Odey Asset Management's prime brokers review relationships amid allegations

Odey Asset Management, a prominent hedge fund, is facing scrutiny as its prime brokers, including Goldman Sachs, JPMorgan, and Morgan Stanley, review their relationships with the firm following allegations of sexual misconduct against its founder, Crispin Odey.

A joint investigation by the Financial Times and Tortoise Media revealed that 13 women have come forward, alleging sexual assault and harassment by Odey over a span of 25 years.

Crispin Odey has vehemently denied the allegations, highlighting that they have not been tested in a courtroom or an investigation. He referred to the accusations as a rehash of an old article. Odey was previously cleared of indecent assault charges by a British court in 2021. The Financial Conduct Authority (FCA), the UK regulator, has been investigating Odey since 2021, demonstrating their commitment to addressing allegations of non-financial misconduct seriously.

The prime brokers involved in lending money to hedge funds are now faced with a conflict between the allegations and their own standards. These brokers play a crucial role in facilitating investments for hedge funds. Morgan Stanley was the first to make the decision to review its relationship with Odey Asset Management, a move that has been independently confirmed by a source. JPMorgan and Goldman Sachs are also reported to be reviewing their connections with the hedge fund, according to sources familiar with the matter. However, all three prime brokers declined to comment on the ongoing situation. UBS, another prime broker mentioned in regulatory filings, has also refused to comment.

Industry experts, such as George Evans from Convergence, have emphasised the importance of prime brokers to hedge funds and the potential impact of their withdrawal. Prime brokers are considered the “lifeblood” of a hedge fund, and their departure could have significant consequences. Evans stated that if prime brokers pull back, most firms would be forced to sell securities to repay the loans, potentially impacting returns.

Crispin Odey maintains that prime brokers cannot withdraw their support without proper cause. He claims that they have a duty of care and are restricted from changing a fund’s margin requirements to gain access to leverage. However, it remains unclear what specific role prime brokers play in relation to the FCA’s guidance on firms’ consumer duty to retail investors.

Odey Asset Management has a history of volatile performance. The Odey European fund, for instance, experienced a decline of approximately 4% this year through April, following an impressive return of 151.46% in 2022, as reported by Societe Generale. The firm currently oversees around £4 billion ($5 billion) in assets.

Despite the allegations, Crispin Odey stated that no investors have approached him to withdraw their investments since the news broke. However, the review of relationships by prime brokers raises concerns about the potential consequences if they decide to sever ties with the hedge fund.

Efforts to seek comment from Duncan Lamont at Charles Russell Speechlys, the law firm representing Odey Asset Management, have been unsuccessful.