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Hedge Fund Hot Shot Fights Former Family Office Exec

Good news for Passport Capital’s John Burbank: The hedge fund superstar looks set to win a court fight over his personal investments.

  • Imogen Rose-Smith

While Passport Capital founder John Burbank was losing his investors’ money, he also was embroiled in a battle over the management of his own fortune with a one-time friend he had picked to help with his investments.

Now, a court looks set to rule in his favor.

John Burbank and Lindsay Lee met at a Stanford University reunion in 2007. Although both had gone to business school at the prestigious Palo Alto academic institution, with Lee also receiving a law degree, they were not in the same class. However, after meeting, Burbank – the founder and CEO of San Francisco-based hedge fund manager Passport Capital – was persuaded to invest in Lee’s hedge fund firm, Tidal Creek. Burbank, according to subsequent legal documents, invested $1 million in the Tidal Creek management company and a further $2 million in the hedge fund.

Tidal Creek was not successful. Both Lee and Burbank now agree that Burbank lost money in the deal. Nonetheless, in 2012 Lee became an advisor to Burbank’s personal family office, JHB Ventures. Lee’s responsibilities included helping Burbank source and oversee the hedge fund founder’s own venture capital and private investments.

The arrangement went well – initially. However, by early 2015 tensions were running high, and Lee was terminated from his role with JHB Ventures in March of that year. Shortly after, the two parties entered into litigation. The key issue: Whether or not Burbank and JHB Ventures had lent money to Lee to invest in companies to which Burbank and his family office were also making commitments.

The suit and countersuit have been making their way through the San Francisco court system since July of 2015, although the litigation has not previously been reported. On May 9th of this year – the last day of a 14-day trial – Judge Suzanne Bolanos of the Superior Court of California tentatively ruled in Burbank’s favor, finding that the there was “no enforceable agreement” between the parties. The case is scheduled to continue on June 6th.

The ruling is good personal news for Burbank, who has been struggling with underperformance and redemptions from the hedge fund firm which helped make him rich. In 2016, Passport experienced the departure of key personnel, including his number two and former head of risk Tim Garry.

Year-to-date through April 30, the Passport Global Strategy Fund was down 7.55 percent, while the firm’s Special Opportunities fund was down 8.51 percent; through the end of March, Passport’s long/short equity fund had lost 3.37 percent. (All data is according to HSBC’s Investment Funds Performance Review for the week of May 22 to May 27.)

Burbank’s flagship Global Strategy fund lost 17.58 percent in 2016 and the Special Opportunities fund was down 26.42 percent for that same year; the long/short fund lost 11.77 percent. The ongoing losses have left the once-$5 billion-plus fund with below $2 billion in assets under management. Lawyers for Burbank and Lee did not immediately return a phone call seeking comment.