Hedge Fund Closing Over Government Inquiry

It's tough to run a hedge fund with the government looking over your shoulder.

David Ganek, Founder of Level Global
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David Ganek, Founder of Level Global

On Friday, David Ganek, the man who runs the $3.5 billion hedge fund Level Global Investors, informed his investors he plans to shut down the fund—given the prospect of a lengthy government inquiry regarding the use of so-called expert networks by hedge funds such as Level Global.

Ganek says Level Global is not a target of the investigation, nor has the firm been alleged to have engaged in misconduct.

Regardless, the government has chosen to focus on the firm, having raided its offices last November, as it gathers evidence in a wide ranging probe into insider trading.

Ganek’s firm is not the first to wilt under pressure from a government investigation. Last year, Art Samberg closed the hedge fund Pequot, after he was unable to raise new money, while watching existing investors flee.

Similarly, Level Global had a significant outflow of assets, though it was still left with a healthy capital base (reports had outflows of roughly $750 million).

While plenty of traders may now be taking aim at Level Global's portfolio, it appears Ganek already liquidated a good deal of his holdings, as he prepares to return 75 percent of his capital by March 31, and the remainder by the end of June.

It was less than a year ago that Goldman Sachs' Petershill fund took a minority position in Level Global.

Level Global represents the second soured investment for Goldman Sachs .

The firm’s Petershill fund took a minority position in Level Global (buying part of the general partnership) in April of last year. That fund also invested in Shumway Capital, an $8 billion hedge fund that recently told investors it would be returning their capital in an orderly wind down after those investors balked out Mr. Shumway's decision to give up day-to-day management of the portfolio.

*This post has been updated.

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