As reported by the New York Times on September 30, 2015 (“Risky Strategy Sinks Small Hedge Fund”), the Spruce Alpha LP Fund, a Stamford, Connecticut based hedge fund which had been pitched to investors as offering large returns in periods of market turbulence, lost 48% of its value during the month of August 2015.
Spruce Alpha, managed by Spruce Investment Advisors, was launched about a year ago and reportedly used a complex and controversial trading strategy that involved derivatives to amplify returns from trading in exchange-traded funds, or E.T.F.s, of various strategies.
“To sell the fledgling fund to investors, Spruce emphasized not only an outsize hypothetical performance going back as far as 2006,” but according to documents reviewed by the New York Times, the fund’s back-testing projections in documents provided to potential investors indicated that “at the height of the 2008 financial crisis, investors would have had a gain of more than 600 percent.”
As noted by the New York Times, “for the investors who have lost nearly half of their investment, however, it is a cautionary tale of relying on glowing, but backdated, performance data. Back-tested results in hedge fund marketing materials have long drawn scorn from some in the hedge fund world. The results are typically recreated with the benefit of hindsight, making it easier for a fund to post hypothetical good results.”
If you are an individual or institutional investor who has any concerns about your investment in the Spruce Alpha LP Fund, please contact us for a no-cost and no-obligation evaluation of your specific facts and circumstances. You may have a viable claim for recovery of your investment losses by filing an individual securities arbitration claim with the Financial Industry Regulatory Authority (FINRA).