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Highland Capital Management sued by Houston Municipal Employees Pension System
May 25, 2011 by Martin Leonard
Highland Capital Management, the $23 billion Dallas-based hedge fund, is being sued by the Houston Municipal Employees Pension System over its $15 million investment in the now defunct Crusader Fund.
In October 2008, Highland closed down its flagship Crusader Fund and the Highland Credit Strategies Fund over a three year time period following losses.
The complaint filed in Delaware Chancery Court alleges the Crusader fund “was harmed by virtue of being stuck with poor quality assets that it would have not have had if the partnership had been managed in the best interests of the partnership and its limited partners.”
The suit also said Highland froze redemptions from the fund but still managed to reduce its own exposure to the Crusader Fund from $395 million to $16 million. The Wall Street Journal added the complaint stated that Crusader “artificially” manipulated the NAV (net asset value) of Highland hedge funds by cross trading assets at deceptively high prices. The suit also named JP Morgan Chase, which was administrator to the fund.
Highland Capital has denied the allegations. In a statement, it said: “Highland Capital believes this lawsuit is both without merit and misleading. In our view, this suit represents a single plaintiff’s law firm attempting to create financial leverage for one party’s benefit at the expense of all other investors and derail the investor-led mediation process that is substantially complete.”
The firm also denied claims the fund was not managed in others’ best interests. “Since the start of 2008, Highland has not reduced its exposure to Crusader by $1. In fact, Highland increased its Crusader investment by $15 million, waived $9 million in fees and recovered over $24 million from counterparties. Highland does not have a small exposure to the fund. Instead, Highland’s and its affiliates’ total current investment is $90 million to $110 million, depending on the final plan splits making Highland one of the fund’s largest investors,” said the statement.
Highland offers a variety of product types to investors including credit funds, private equity-style funds, managed separate accounts, hedge funds, retail mutual funds and collateralised loan obligations. It has offices in New York, London and Singapore.
