Absolute Capital Management dives 70% as founder quits hedge fund

Danny Fortson
Sunday 18 September 2011 22:10

The founder of a hedge fund based in Mallorca has resigned because management were not paying the company's investment professionals enough.

Florian Homm, the co-chief investment officer of Absolute Capital Management, announced yesterday that he was stepping down from the company with immediate effect due to a "different investment and management philosophy from the current and prior management".

The move resulted in a massive 70 per cent drop in the group's shares. Mr Homm had given no warning and the announcement, through a news release rather than internally, came as a "complete shock" to the company.

A source close to the hedge fund said: "Florian did not consult with the board of ACMH over his resignation or over the manner of his communication." The company's board was locked in talks yesterday evening in an effort to formulate a response to issues aired by Mr Homm.

In his letter to shareholders, he said that he had decided to leave because the board "did not agree with my arguments that ACMH needs to pay adequate compensation to retain top-level fund managers, nor did they follow my lead in sacrificing personal bonuses and compensation." Mr Homm remains the company's largest single shareholder with a 19 per cent stake and warned that he would continue to "fight for shareholder value". It was unclear what this might entail. After yesterday's drop, his stake was worth £16m.

Mr Homm said that he donated ¿33m (£22.9m) worth of shares to offset recent losses at the fund amid the global market turmoil. He also chose to distribute his bonus among the investment team rather than pocket the money himself. Other board members, he said, declined to do the same.

The fund saw its assets under management more than double to $3.1bn (£1.54bn) as of June, while profits increased by three times to ¿31m. To deal with the rapid growth, the company announced in summer that it was splitting the chief executive and chairman role and creating a new chief operating officer position. Mr Homm seems to have been opposed to that strategy, espousing in his letter his belief in investing in "profit generators, not in non-producing management". His departure, effective today, means both of the company's founders have left. Sean Ewing, with whom Mr Homm founded the group, resigned in the summer.

Absolute Capital listed on AIM in March last year. It is a long/short hedge fund focused on the European equity markets, which means that it aims to produce returns regardless of overall market performance by investing in stocks it thinks will increase over time while at the same time short-selling shares it thinks will drop. Several such funds have been hit by the volatility of equity market this summer.

Absolute's shares ended the day at 188p, giving it an overall value of just £81m.

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