(Bloomberg) -- Some of the money that helped Ed Eisler launch one of the biggest startup hedge funds in Europe around seven years ago is now drawing scrutiny from other investors in his growing firm.
The hedge fund manager got more than $100 million from an entity linked to Russian oligarch Mikhail Fridman when setting up his own shop in 2015, according to people familiar with the matter. This week, those ties have become the subject of questions from other investors in the fund, uneasy at finding themselves bedfellows with a company founded by a man sanctioned by the European Union, some of the people said.
Some of Eisler's investors have asked the firm about the money and what will happen to it, said the people, who asked not to be identified because the information is private. It's not clear how much of the initial cash is still at the London-based Eisler Capital, which manages $4.3 billion, up from an initial $1 billion at launch.
“In all circumstances Eisler Capital has always and will always comply with any applicable regulatory or legal requirements,” a spokesman for the firm said in an emailed statement and declined to comment further.
Billionaire Fridman founded LetterOne Holdings in 2013 alongside Petr Aven. Both men stepped down from the board this week after they were both sanctioned by the EU, the company said in a statement. A representative for LetterOne said the firm is not impacted by the sanctions and that neither of the men has control of the business.
Vladimir Putin's invasion of Ukraine has sparked a wave of international sanctions against hundreds of companies and individuals meant to isolate Russia and hurt it economically. The unprecedented scale of the moves is unraveling decades of investment between Russia and the rest of the world since the collapse of the Soviet Union.
Asset managers are now faced with a question of what to do with capital derived from potentially banned sources and whether they should go beyond the letter of the law to address other investors' concerns. That sanctions differ across jurisdictions is adding an additional layer of complexity.
A fund administrator, who verifies the assets and valuation of funds, said his firm runs daily checks on investors against sanction lists and alerts money managers about any individual or company appearing in those lists but leaves the next step to the investment firms. The person asked not to be identified and wouldn't comment specifically about what could happen at Eisler Capital.
LetterOne
The relationship between LetterOne and Eisler has gone beyond the initial investment. Eisler chaired the investment and risk committee of LetterOne Treasury from 2015 until at least 2017, annual reports from LetterOne for those years show.
The firm, which invests across industries and has net assets of more than $22 billion, had $1.7 billion in hedge fund investments at the end of 2020, according to the latest LetterOne annual report.
In its sanction report, the EU said Fridman had strong ties to Putin's administration and has been referred to as a top Russian financier and enabler of Putin's inner circle. The EU condemned Fridman for having actively supported and benefited from Russian decision-makers responsible for the annexation of Crimea and the destabilization of Ukraine.
In response, Fridman said the sanctions were based on false allegations.
“These are malicious and deliberate lies – pure and simple, the product of historical fantasies and conspiracy theories dreamt up by individuals with their own agendas,” according to a statement released on behalf of Fridman and Aven. “Mikhail Fridman and Petr Aven are committed long term investors to European businesses employing tens of thousands of people and have always been totally transparent about their dealings and source of wealth.”
Eisler, a former co-head of trading at Goldman Sachs Group Inc., started his firm with his own money as well as capital from LetterOne. RIT Capital Partners Plc, whose investments are run by J. Rothschild Capital Management Ltd., also invested at the time and disclosed an allocation of about 164 million pounds ($217 million) at the end of last year, according to its annual report.
Since then, the money manager has expanded his investor base. The Sacramento County Employees' Retirement System was invested in Eisler Capital as of June 30 last year.
Eisler, who employs 128 people, is currently in the process of transforming his hedge fund into a multi-strategy investment firm. He is launching a third money pool and raised about $1 billion in a multi-strategy hedge fund last year.
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