FrontPoint health funds see big redemptions

By Svea Herbst-Bayliss

BOSTON (BestGrowthStock) – Investors have asked FrontPoint to return about half of its healthcare portfolios’ assets, or about $750 million, after the fund and its top manager became embroiled in an insider trading case, a source familiar with the matter said on Monday.

The Greenwich, Connecticut-based hedge fund firm has also extended the redemption deadline to December 1 from November 15 to receive money back on December 31, FrontPoint’s two chief executive officers told their investors late last week.

A spokesman for FrontPoint declined to comment.

Last week the U.S. government charged a French doctor with passing on illegal tips about biotechnology firm Human Genome Sciences Inc to FrontPoint.

The criminal and civil complaints did not mention FrontPoint and Skowron by name.

The hedge fund firm said it was cooperating with the probe and had put Dr. Joseph “Chip” Skowron, one of its top portfolio managers, on leave.

As jittery investors race to get their money out of the health funds, it is unclear how the matter is affecting the bottom line.

FrontPoint, which investment bank Morgan Stanley acquired in 2006 and is now spinning off, oversees roughly $7 billion in assets in various types of funds.

Portfolio managers across the firm generally have great freedom to run their business as they see fit. For many investors, the question now is whether FrontPoint will be able to wall off its other portfolios from the negative headlines hitting the healthcare funds.

FrontPoint created the healthcare funds after wooing its healthcare team from a rival fund in 2003. They include the FrontPoint Healthcare Flagship Fund LP, FrontPoint Healthcare Horizons Fund LP, FrontPoint Healthcare Flagship Enhanced Fund LP, FrontPoint Healthcare Emerging Markets Fund LP and FrontPoint Healthcare I Fund LP.

Skowron, Dr. Jason Bonadio and Ajay Bhalla had worked together at S.A.C. Capital Advisors and continued to do so at FrontPoint until the U.S. government filed its charges against the French doctor.

On an investor call last week, Bonadio and Bhalla said they were now in charge of the funds and laid out plans for the future.

The two men said they did not expect to make fundamental changes to the portfolio because Skowron had recently been more involved in business development instead of stock picking.

The pair also said they expected to restructure the team in order to keep promising analysts from leaving the fund now.

The U.S. Securities and Exchange Commission did contact FrontPoint in February 2008, shortly after the French doctor, Yves Benhamou, allegedly tipped Skowron, the firm told investors. FrontPoint conducted an internal review at that time, and Skowron spoke with the SEC.

(Reporting by Svea Herbst-Bayliss, editing by Gerald E. McCormick and Lisa Von Ahn)

FrontPoint health funds see big redemptions