Key Takeaways
- • Paloma Partners is withdrawing $600 million from external hedge fund investments, including a $600 million redemption from Aquatic Capital, a quant fund it seeded in 2019, to meet $1.2 billion in total investor redemption requests.
- • The firm is using a special-purpose vehicle (SPV) called Dove to house $240 million in commercial mortgage-backed securities (CMBS) previously managed by Cannae Portfolio Advisors, which will be liquidated gradually to satisfy redemption obligations.
- • Paloma's performance has deteriorated significantly, returning only 2.5% in 2024 and averaging 3.6% over the past three years, well below the 6.6% industry average, contributing to investor outflows and leadership instability.
- • The 45-year-old multi-strategy hedge fund, founded by Donald Sussman and best known for seeding D.E. Shaw, has seen assets decline from approximately $4 billion to $1.7 billion following the departure of CEO Neil Chriss in late 2023 and the appointment of replacement Ravi Singh.
- • Aquatic Capital, the target of Paloma's capital withdrawal, faces lock-up terms with redemptions scheduled over multiple years, forcing Paloma to navigate complex liquidity constraints while managing its own investor obligations.
Summary
Paloma Partners, a prominent multi-strategy hedge fund founded in 1981 and historically known for seeding elite managers including D.E. Shaw, is executing a capital redeployment strategy to address $1.2 billion in investor redemption requests. The firm informed investors in fall 2024 that it would require additional time to liquidate less liquid assets and fulfill withdrawal obligations. The situation has intensified as the fund manages multiple redemption tranches using both direct asset sales and structured vehicles.
To generate necessary liquidity, Paloma is withdrawing $600 million from Aquatic Capital, a quantitative hedge fund that the firm seeded in 2019 with $360 million in capital. Aquatic has experienced performance challenges and is subject to lock-up restrictions, with redemptions scheduled over multiple years—a constraint that complicates Paloma's ability to access capital on demand. Additionally, Paloma has transferred $240 million in commercial mortgage-backed securities into a special-purpose vehicle (SPV) designated "Dove," which will liquidate these holdings gradually. The CMBS were previously managed by Cannae Portfolio Advisors, a credit fund spun out of Paloma in 2020 that has managed Paloma capital since 2009.
Paloma's liquidity pressures reflect broader performance deterioration and organizational instability. The firm returned 2.5% in 2024—a year that proved strong for many hedge funds—and has averaged only 3.6% annually over the past three years, significantly underperforming the industry average of 6.6%. This underperformance has directly contributed to investor redemptions and asset contraction. Assets under management have contracted sharply from approximately $4 billion to $1.7 billion, a decline exacerbated by leadership turnover. Neil Chriss, who assumed the CEO role in 2023, departed after less than one year; he was succeeded by Ravi Singh, a former executive at Credit Suisse and Goldman Sachs.
Founded by Donald Sussman, Paloma has historically positioned itself as a cornerstone capital partner to hedge fund entrepreneurs, backing over 130 managers since inception. However, the fund's current challenges—underperformance, investor redemptions, and asset base erosion—underscore pressures facing established multi-strategy platforms competing in a challenging investment environment. The structured redemption approach using both direct liquidations and SPVs suggests management is attempting to balance investor demands with asset realization timelines while minimizing forced sales of illiquid positions.
To generate necessary liquidity, Paloma is withdrawing $600 million from Aquatic Capital, a quantitative hedge fund that the firm seeded in 2019 with $360 million in capital. Aquatic has experienced performance challenges and is subject to lock-up restrictions, with redemptions scheduled over multiple years—a constraint that complicates Paloma's ability to access capital on demand. Additionally, Paloma has transferred $240 million in commercial mortgage-backed securities into a special-purpose vehicle (SPV) designated "Dove," which will liquidate these holdings gradually. The CMBS were previously managed by Cannae Portfolio Advisors, a credit fund spun out of Paloma in 2020 that has managed Paloma capital since 2009.
Paloma's liquidity pressures reflect broader performance deterioration and organizational instability. The firm returned 2.5% in 2024—a year that proved strong for many hedge funds—and has averaged only 3.6% annually over the past three years, significantly underperforming the industry average of 6.6%. This underperformance has directly contributed to investor redemptions and asset contraction. Assets under management have contracted sharply from approximately $4 billion to $1.7 billion, a decline exacerbated by leadership turnover. Neil Chriss, who assumed the CEO role in 2023, departed after less than one year; he was succeeded by Ravi Singh, a former executive at Credit Suisse and Goldman Sachs.
Founded by Donald Sussman, Paloma has historically positioned itself as a cornerstone capital partner to hedge fund entrepreneurs, backing over 130 managers since inception. However, the fund's current challenges—underperformance, investor redemptions, and asset base erosion—underscore pressures facing established multi-strategy platforms competing in a challenging investment environment. The structured redemption approach using both direct liquidations and SPVs suggests management is attempting to balance investor demands with asset realization timelines while minimizing forced sales of illiquid positions.
Go deeper than the headline
Research every firm in this story, track the ones that matter and get the daily briefing — free for 7 days.