Galleon is exploring various alternatives for the business.
Raj Rajaratnam, the billionaire founder of Galleon Group charged last week by federal prosecutors with insider trading, told investors he will liquidate his hedge funds. Galleon, which managed about $3.7 billion, is exploring various alternatives for the business, according to a letter sent to investors on Wednesday. New York-based Galleon has been approached by unidentified parties interested in buying the company and an undetermined amount of its assets, according to a person familiar with the firm.
“I want to reassure investors of the liquidity of our funds and assure Galleon employees that we are seeking the best way to keep together what I believe is the best long/short equity team in the business,” Rajaratnam, 52, said in the letter. “I want to reiterate that I am innocent of all the charges.” Rajaratnam, one of six people arrested October 16 for alleged insider trading, is free on $100 million bail. Within three days of his arrest, investors asked to withdraw about $1.3 billion from Galleon, which managed $7 billion at its peak last year, the person said.
Founded in 1997, Galleon was one of the three largest managers of technology hedge funds along with Lawrence Bowman’s Bowman Technology Fund, which closed in 2001, and Daniel Benton’s Andor Capital Management LLC, which shut down last year.
“The redemptions coming in were likely so large, and no one wants to be the last out the door,” said Brad Balter, head of Boston-based Balter Capital Management LLC, which allocates investments to hedge funds and is not a Galleon investor. “As an investor, you don’t want that in your portfolio, even if the charges haven’t been proven.” Galleon doesn’t know when it will complete the liquidation process, which will follow the firm’s standard redemption policies, the person said. Investors in Galleon’s $350 million technology fund, which is run by Rajaratnam, can withdraw their money on a monthly basis. Clients of the firm’s other hedge funds, including its largest, the $1.2 billion Diversified fund, can take their money out every quarter.
Investors must give 45 days notice for all funds. “A hedge fund in distress when markets are stable offers nice buying opportunities for other investors because the troubled fund becomes a forced seller,” said Tammer Kamel, president of Toronto-based Iluka Consulting Group Ltd, which advises clients on investing in hedge funds. Hedge funds have bought assets from rivals before. Citadel Investment Group LLC took over the energy positions of Amaranth Advisors LLC, the hedge-fund firm in Greenwich, Connecticut, that lost $6.6 billion betting on natural gas, in 2006. The following year, Chicago-based Citadel bought most of the assets of Sowood Capital Management LP, a Boston-based hedge-fund manager that closed after losses on corporate bonds and loans.
Born in Sri Lanka’s capital, Colombo, Rajaratnam graduated in 1980 with a degree in engineering from the University of Sussex in the U.K and three years later a master’s of business administration from the University of Pennsylvania’s Wharton School.
After his first job at Chase Manhattan Bank, he joined Needham & Co in 1985, a New York-based investment bank that specialised in technology and health-care companies. He started as an analyst covering the electronics industry, rising through the ranks and became president of the firm in 1991.
