Odey AM: hedge fund will struggle to recover from misconduct scandal

Hedge funds do not have much of a competitive moat. They depend on the reputation of star fund managers, who can often leave at will. Odey Asset Management has its work cut out to survive the ousting of disgraced founder Crispin Odey

Fellow partners ejected Odey after allegations of repeated sexual misconduct were reported in the FT. His voting rights in the firm ceased immediately. His initial capital investment will be returned to him.

It is easy to see why former colleagues wanted a clean break. The fallout from the FT’s reports has been rapid and severe. Some clients are pulling their investments, and Odey AM has considered gating some funds. Hedgies depend on prime brokers for loans and trading services. Odey AM’s prime brokers are moving to cut ties with the firm.

There might just be a business to salvage. Crispin Odey’s punchy bets and volatile performance had already limited his role at Odey AM. Out of its $4.4bn of assets under management, he ran some $1.2bn, more than half of it his own money.

That leaves $3.2bn of assets that might, conceivably, be retained in a rebooted business. The group’s heir apparent, James Hanbury, has his own brand of funds at Brook Asset Management, and a good reputation in the market.

But much of Odey’s alleged sexual misconduct was connected to Odey AM as a workplace. This means some investors and banks may not wish to continue a relationship with the group, even now that Odey has gone. They may also fear the scandal will distract fund managers.

Odey himself — who owned 98 per cent of the partnership before the weekend — could conceivably seek financial redress.

Odey AM is a not a one-man band in the same way as Woodford Investment Management. This collapsed in 2019 after a series of bets by star stock picker Neil Woodford went sour. But the far more toxic nature of the Crispin Odey scandal means the business he set up will struggle to avoid the same fate.