Friends Don't Let Hedge Funds Invest In Pre-IPO Fintech Startups, Marry Their Cousins

Let us count the red flags here at Wellington's in-house hedge fund.
Author:
Updated:
Original:

It's a tale as old as time: Man dreams big. Man finds knack for picking financial stocks. Man runs in-house hedge fund for major asset manager. Man chalks up years of stellar returns. Then he gets too close to the sun. Man marries first cousin. Man starts making wildly speculative bets on private fintech companies that come to imperil his reputation and spark billions of dollars of fund withdrawals. Man interviews with Mo Rocca in palatial estate. Man – we're talking about Nick Adams of Wellington Management here – gets Wall Street Journal profile:

Screen Shot 2017-05-04 at 12.57.09 PM

Mr. Adams, who made his name investing in bank stocks, has lost money in two of the past three years. His funds poured hundreds of millions of dollars into two tech startups, Mozido Inc. and Powa Technologies Group PLC, and told investors they were growing ever more valuable, boosting his fees. Now both companies are financially distressed.

Wellington has been urging investors to stick around, according to people who have heard from the firm. Mr. Adams has made dozens of calls to clients. Wellington has told investors in writing that Mr. Adams had “forsworn” ever again investing in such private deals in his flagship fund.

Losing money in tech startups doesn't exactly make for a unique story. But it is notable when the loser in question is the direct descendant of John Adams (whom you might remember as America's second president). Or when he has “attracted attention from the local tabloid press by divorcing his wife and marrying his first cousin.” Or when this sort of thing happens with his pre-IPO wagers (of which ailing fintech firm Powa was one):

In December 2015, Wellington boosted its estimate of what Powa was worth, investor documents indicate. Mr. Adams didn’t tell investors that one month earlier Wellington had hired consulting firm Deloitte LLP to advise on whether the company was insolvent, according to documents in U.K. insolvency proceedings.

This is by now a familiar pattern: Successful hedge fund manager overestimates his abilities, strays from his core competencies, and suffers a humbling defeat. The moment Adams wandered away from bank investing – evidently in response to the financial crisis and regulatory response – investors should have raised as many red flags as they could carry.

But the biggest red flag should have been when Adams betrayed what is perhaps the ultimate tell that a hedge fund manager is asking for trouble: porcine enthusiasm.

Inside Wellington, Mr. Adams also attracted attention for what some colleagues regard as eccentricities. He owns a miniature potbellied pig, named Mona Lisa, that he walks outdoors on a leash and takes with him on private jet flights. He persuaded Boston’s Ritz-Carlton, where he keeps an apartment, to waive its policy against pigs by describing Mona Lisa as a therapy animal, people familiar with the matter say.

Then again, what kind of luxury hotel has a policy against pigs?

How a Hedge-Fund Ace Chased Silicon Valley Riches—and Embarrassed Himself [WSJ]

Related