PAAMCo Refutes Allegations It Misled Investors Over Women-Owned Status

(October 20, 2010) — California-based fund of hedge funds shop Pacific Alternative Asset Management (PAAMCo), with almost $9.8 billion in assets under management, is denying that it structured the fund to make it appear as though it was woman-owned in a front to lure investors.

PAAMCo’s reputation as a female-owned firm came into question when S. Donald Sussman, a financier who long supported the firm, challenged that image, claiming in a lawsuit that he was due a 40% ownership stake, the New York Times reported. In August, US District Judge Richard Sullivan ruled in Sussman’s favor, concluding that PAAMCo’s arrangement with Sussman “may have been designed to mislead a number of observers, from the tax authorities to the SEC to entities wishing to invest in women-owned businesses.” Following litigation between Sussman and the firm’s parent company, PAAMCo Founders, the judge granted Sussman a 40% stake in the fund of funds firm which allowed him to convert the $2 million loan he gave the company a decade ago into an equity stake. Court documents assert that one of the reasons for the convertible loan agreement was so that PAAMCo could market itself as a woman-owned firm.

PAAMCo Founders, a group of founding members that own a roughly 75% voting interest and 65% economic interest in PAAMCo, issued a statement on the judge’s ruling, provided by the NYT, saying that it “strongly disagrees” with Judge Sullivan’s opinion that that the fund of funds’ arrangement with Sussman “may have been designed to mislead…Although PAAMCo was historically majority women-owned, it has only competed for the large-scale institutional allocations that are open to all and, contrary to what is implied by the judge’s statements, has never taken any ‘set aside’ business or minority mandates,” asserted the statement, taking issue with the conclusions made by the judge’s ruling.

PAAMCo has said that despite the court ruling awarding Sussman a stake, he wouldn’t be able to influence or control investment decisions made by the firm.

The hedge-fund investment firm is headed up by Jane Buchan, who started the firm in 2000, along with James Berens, Judy Posnikoff and William Knight.