Hedge fund consultants face off

A David and a Goliath of the hedge fund consulting world are in a legal battle that might rock the industry.

Aksia LLC, New York, has alleged in a lawsuit filed in New York State Supreme Court that larger rival Albourne Partners Ltd. not only actively recruited two of its employees, but also received and acted upon confidential proprietary information brought by those employees about Aksia's client base, investment research and methodology, and business practices.

Industry sources said the spat is evidence of increasing competition between specialist hedge fund consultants, perhaps the narrowest investment consulting niche dominated by only a handful of specialists working with institutional investors.

Aksia is suing the two former employees — Sarah J. Cole and Corissa L. Mastropieri — as well as London-based Albourne Partners; its U.S. subsidiary, Albourne America LLC; and six Albourne executives, including CEO Simon Ruddick.

Ms. Mastropieri resigned from Aksia on Dec. 8 and Ms. Cole tendered her resignation on Dec. 16. Both were members of Aksia's Americas advisory team.

Ms. Cole was hired on Dec. 29 by Albourne America as marketing manager in the firm's Norwalk, Conn., office. Albourne Partners hired Ms. Mastropieri on Jan. 15 as senior portfolio analyst at its London headquarters.

According to the complaint, the two took confidential and proprietary client information, research reports, business information, investment methodologies and marketing plans. They're accused of downloading a total of more than 100,000 pages from Aksia computers and taking 6,000 printed pages from Aksia's offices that contained the company information.

The suit alleges that Albourne Partners received the Aksia information the pair took with them. Also according to the suit, Ms. Cole and Ms. Mastropieri contacted current and potential Aksia clients and asked them to move their business to Albourne or to select Albourne during a search.

Aksia is seeking at least $40 million in punitive damages stemming from Ms. Cole and Ms. Mastropieri's alleged breach of non-solicitation and confidentiality agreements and from “tortious interference with such agreements” by Albourne and its executives, among other charges, according to court documents. It also seeks the return of Aksia property and injunctive relief to prevent Albourne Partners from using the information received from Ms. Cole and Ms. Mastropieri.

The suit originally was filed against the two women on Jan. 14; it was amended March 23 to include Albourne Partners and its executives.

Aksia sought a preliminary injunction and the parties agreed to terms on Jan. 28. Among other things, Albourne agreed to suspend Ms. Mastropieri and Ms. Cole from active employment and not use any Aksia information it had received from the pair. Albourne and the former Aksia employees also are forbidden from soliciting Aksia's clients or prospective clients

In an e-mail response to a request for comment, Albourne's Mr. Ruddick said Aksia's claims that Albourne business units and certain staff members “unfairly interfered with Aksia's business and with Aksia's relationships with clients and prospective clients ... (are) without merit.”

“Last fall, Albourne received from three members of Aksia's staff expressions of interest in joining Albourne. Albourne had not initiated or solicited their interest. Albourne subsequently offered employment to two of those employees,” Mr. Ruddick wrote.

Mr. Ruddick said Albourne was “unaware of the alleged effort by (Ms. Mastropieri and Ms. Cole) to collect Aksia materials, and upon learning of the allegations suspended both employees, who have since been on leave.”

The third Aksia employee whom Mr. Ruddick said approached Albourne for employment was Jacob “Jake” Walthour, who was partner and head of advisory services for the Americas. Aksia's lawsuit alleged that Mr. Walthour also was a target of Albourne's recruitment effort.

Mr. Walthour joined hedge fund manager Citadel Investment Group in January as managing director and head of U.S. distribution for its Citadel Asset Management subsidiary. Mr. Walthour is not named as a defendant in the Aksia suit and declined to comment.

Neither Ms. Mastropieri nor Ms. Cole could be reached for comment. Their attorney, Jason Brown, a partner at Ropes & Gray LLP, did not return a call seeking comment. An April 12 court filing by Mr. Brown sought to have the case against both women dismissed and their legal fees awarded. The next hearing is scheduled for June 2.

Sources said the wrangling between the two hedge fund consultants is symptomatic of intensifying competition in the hedge fund consulting arena.

“It's getting absolutely brutal out there,” said a former consultant who asked for anonymity. “With so many institutional investors requiring consulting advice and so much money being aimed at hedge funds, the competition for dollars is really fierce.”

For much smaller Aksia, the issue is protection of intellectual property.

“Aksia was left with no choice but to take legal action against the defendants. We are confident that the court will continue to take steps to ensure that Aksia is awarded the appropriate protections and remedies,” according to an e-mail from the company.

Jim Vos, CEO and head of research at Aksia, declined to comment further on the case.

Both firms specialize in providing hedge fund consulting services globally to corporate and public pension funds, endowments, foundations and sovereign wealth funds.

The big difference between the two firms is their scale.

Aksia, founded in 2006, employs 43 people to serve 30 institutional clients with combined hedge fund assets of $25 billion. Albourne Partners has a staff of 170 advising 150 clients with a combined $200 billion invested in hedge funds. Albourne was established in 1994.

“While Aksia emerged on the market only a few years ago, it has successfully competed for market share from Albourne and is now Albourne's main rival,” Aksia said in court documents.

On its website, Albourne declares itself “the dominant hedge fund advisory firm in the world and is now developing a closely aligned private equity advisory service.”

Aksia's clients include the $129.4 billion New York State Common Retirement Fund; the A$12 billion (U.S.$10.1 billion) Sunsuper fund in Australia; the $9.5 billion Ohio School Employees' Retirement System; and the $3.5 billion Philadelphia Public Employees Retirement System.

One of Aksia's new clients is the €22.3 billion ($30.4 billion) Irish National Pensions Reserve Fund, Dublin, to advise staff of the Irish National Treasury Management Agency on investment of at least €500 million in its first foray into hedge funds of funds, confirmed Brian O'Neill, an NPRF spokesman.

Robert G. Cowman, director of investments of the Columbus-based Ohio Schools plan, said officials there are aware of Aksia's complaint against Albourne and are “keeping an eye on the lawsuits. We're happy with the people who were reassigned to us (following the departures of Ms. Cole and Ms. Mastropieri) and we're moving forward with our direct hedge fund investment program.”

Albourne's clients include the C$131.6 billion (US$123.3 billion) Caisse de Depot et Placement du Quebec; the $93 billion Teacher Retirement System of Texas; the $16 billion University of Texas Investment Management Co.; the $43.6 billion defined benefit plan of Boeing Co.; and the $6 billion Arizona Public Safety Personnel Retirement System.

Staff members at the Texas Teachers fund are aware of Aksia's allegations against Albourne, but cannot comment on lawsuits, said Howard Goldman, a TRS spokesman.