Their Hedge Fund’s Founder Was Accused of Sexual Harassment. Here’s What They Did Next.
In two client letters exclusive to II, elite biotech fund OrbiMed Advisors attempted damage control — after their investors learned about accusations against its founder in the press. By Alicia McElhaney & Leanna Orr.
Pornography on office TVs. A vibrator ambush. After shocking claims broke against the founder of OrbiMed, his team’s scramble to contain the crisis began.
This is how the fallout unfolded.
The asset management industry’s first sexual harassment scandal in the post-Weinstein era began late afternoon, December 5, with a report from trade publication Stat. The headline: “Biotech Hedge Fund Titan Sam Isaly Harassed, Demeaned Women for Years, Former Employees Say.” Reporter Damian Garde quoted by name a former assistant to founder Sam Isaly. She described pornography playing on OrbiMed trading floor screens, a sex toy hidden for her to find in her boss’s briefcase, and a leadership team dismissive of her, and others’, complaints.
Isaly denied the claims against him to Stat, and declined through a company advisor to speak for this story.
Two OrbiMed investors said they found out about the allegations at the same time as everyone else: 5:30 p.m. Eastern Time, when Stat broke the news.
Asset management insiders had been waiting for the so-called “me too” era to hit home. A New York Times report in October exposed sexual harassment and assault allegations against Hollywood producer Harvey Weinstein, kicking off a moment in which women across industries are sharing their stories of sexual assault and harassment in the workplace. A litany of prominent and powerful men have been accused of workplace misconduct, and ousted.
Sam Isaly’s head is the first to roll among money managers, and many predict it won’t be the last.
What went on behind the scenes at OrbiMed, revealed in an investor letter from the company obtained by Institutional Investor and through interviews with OrbiMed’s investors, is a cautionary tale for asset managers.
Isaly started OrbiMed’s asset management business in 1989 after having worked as a pharmaceutical analyst for years, according to the firm’s website. OrbiMed launched a long/short fund and made its first venture capital investment four years later.
On December 4, Garde interviewed Isaly for Stat, while the firm’s head of human relations, Kirsten Kearns, looked on. That day, Isaly said he had “no planned date” for his retirement.
Stat published the story a day later.
The piece detailed allegations from five former employees who worked at OrbiMed between 2000 and 2015. Four of the sources interviewed were women who worked as executive assistants, according to the report. The fifth was a male investment professional.
The former employees alleged that Isaly told them dirty jokes in emails, and showed them unwanted pornography and sex toys while at work. Two women said they complained to Kirsten Kearns, who was hired as the head of human resources by OrbiMed in 2012, according to Stat. Allegedly, nothing came of those meetings.
Roughly fifteen minutes after the story broke, OrbiMed issued a statement, which was added. “The incidents cited are concerning and OrbiMed has retained the services of an outside independent law firm to investigate the matter. OrbiMed takes gender equality seriously and wishes to encourage a supportive work environment and equal opportunity for all employees.”
At 8:41 p.m. Eastern Time on December 5, OrbiMed clients received an email from the firm’s investor services director.
One investor described to II being blindsided on the way out of a board meeting with the news. “I saw it hit social media that some manager was involved in a sexual harassment scandal, and was sort of laughing at the investors that were going to have to deal with it,” she said. “And then I saw it was one of my managers, and I was like, [EXPLETIVE].”
She found little comfort in OrbiMed’s letter. “It was so ridiculous to respond to allegations with, ‘We love diversity!’ That doesn’t matter if you’re not protecting your employees,” she said. “Fifty percent of your workforce can be women, but if almost none of them are in investment roles and they’re getting sexually harassed by a partner, then I don’t care if you have diversity.” OrbiMed’s argument was undermined by its own website, she pointed out. “You read the letter, then you go to their website and click on the first page, and it’s a picture of a conference room full of white men.”
Of the 51 executives listed on OrbiMed’s website, five were women. Meanwhile, 16 were people of color. Some were employed in offices abroad. Isaly still appears on the site as its managing partner.
Davia Temin, president and CEO of crisis management firm Temin & Co., cautioned against such pro-diversity defenses to sexual harassment allegations. “The moment I hear a company saying ‘we take gender equality seriously,’ I have to stop,” she said. “When you hear it, beware, because it means the exact opposite.” Temin, who reviewed the client letters and Stat’s article, said OrbiMed should have informed investors before the piece was published.
“It is a sound business move that people hear the worst news from you first,” Temin said by phone. “If people put their trust in you as an investment adviser, you have to act in a trustworthy fashion. Hearing from a company is better than hearing it in the press.”
She added that OrbiMed’s decision not to name the law firm investigating the allegations was a red flag. “When it’s this public of an issue, generally one would consider it wise to say the name of the law firm,” Temin said. “The more prestigious the firm, the more you would imagine they’re a straight shooter.“
(Sullivan & Cromwell, a renowned Manhattan-based practice, will conduct the investigation, someone with knowledge of the situation told II Wednesday.)
On December 6, a sixth former OrbiMed employee reached out to Stat to corroborate the allegations made by other employees.
The next day, at 4:30 p.m. eastern time, Stat published another story on the fallout of the allegations. The piece detailed institutional investors’ responses to the news, as well as the sixth former employees’ corroboration.
On December 7 at 8:08 p.m. eastern time, OrbiMed announced in a press release — and simultaneously in an email to investors — that Isaly was retiring as a result of “years-long succession planning discussions.” This is despite Isaly stating just three days prior that he had “no planned date” for his retirement.
[II Deep Dive: Founder of Hedge Fund OrbiMed Steps Down]
An investor and a consultant with invested clients dismissed OrbiMed’s position that the resignation was unrelated to the allegations. “I don’t know what’s true — I wasn’t there,” the consultant said, speaking hypothetically. “But if there is behavior reflective of what’s been reported, the right decision is to have the person leave. I don’t know what was communicated to Sam along the way, but at the end of the day, there is no place for that kind of behavior.”
Isaly was replaced by a management committee that includes Sven Borho, Carl Gordon and Jonathan Silverstein, according to the December 7 statement from OrbiMed.
“I think it’s probably appropriate to give the man his due in terms of the company he created,” Temin said. “I think it is also fair for people to ask what they’re going to do with the results of the investigation.”
The next morning, at 11:38 a.m. Eastern Time, OrbiMed emailed distribution notices to investors in one of its closed-end “Royalty Opportunities” funds. Spoils of OrbiMed’s excellent year were being wired to their accounts. This may have been pre-scheduled and unrelated to the scandal; public fund investors did not receive such notices. But, as one insider said, the timing was “felicitous.”
An advisor to the company gave the following statement when reached for comment: “OrbiMed is proud of the advances we’ve funded for patients. OrbiMed appreciates the continuing support of its investors. The outlook for worldwide health care investing for 2018 is undiminished, and OrbiMed expects to fully participate.”
Rich payouts won’t influence private-fund investors to stick with OrbiMed: They don’t have much of a choice. “There was no key-man provision that was tripped,” the consultant said.
“In responding to the news, there is no decision really to make about redeeming or not. My reaction is shock and disappointment — mostly disappointment. I’ve spent time thinking back, ‘was there anything that I didn’t see? Anything that in hindsight is a red flag? And there wasn’t really.” But, he continued, “it’s fair to say this is an area we’re going to spend more time on. How effective we’re going to be — that’ll be something to assess as we try different approaches, asking direct questions that we might not have before.”
But clients in OrbiMed’s public equity product do have a choice. Despite 2017 returns of an estimated 25 to 30 percent, one institutional investor told II, “I’m leaning towards getting out.”