June 29, 2022

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US mutual fund loses nearly $500m, appears to have misvalued its derivatives portfolio

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A piece in the Wall Street Journal on an epic series of stuff-ups (or something more malign?) from a mutual fund that has seen it lose nearly half a billion USD.

The Journal, academics and traders have worked through the fund’s filings and found

valuations of investments that in at least three instances were incorrect or inconsistent with market conditions

  • One valuation was mathematically impossible, said a former Morgan Stanley managing director who reviewed the disclosures.
  • In one instance, the disclosures show, Infinity entered two nearly identical swaps contracts referencing the same index over the same period, yet booked a gain on one that was more than three times as large as the other-an outcome analysts said defied logic. 

This is going to get messier real fast …

  • At least two people raised concerns about the fund to the SEC, and it is under investigation by the regulator, people familiar with the matter said.
  • The Federal Bureau of Investigation and prosecutors at the Manhattan U.S. attorney’s office are also investigating, the people familiar with the matter said.
A piece in the Wall Street Journal on an epic series of stuff-ups (or something more malign?) from a mutual fund that has seen it lose nearly half a billion USD.

Speculative manias throw up instances of such events time and again. 

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