By Maiya Keidan and Nell Mackenzie
TORONTO/LONDON (Reuters) - Amid the sterling plunges that followed Britain's budget debacle in the autumn, Crispin Odey told Reuters that if he admitted to a sterling short he would be dubbed "the enemy of the people".
"I love the people. I just can't put them in my portfolio," he quipped.
Now Odey and his long standing hedge fund have been abandoned by the people working in the City where he made his name, following allegations of sexual misconduct against him.
Banks and investors have slashed ties with Odey Asset Management, founded by Odey in 1991, since a June 8 publication by the FT and Tortoise Media reported allegations made by 13 women. Odey has denied the allegations.
By Wednesday, Odey Asset Management had released statements saying it would be broken apart and Odey no longer needed to be authorised by Britain's Financial Conduct Authority.
Some investors told Reuters that the upheaval at Odey Asset Management described by media reports mirrored the tempestuous financial performance in its flagship fund.
"There's the idea where you get to a point where the volatility is too extreme and your long-term return goes down and I think he's (Odey) beyond that point," said Robert Sears, chief investment officer of London-based Capital Generation Partners, which invests in hedge funds.
Last year, a punt by Odey's flagship fund via a combination of long and short positions in UK government bonds served up a record 151% performance for the hedge fund, numbers from HSBC (LON:HSBA) show.
But fortunes reversed, as they often did throughout the course of Odey Asset Management's 32-year history. As of end-May, the Odey European Inc fund was down about 11% from the start of the year, according to HSBC.
The misconduct allegations have raised questions about an industry that still harbours small shops that can be dominated by volatile star managers such as Odey.
Following the release of the FT article, Odey told Reuters the report was a rehash of an old one and that none of the allegations have been stood up in a courtroom or an investigation. Odey was acquitted of indecent assault charges by a British court in 2021.
But the report prompted Wall Street firms, investors and regulators to reassess how they vet hedge funds.
"Investor standards are much higher these days. Pension funds, endowments and outsourced CIOs don't want headline risk," said Don Steinbrugge, founder and chief executive at Agecroft Partners, a hedge fund consulting firm.
"The last thing they want is managers getting their firms' names into the newspaper."
FALLING STAR
When Odey set up Odey Asset Management, it was in the afterglow of then British Prime Minister Margaret Thatcher's deregulation of the stock market in London's 1986 "Big Bang".
Privately educated at the elite Harrow school, Odey left Oxford University and began his career in traditional asset management before launching Odey Asset Management.
Other top London hedge fund firms followed. Egerton Capital came along in 1994, Marshall Wace and Winton launched in 1997. Odey, described as a "larger-than-life" character by many in the hedge fund industry with a taste for an opulent lifestyle, rose to wider prominence during the 2008 financial crisis when he made a fortune short-selling bank shares.
Involved in politics as a leading backer of Brexit and a donor to Britain's ruling Conservative Party, the hedge fund briefly employed former finance minister Kwasi Kwarteng as a consultant. But fund performance at Odey Asset Management has been a rollercoaster, with Odey renowned for taking risks.
He liked to say leverage was like a drug - once you experienced it, you could never live without it, one hedge fund manager said.
Odey Asset Management's European Inc fund made roughly 31% in 2012, helped by a 70 million pound ($89 million) long position in Barclays (LON:BARC), and rose 26% in 2013 with short bets against Peugeot.
In June 2015, the firm oversaw a peak in assets under management of about $13 billion, said a former investor. By December this had dropped by more than $1 billion, they said. Then, the fund lost money for the following two years, data compiled by HSBC and seen by Reuters shows.
The fund lost almost 50% in 2016 on bets that the Hong Kong dollar peg would break. The next year, the firm recorded a negative 22% return, the data showed. These losses prompted investors to flee and assets under management to fall, said three industry sources with knowledge of the matter.
Crispin Odey declined to comment. Odey Asset Management also declined to comment.
The value of assets under management in Odey's flagship fund fell to 219 million euros by August 2017 from almost 3 billion euros in early 2015, the HSBC data showed.
In 2021, performance in the main fund rose by 54% and in 2022 by 151% by wagering on UK gilts. But between the start of 2023 and May 15, Odey's European fund was down 11%. As big trading swings paid off, volatility whipsawed Odey's private life. He was charged with indecently assaulting a woman and acquitted in 2021 by a British court.
Two years on and the allegations in the FT sparked an end for Odey Asset Management. Lawmakers on Britain's Treasury Select Committee have written to the FCA to question the regulator's supervision of Odey Asset Management and Odey. The FCA has been asked to respond by July 5. ($1 = 0.7864 pounds)