Key Takeaways
- • Paloma Partners is liquidating $600 million from external hedge fund investments to meet $1.2 billion in total investor redemption requests, demonstrating significant outflow pressure on the multi-strategy fund.
- • The firm is pulling capital from Aquatic Capital, a quant fund seeded in 2019 with $360 million invested, despite lock-up restrictions that will require redemptions to occur over multiple years.
- • Paloma is placing $240 million in commercial-mortgage-backed securities (CMBS) previously managed by Cannae Portfolio Advisors into a special-purpose vehicle (SPV) called Dove, which will be liquidated gradually over time.
- • The redemption crisis reflects deteriorating fund performance, with Paloma returning only 2.5% in 2024 and averaging just 3.6% over three years versus the 6.6% industry average, following leadership turnover and asset decline from $4 billion to $1.7 billion.
- • Under new CEO Ravi Singh (former Credit Suisse and Goldman Sachs executive), Paloma is adopting a cautious repayment approach that includes structuring redemptions through longer settlement periods and alternative instruments rather than immediate cash payouts.
Summary
Paloma Partners, the storied multi-strategy hedge fund founded by Donald Sussman in 1981, is executing a strategic asset liquidation to address mounting investor redemptions. The firm informed investors in the fall that it faced $1.2 billion in redemption requests and would need extended time to meet these obligations by liquidating less liquid holdings. To generate necessary liquidity, Paloma is pulling $600 million from its external hedge fund investments—a significant portion of which originates from its stake in Aquatic Capital, a quantitative fund the firm seeded in 2019 with $360 million. Despite facing lock-up restrictions that will extend redemptions from Aquatic over several years, Paloma has begun the withdrawal process.
The fund is also employing structured asset management techniques to manage the redemption process. Paloma has transferred $240 million in commercial-mortgage-backed securities into a special-purpose vehicle called Dove, which will be divested gradually rather than through fire-sale liquidation. These CMBS were previously managed by Cannae Portfolio Advisors, a credit fund spun out of Paloma in 2020 that has managed the firm's capital since 2009. According to reports, Paloma is utilizing a measured repayment approach that includes the creation of IOUs and extended settlement timelines to avoid crystallizing losses on illiquid positions.
The redemption crisis reflects a broader performance and leadership challenge at Paloma. The fund returned just 2.5% in 2024, significantly trailing peers in a strong year for hedge funds, and has averaged only 3.6% annually over the past three years compared to the industry average of 6.6%. These subpar returns precipitated investor departures and contributed to asset contraction from approximately $4 billion to $1.7 billion. The firm also experienced leadership instability when former CEO Neil Chriss, recruited in 2023, departed after less than one year. Ravi Singh, a former executive at Credit Suisse and Goldman Sachs, has since assumed the CEO role and faces the dual challenge of managing redemptions while repositioning the firm for growth. Paloma's historical distinction as the original backer of D.E. Shaw and more than 130 other hedge fund managers underscores the irony of a legendary multi-strategy fund now confronting significant capital outflows and forced asset sales.
The fund is also employing structured asset management techniques to manage the redemption process. Paloma has transferred $240 million in commercial-mortgage-backed securities into a special-purpose vehicle called Dove, which will be divested gradually rather than through fire-sale liquidation. These CMBS were previously managed by Cannae Portfolio Advisors, a credit fund spun out of Paloma in 2020 that has managed the firm's capital since 2009. According to reports, Paloma is utilizing a measured repayment approach that includes the creation of IOUs and extended settlement timelines to avoid crystallizing losses on illiquid positions.
The redemption crisis reflects a broader performance and leadership challenge at Paloma. The fund returned just 2.5% in 2024, significantly trailing peers in a strong year for hedge funds, and has averaged only 3.6% annually over the past three years compared to the industry average of 6.6%. These subpar returns precipitated investor departures and contributed to asset contraction from approximately $4 billion to $1.7 billion. The firm also experienced leadership instability when former CEO Neil Chriss, recruited in 2023, departed after less than one year. Ravi Singh, a former executive at Credit Suisse and Goldman Sachs, has since assumed the CEO role and faces the dual challenge of managing redemptions while repositioning the firm for growth. Paloma's historical distinction as the original backer of D.E. Shaw and more than 130 other hedge fund managers underscores the irony of a legendary multi-strategy fund now confronting significant capital outflows and forced asset sales.
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