Infinity Q Capital Management has put a new value on its Diversified Alpha fund, which was liquidated following the discovery that the firm’s chief investment officer had been tinkering with pricing models.  

The firm said Friday that the fund had nearly $1.25 billion in cash and cash equivalents. This is compared to the fund’s last-calculated net asset value of $1.73 billion as of February 18.  

In late February, Infinity Q said that it would gate and liquidate certain portfolios after learning from the Securities and Exchange Commission that its CIO, James Velissaris, had been altering pricing models, likely leading the firm to report incorrect valuations to investors. 

After being contacted by the SEC, Infinity Q independently confirmed the regulator’s findings, and “relieved [Velissaris] of his duties,” Institutional Investor previously reported.  

The Diversified Alpha fund’s investments included exposures to difficult-to-price, illiquid investments like swaps and other options. As of March 19, the fund’s portfolio had been entirely liquidated, according to the Friday announcement.  

On February 18, which was the last day Infinity Q calculated the net asset value for the fund, it was valued at nearly $1.73 billion, the announcement said. This is compared to an asset value of almost $1.25 billion — before considering liabilities and other deductions required for calculating net asset value — as of Thursday.   

The difference between the two valuations — which are not perfectly comparable — is $477.7 million, or nearly 28 percent. The fund attributed the differences primarily to over-the-counter positions, including variance swaps and other options positions, which represented roughly 29 percent of the fund’s net asset value as of February 18, according to the announcement. 

“Bloomberg’s interactive pricing tool is designed to be used interactively by users to make reasonable estimates of asset valuations, and any inquiry will determine James used these tools and others to try to determinate appropriate valuations,” Sean Hecker, attorney for James Velissaris, said in a statement. “Unfortunately, the article fails to recognize that the March 25 NAV reflects distressed liquidation values that were adversely affected by the fund being in default during the liquidation process.”

Infinity Q is still in the process of determining the net asset value of the Diversified Alpha portfolio, which could result in decreasing valuations further, the announcement showed. Because of the complexity of the investments held in the portfolio, Infinity Q’s board expects this process to take “several weeks or longer,” the announcement said.   

Infinity Q previously said that its plan to distribute assets to shareholders must be presented to the Securities and Exchange Commission by May 24.   

According to the announcement, Infinity Q is voluntarily unwinding its variance and over-the-counter swaps and other options positions because alternative actions would have “exposed the fund and its shareholders to the risk of further losses from these positions without any assurance that the fund would receive additional value for its portfolio,” the announcement said.  

[II Deep Dive: Months Before SEC Investigation, Infinity Q’s CIO Touted Strong Performance]

The Diversified Alpha fund is not the only one Infinity Q manages. The investment manager also runs a volatility fund, which Velissaris told Institutional Investor in June had made gains while several volatility fund peers blew up. 

Institutional Investor previously reported that in September 2019, the Texas Municipal Retirement System allocated $125 million to the firm’s volatility alpha fund. The State Teachers Retirement System of Ohio also lists Infinity Q among its investment managers, a 2020 annual report shows.