substantially more capital than originally anticipated.

Since word got out in September that the Diamondback Capital co-founders planned to reunite, Sapanski and Schimel have formed a fund-management business called Cinctive Capital. The firm’s staff so far includes at least one other Diamondback alumnus: portfolio manager Michael Sedoy.

An initial report in The Wall Street Journal said Sapanski and Schimel hoped to launch with $500 million — a reasonable target considering that Diamondback peaked at $6 billion before being tripped up by an insider-trading probe. But indications now are that Cinctive could begin trading with $750 million to $1 billion.

One source said Sapanski and Schimel have talked to Pacific Alternative Asset Management about seeding their startup with as much as $500 million. Paamco

would make the investment via a newly formed unit called Paamco LaunchPad. Sapanski and Schimel also have talked to Blackstone, according to the Journal.

Diamondback was a multi-strategy equity manager modeled on SAC Capital, where Sapanski and Schimel first worked together as portfolio managers. While details about Cinctive’s strategy have yet to emerge, the fund likely would take long and short positions in stocks across multiple sectors.

Sapanski and Schimel founded Diamondback in 2005 with another SAC alumnus, Chad Loweth. In 2010, the FBI raided the offices of several hedge fund firms, including Diamondback, as part of a widening insider-trading probe. Diamondback portfolio manager Todd Newman went to trial and was found guilty, but the conviction later was overturned. In an unusual twist, an appeals court ordered the SEC to refund a $9 million payment Diamondback had made to settle civil charges.

Though Sapanski and Schimel weren’t accused of wrongdoing, the investigation took a toll on their Stamford, Conn., business, prompting them to liquidate Diamondback’s fund in 2013. Schimel then founded Sterling Ridge Capital, but soon shuttered the fund shop to join Citadel as head of a new equity-trading unit called Aptigon Capital. Citadel dismissed Schimel in February 2018 due to the unit’s poor performance.

After Diamondback, Sapanski founded Scoria Capital, but the firm never gained traction with investors. It closed in 2017. Since then, Sapanski has been running family office Imua T Capital with his brother, Richard Sapanski, and nephew, James Sapanski.

Sedoy, who focuses on energy and utility stocks, most recently worked with Sapanski at Scoria and Imua T Capital. Prior to that, he was chief investment officer at energy specialist Kimmeridge Capital.