Infinity Q Capital Management says it plans to return approximately $500 million to investors who were unable to get their money back after the investment firm halted redemptions on a then-$1.7 billion mutual fund earlier this year.
It remains unclear how much investors will eventually recoup from the Infinity Q Diversified Alpha Fund. The fund currently has around $1.3 billion on hand—well below where it was last valued in February—and it will keep $750 million in reserve for future expenses and “potential liabilities,” according to a notice on the firm’s website.
The firm said it filed a plan for the Securities and Exchange Commission to review on Tuesday, which is still subject to change.
Investors had been bracing for losses in the mutual fund after the firm unexpectedly halted redemptions in February and said it couldn’t value its holdings. The move stunned market participants, some of whom viewed their investments in the fund as a hedge to their broader portfolios. Infinity held wide-ranging bets across stock, currency and derivatives markets, including over-the-counter positions.
The firm found that its chief investment officer, James Velissaris, had been “adjusting parameters” of pricing models that were used to value derivatives in the fund’s portfolio.
Spokesmen for Infinity Q and Mr. Velissaris didn’t immediately respond to requests for comment. The SEC didn’t immediately respond to a request for comment.
The Wall Street Journal reported that Infinity appeared to have misvalued its large derivatives portfolio. Some of the valuations it disclosed were too high and, in one instance, mathematically impossible. The SEC and prosecutors at the Manhattan U.S. attorney’s office are investigating the matter, The Journal reported.
The firm said it hired Alvarez and Marsal Valuation Services as a third-party consultant to advise regarding its historical valuations. The consultant found that the mutual fund’s positions were likely overvalued for months.
“A&M has concluded that the valuations applied to most of the Fund’s Bilateral [over-the-counter] Positions were materially overstated as of February 18, 2021, and likely were overstated each trading day for several months before February 18, 2021,” its plan of distribution with the Securities and Exchange Commission states. The plan was posted on the firm’s website.
Infinity said that it still doesn’t know how far back it will need to recalculate its historical values.
Write to Gunjan Banerji at Gunjan.Banerji@wsj.com
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