Prostitution Sting May Take Down a $3.2 Billion Hedge Fund Firm

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Prostitute with a customer,Canton Ticino,Switzerland
Alamy
The arrest last week of hedge fund giant Jim Bisenius in a prostitution sting may be enough to take down one of the country's largest "fund of funds" operators.

Bisenius founded Common Sense Investment Management 23 years ago, guiding it through years of growth. As a "fund of funds" it allocates its investments across various hedge funds. Diversifying across several managed funds within a single investment may hold back returns, but it does so in the spirit of reducing risk.

Assets under management peaked at roughly $5 billion several years ago, but Common Sense is still watching over $3.2 billion in client assets. That still makes it one of the largest fund of funds operators and the largest hedge fund in the state of Oregon.

Then police officers in Oregon decided to place a bogus online ad offering prostitution services, setting up camp in a motel room and arresting nine prospective clients. Bisenius was one of them.

A Bad Time for Bad Decisions

Miscues and mistakes happen. A court will ultimately decide if Bisenius is guilty or not. However, as someone who has positioned himself in the investing world as a family man with strong Evangelical Christian and charitable ties, the blow to his reputation will sting.

It also won't help him that the fund's recent performance had been less than stellar, making it more likely that fence-straddling clients will decide to redeem their stakes.

That's where things get messy.

When a fund gets hit with a wave of redemption requests, it has to sell assets to pay out to those customers. As a fund of funds, Common Sense is in a better position than a fund manager would be -- it doesn't have to unload large blocks of stock in the open market, but rather, must redeem its shares of other funds.

However, the ripple effect will be unavoidable as the managers of the hedge funds that Common Sense is invested have to sell off assets to raise capital.

There are already reports of some notable pension funds cashing out of Common Sense. DealBreaker.com reports that Cincinnati Retirement System trustees voted to take back the roughly $100 million it had invested in the fund. Fresno County's Employees' Retirement Association in California is redeeming its $68 million investment. BuzzFeed has obtained a memo in which institutional consultancy Arnerich Massena advises its clients to pull out of the fund.

If this grows into a wave of redemptions, it may be hard for Common Sense to regain the trust of both the clients in his fund of funds and the managers he was entrusting in allocating the infusions of capital.

Standing By Their Man

For now, Common Sense is standing by Bisenius.

Business Insider received a statement confirming that the financial services provider is sticking with him as its CEO and Chief Investment Officer.

"Bisenius' recent personal transgression bears no reflection on this outstanding team of professionals or the quality of portfolio management at CSIM," Common Sense explains.

That may be so, but in the end, it really may not be up to the company. If redemption requests from clients continue to roll in, it will be hard to continue to manage the firm without scaling back on its operations or disbanding entirely. And if cutting ties with Bisenius is what it takes to save the business, well, that's just common sense, isn't it?

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199 Comments

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Tanzer

Lets forget about mediaval english ways
they never obeyed themselves.
Lets set up health organization to test the ladies. and let man have an outlet to go rather than corrupt young ladies

September 20 2013 at 3:45 PM Report abuse rate up rate down Reply
jagentmike

it did not stop william jefferson clinton

September 16 2013 at 6:34 AM Report abuse rate up rate down Reply
jamablkdreads

aha its none thier busniess .. where is freedom woh choice by women need money and men doesnt care of money men need a women in sex no body stop u anyway ... same thing w casaual club getting private sex too ... why complain bout it haha.... thier plms not us so

September 15 2013 at 2:15 PM Report abuse rate up rate down Reply
bcrnbs2

if i had investment in this fund, i could care less who he bangs.... the most successful fund in history with assects far above any loss to any one. i could cear less aboiut his
personal life...

September 15 2013 at 12:53 PM Report abuse +1 rate up rate down Reply
waltercfw29

Great you never know

September 15 2013 at 8:41 AM Report abuse rate up rate down Reply
aripalda

Why does he need to pay for prostitution? Doesn't he already have thousands of would be gold diggers who would do it for free?

September 15 2013 at 3:02 AM Report abuse rate up rate down Reply
mmikebl

Sounds like entrapment. He wasn't out soliciting innocent women attempting to corrupt them. He responded to an ad. The police made the offer and he accepted. He never should have arrested nor his name released to the public.

September 15 2013 at 2:05 AM Report abuse +1 rate up rate down Reply
Etheral

Reaganomics at it best !!!! Hedge funds broker closings the deal with the millions of bonus money, THANKS TO TAX PAYER BAIL-OUT. Isn't it called Trickle Down.

September 15 2013 at 12:52 AM Report abuse -1 rate up rate down Reply
Sire

3.2 Billion dollar fund taken down because some guys want to get their dick wet?
What a fked up country we live in.

September 15 2013 at 12:52 AM Report abuse +3 rate up rate down Reply
dtsv180

Big issue over a little tissue.

September 15 2013 at 12:15 AM Report abuse +2 rate up rate down Reply