>Reputation risk sinks Pequot
The inquiry focuses on Pequot’s trading in Microsoft stock in 2001. While both the SEC and the Justice have reopened the investigation, there is no indication that the regulators will pursue enforcement actions.
Pequot lost money last year, but was up so far this year. Nonetheless, fund manager Arthur Samburg wrote to investors, “With the situation increasingly untenable for the firm and for me, I have concluded that Pequot can no longer stay in business.”
Historically hedge funds and other asset managers have been able to weather inquiries and settle with regulators without jeapoardizing their business. These are not normal times, though, and this case shows how management of reputation risk is at least as imporant as the management of market risk to the survival of hedge funds.