How Weiss Multi-Strategy Advisers LLC went bankrupt

Article content

The order came down from George Weiss, hedge-fund pioneer: Sell. Sell it all.

The fund was closing, he said, near tears, to a group of portfolio managers over Zoom. Employees were floored.

Article content

After 46 years, his eponymous investment firm — founded in 1978, when the Dow was bumping along 800 — was spiralling toward oblivion.

His stunning directive on the morning of Feb. 29 marked the culmination of a series of missteps — including paying executives six-figure bonuses while on the brink of insolvency — that sank one of the world’s oldest hedge funds into bankruptcy last month.

Article content

Traders spent that wild Thursday offloading billions of dollars of positions. As they made calls to bank trading desks, employees fielded inquiries from recruiters while word of trouble spread.

Later, as George Weiss was bidding staff goodbye in person, he described the firm as a family.

That’s not the way employees and creditors are likely to see things. While the firm’s rapid unwinding limited losses for fund investors, Weiss Multi-Strategy Advisers LLC’s collapse leaves some staff standing to lose more than US$1 million in deferred compensation. Its biggest creditor is bracing for a fight over more than US$100 million in unpaid debts.

Article content

Interviews with about two dozen people familiar with Weiss and court documents depict a collapse caused not by a disastrous trade, but rather years of high spending that the firm failed to rein in even as assets fell and performance faltered.

George Weiss, 81, and chief investment officer Jordi Visser, 57, ran the US$2.3-billion firm with the glitz of larger multi-strategy rivals, but without the discipline, the ruthlessness to cut losing traders or the ability to push more costs onto investors, according to the people and court filings.

Article content

That proved fatal when Weiss’s biggest creditor demanded payment, later accusing George Weiss of using the firm as his “personal piggy bank.” The firm’s last attempt to survive — a potential deal with multi-strategy giant Millennium Management LLC — ultimately fell through.

For years, executives racked up miles on the corporate jet and kept portfolio managers on the payroll even as they dragged down returns, all while clients pulled cash, according to people familiar and court documents. As George Weiss stepped back from day-to-day operations, Visser continued building a personal brand through video series and podcasts and engaged in an office romance that other executives flagged as problematic.

What lies ahead is a legal brawl in bankruptcy court with the creditor, Leucadia Asset Management LLC, an affiliate of Jefferies Group LLC, over more than US$28 million in bonuses Weiss handed out when the firm allegedly knew it couldn’t pay its debts. Leucadia, also its strategic partner, said in a filing that the payouts amounted to “preferential and fraudulent transfers.”

Article content

Article content

Weiss declined to comment for this story. George Weiss also declined to comment and hasn’t filed a legal response to Leucadia’s lawsuit against him. Visser declined to comment.

Cash-strapped firm

While Weiss lost money in only three of its 46 years in business, it struggled to manage costs. The firm — which ran US$4 billion at its 2021 peak — had at least 110 employees, including well-compensated traders and a packed back-office staff, working out of offices in Manhattan, Miami and Connecticut.

Rent for the 20th and 21st floors of its Park Avenue location alone totalled almost US$3 million a year, a bankruptcy filing shows.

The firm kept senior and veteran executives even after they posted declines of tens of millions of dollars. Deputy chief investment officer Mike Edwards lost more than US$100 million between 2020 and 2023 and stopped trading as a result, people said. Edwards didn’t provide a comment for this story.

But rather than fire the underperformers — as multi-strategy firms commonly do — Visser and Weiss kept their longtime colleagues on the payroll.

Weiss’s expenses also raised alarms for Leucadia. The hedge-fund firm owned a Dassault Falcon private airplane that George Weiss used for personal trips, Leucadia alleged in the lawsuit. The annual costs could run into the millions of dollars, and Leucadia ultimately asked Weiss to sell the plane. Weiss sold the aircraft in March 2023 for US$941,000, according to an audited financial statement.

Article content

Exacerbating its financial woes, Weiss had stopped charging clients for various expenses, even though most multi-strategy rivals pass on those fees. So when the fund fell 0.6 per cent in 2022, it didn’t receive performance fees, but it still had to pay bonuses to the portfolio managers who did make money.

These so-called netting costs pose a huge risk for multi-strategy funds. Many industry giants charge clients for traders’ pay so they don’t have to foot the bill for bonuses during down years.

But even in the best of times, Weiss had to share some of its revenue under a 2018 deal with Leucadia, according to bankruptcy filings. In 2022, the hedge fund was so cash strapped that it struggled to fulfil agreements with its partner linked to unpaid notes and obligations.

In 2023, its former HR director Beth Andrew-Berry filed a proposed class action over Weiss’s unusual requirement that employees invest their 401(k) plans entirely in Weiss funds, including in a mutual fund that lost about 18 per cent in 2022.

The policy existed “to prop up the Weiss funds,” the suit alleged. Weiss denied the allegations in a motion to dismiss and said it’s “common for a firm in the business of asset management to utilize its own investment products for its own plan.”

Article content

Last-ditch efforts

Last year, in need of aid, Weiss approached potential buyers — including Izzy Englander’s Millennium, with which it had on-and-off negotiations. The US$64-billion hedge fund has been on the hunt for other firms to trade its cash, usually exclusively.

Leucadia granted Weiss forbearance agreements, giving it more time to pay its debts on at least three occasions, and on Dec. 21, the firm demanded payment.

Weiss didn’t have the money. The firm owes Leucadia roughly US$100 million, according to a court filing.

Millennium approached Weiss again when it heard the troubled firm was in even more distress, people said. Talks collapsed when Englander’s firm got word that some of Weiss’s best-performing talent — including portfolio manager Andrew O’Connor — was looking to leave. Millennium had also demanded more favourable terms, including Visser’s removal as investing chief, people said.

Visser essentially ran the firm despite some colleagues’ concerns about his investing track record and managerial approach. He joined Weiss after his own hedge fund, Anchor Point Asset Management, lost money and wound down, and he once ran a portfolio at Weiss that performed so poorly that the firm shuttered it. Some staff described him as having a volatile temper and belittling colleagues in meetings.

Article content

His romantic relationship with Jena Roche, the 39-year-old director of investor relations and marketing, also concerned some colleagues. While she reported to George Weiss, executives raised the relationship as a potential conflict for the firm.

Roche had appeared on Visser’s podcast, In Search of Green Marbles, where he opined about macroeconomic trends. Roche didn’t respond to requests for comment.

Some staff described Visser as too preoccupied with the podcast, his video series, Real-Time With Jordi Visser, and his newsletter, Jordi’s Journal.

At one point, Visser asked the firm’s data team to independently assess the audience reach of his video series and podcast, because he didn’t believe the underwhelming analytics data, people said.

As Visser forged ahead with his multimedia efforts, the financial situation at his firm deteriorated and Leucadia asked for the ability to approve any staff bonuses. Weiss executives balked.

On Feb. 8, the firm paid more than US$28 million in year-end bonuses to about 85 employees. More than half the cash consisted of voluntary payouts versus contractual ones, with some staff receiving even more than their target amount, people said. The executive committee was paid US$2.3 million collectively.

Article content

Visser and Edwards each received six-figure payouts, people said.

‘Limited severance’

On April 29, Weiss filed for Chapter 11 bankruptcy.

The hedge fund sued Leucadia to recover US$20 million, claiming the payments either favoured Leucadia over other creditors or were obtained unfairly under the threat of litigation over the bonuses.

Leucadia denied the allegations and is asking a bankruptcy judge to oust Weiss’s management team and replace it with an independent court-appointed trustee to oversee the firm’s dissolution.

In May, Leucadia also sued George Weiss in New York state court, claiming he used his firm as a “personal piggy bank” to “line the pockets of” his inner circle and to pay for his own private air travel and legal expenses.

Still, employees speak highly of the firm’s founder, calling him philanthropic and disciplined. The chief executive never swears and insists others don’t, either. His major misstep, they said, was giving executives too much autonomy.

Over the first weekend of March this year, a few days after the frenzy to liquidate, Weiss told clients it had unloaded most of its book and would return cash.

Article content

Employees — still reeling from the uncertainty — hoped for more clarity the next Monday morning. Executives said nothing. The firm skipped its usual morning meeting, and staff didn’t get any updates about severance.

They didn’t receive details from HR until a Friday email. Employees would receive “limited severance,” according to the internal email seen by Bloomberg. But HR told them nothing about deferred compensation, which for some traders amounts to more than US$1 million, according to a list of Weiss’s largest creditors in its bankruptcy filing.

In the midst of all the turmoil surrounding the firm’s dissolution, Visser appeared on a podcast.

The show’s title: How to unf-ck your future.

With assistance from Jonathan Randles.

Bloomberg News

Article content