Finance

The Fall of a Hedge Fund Titan: Weiss Multi-Strategy Advisers' Collapse

In an unexpected turn of events, George Weiss, a hedge fund industry veteran, recently faced the heart-wrenching task of instructing his portfolio managers to liquidate all assets over a Zoom call. His voice tinged with emotion, Weiss announced the imminent closure of his investment firm—which has been a market presence since 1978, when the Dow Jones Industrial Average hovered around 800 points. This dramatic decision marked a pivotal moment in the firm's decline into bankruptcy last month.

A Series of Irreversible Missteps

The unraveling of Weiss Multi-Strategy Advisers was not induced by a catastrophic investment but by a succession of managerial blunders. Perhaps the most pivotal of these was the decision to award six-figure bonuses to executives, occurring even as the firm teetered on the edge of insolvency. This strategy severely compromised the firm's financial integrity, cementing its ultimate fate.

Traders scrambled to dispose of billions in assets during a frenetic day that also saw employees hastily respond to headhunters' calls. Gossip of the firm's predicaments spread rapidly, undoubtedly raising alarm within the finance community.

Weiss Multi-Strategy Advisers' staff and creditors are now left grappling with the aftermath of its hasty dissolution. While rapid actions minimized investor losses, some employees now stand to forfeit upwards of a million dollars in deferred compensation. In the wreckage, the firm's most noteworthy creditor is gearing up for a legal showdown over an excess of $100 million that remains unpaid.

Exposed through interviews with insiders and court filings, the firm's downfall can be traced back to years of unchecked spending. These financial habits persisted even as the company faced decreased assets and underwhelming performance, ultimately contributing to its demise.

With $2.3 billion under management, the fund, presided over by the 81-year-old George Weiss and CIO Jordi Visser (age 57), maintained the ostentatious trappings of their larger competitors—unfortunately minus the necessary fiscal restraint or ruthlessness in dealing with failing traders.

Monumental Debts and Legal Woes

The conflict with the firm’s primary creditor, Leucadia Asset Management, escalated as they alleged George Weiss exploited the firm as his personal "piggy bank." This accusation came in light of a failure to condition a deal with Millennium Management, a hedge fund behemoth.

Within the lavishness of corporate jets and portfolio managers who did not pull their weight yet remained on the payroll, the firm's executive conduct was fraught with problematic spending habits. As assets were liquidated and clients withdrew funds, the strain of financing its opulent lifestyle became unmanageable.

Hedge Fund Pioneer Closes Shop

Facing difficulties controlling costs, Weiss Multi-Strategy, which boasted $4 billion in assets at its zenith in 2021, was encumbered with a workforce of over 110 individuals, including high-income traders and a full back-office staff across various locations.

Despite considerable financial setbacks, the firm refrained from discharging underperforming senior executives, a stark contrast to common practices championed by multistrategy firms. Mike Edwards, the Deputy Chief Investment Officer, reportedly ceased trading after losing over $100 million—yet remained on Weiss’s payroll.

Costly Decisions Weighed Down the Firm

The expenditure on the corporate jet for personal trips and the decision to absorb expenses that competitors typically pass onto clients only exacerbated the firm’s financial burden. The latter proved risky as the fund was unable to secure performance fees and still had to meet its obligation for bonus payments.

A peculiar arrangement forced the firm to share revenue with Leucadia after a 2018 deal. This placed Weiss in a precarious position, struggling to service the debt tied to unpaid notes and obligations in the following years.

Adding to these complications was a lawsuit filed in 2023 by a former HR director regarding the unique requirement for employees to invest 401(k) plans solely within Weiss funds. This policy, allegedly aimed at supporting the Weiss funds, was contested as the firm denied the allegations.

The Search for a Lifeline Ends in Vain

As Weiss's predicament deepened last year, it sought refuge in negotiations with potential buyers, including Millennium. Though Millennium, spearheaded by Izzy Englander, signaled interest in taking over the troubled firm, the proposal disintegrated when news surfaced that Weiss's premier talent, including Andrew O’Connor, was contemplating an exit.

Internal frictions arose due to Visser’s questionable management style and conflict of interest stemming from a romantic entanglement with another executive. The contentious relationship and Visser’s engrossment with personal branding would eventually take a toll.

The Final Straw

In the shadow of an impending financial disaster, Weiss Multi-Strategy disbursed over $28 million in bonuses on February 8. Ironically, amidst its struggle, Visser and Edwards still received substantial six-figure distributions. This move preceded a tumultuous chapter that thrust the firm into Chapter 11 bankruptcy.

As the bankruptcy process unfolded, Weiss took Leucadia to court, seeking to recover $20 million and alleging preferential treatment. Leucadia counteracted by requesting the replacement of Weiss's management with an independent trustee to oversee further proceedings.

Despite a looming legal battle, employees remembered George Weiss fondly, highlighting his philanthropic endeavors. Nevertheless, his lenient oversight over the executive branch may have been the critical error leading to the firm’s downfall.

In the immediate aftermath of the liquidation order, Weiss Multi-Strategy pledged to return client investments post-haste. As they weathered the storm, the anxious employees awaited further directives regarding severance, only to be mildly appeased by a vague email promising "limited severance."

Amid the internal chaos, Visser's decision to feature in a podcast episode titled "How to unf-ck your future" must have struck a discordant note to those grappling with the repercussions of the firm's implosion.

The story of Weiss Multi-Strategy Advisers serves as a reminder of the fragility inherent within the world of high finance, where years of success can be overshadowed by uncontrolled spending and poor management decisions.

With assistance from Bloomberg journalist Jonathan Randles, this intricate depiction of a hedge fund’s fall from grace illustrates a cautionary tale for an industry where discipline is paramount. As George Weiss's legacy within the financial world unravels, the future remains uncertain for those entangled in the aftermath of Weiss Multi-Strategy Advisers’ fall.

©2024 Bloomberg L.P.

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