The Rise and Fall of Simon Sadler's Segantii, One of Asia's Most Successful Hedge Funds
A criminal charge triggers the shutting of a 16-year-old fund with returns long envied by industry
Sadler started his hedge fund with a mere $26 million in late 2007, and churned out eye-popping, market-beating returns until Segantii commanded $6.2 billion by the end of 2021.
The legal heat became too much for Simon Sadler.
The founder of Segantii Capital Management has told investors that it’s winding down and returning their money, marking the end of a 16-year run for one of the largest and most successful hedge funds in Asia.
Sadler’s abrupt decision came just three weeks after authorities in Hong Kong charged him, his firm and one of its former traders with insider dealing, a crime punishable with as many as ten years in prison plus fines. Worried clients of the hedge fund asked to redeem nearly $1 billion of investments, and some major Wall Street banks curbed financing and dialed back their trading relationships with Segantii — whittling away Sadler’s options until he announced his decision Thursday.
The criminal case halted a trajectory that was once the envy of Asia’s financial scene. Sadler started his hedge fund with a mere $26 million in late 2007, and churned out eye-popping, market-beating returns until Segantii commanded $6.2 billion by the end of 2021. Part of it was auspicious timing: setting up in Hong Kong with an aggressive trading approach as the region’s equity capital markets took off. Early successes begat buying power, and top banks made Sadler’s firm one of their first calls when they had piles of stock to sell, be it initial public offerings or block trades. As Sadler’s market clout grew, he gained sway over deals and an ability to ensure profits.
Segantii’s fall traced a far more familiar path.
Prosecutors’ accusations — focused on trading around a single block trade in 2017 — tinted perceptions of the multistrategy hedge fund’s long hot streak and caused clients and counterparties to pull back, even as the firm vowed to disprove the charges. Others have tried to fight only to close shop quickly. More than a decade ago, New York-based Galleon Group decided to liquidate its hedge funds shortly after its founder Raj Rajaratnam was charged with insider trading by the Department of Justice. For his part, Rajaratnam was convicted after a jury trial and sentenced to 11 years in jail.
Sadler and Daniel La Rocca, the former Segantii trader, haven’t entered pleas in court. But they have assembled a team of top lawyers in Hong Kong with plans to mount a vigorous defense, according to people familiar with the matter.
"In our industry, even an accusation can have devastating consequences,” said Kher Sheng Lee, Asia-Pacific co-head of the Alternative Investment Management Association, which represents global hedge funds and others. “Segantii's situation sadly illustrates how quickly fortunes can change under intense regulatory scrutiny,” he added.
Frequent Winner
Segantii's multistrategy hedge fund has had mostly positive returns
It’s not just the drama of Segantii’s rise and fall that has captivated the global finance industry.
Former colleagues and bankers who interacted with Sadler describe him as hard-charging, hot-tempered and foul-mouthed. As chief investment officer, Sadler managed the traders and analysts, drawing on a wealth of experience he had gained when he was a trader at Dresdner Kleinwort Wasserstein and Deutsche Bank AG. He ran his firm with an iron grip, sometimes berating investment and support staff when they made mistakes or didn’t do things to his liking.
Sadler was also a believer in Chinese geomancy, and had a fengshui master come to Segantii’s office regularly to advise on how to optimize the space for good luck using carefully positioned flowers, plants and small containers of water, according to a former employee. Posters of the British pop group Duran Duran and the Manchester United soccer team hung on walls near the office pantry. For Christmas one year, Sadler — who owns Blackpool Football Club — gave Segantii employees the team’s tangerine-colored jerseys, emblazoned with ages and names of their children, another person familiar with the matter said.
Three years after it was started, Segantii tapped a former Credit Suisse managing director, Kurt Ersoy, to run the firm, deal with investors and oversee its operations. Ersoy’s cool demeanor and smooth-talking ways were an effective counterweight to Sadler, according to people who worked with them. The firm also hired seasoned alumni from Morgan Stanley, Goldman Sachs and UBS.
Segantii grew into a regional giant in Asia that reached around the world, with offices in London, New York and Dubai. Its closely held roster of investors, a list fully known to few people outside of Sadler and Ersoy, included sovereign wealth funds, global pension funds, and the asset management arms of some banks that Segantii had trading relationships with.
Its round-the-clock operations rooted in Asia, where some market practices differed from the West, gave the firm an edge over US and European rivals in capitalizing on the region’s expansion.
A marketing document from the firm’s earlier days described Segantii as active 22 hours a day. “Opportunities are created by rapid capital market growth, Asian market structure inefficiencies, geographic and investor segmentation,” it stated. The hedge fund invested in liquid equity and equity-linked securities mostly in Hong Kong, China, Korea, Taiwan and India.
Segantii profited from so-called “relative value” trades involving stocks listed on multiple exchanges, such as Chinese companies that had both American Depositary Receipts in New York and shares in Hong Kong. It also made bets involving Naspers Ltd. and Prosus NV, which owns a big stake in Chinese internet giant Tencent Holdings Ltd.
Its other main strategy involved buying portions of initial public offerings, share placements, and other opportunistic trading events. It scooped up shares of AIA Group Ltd. after former parent American International Group Inc. floated the pan-Asian life insurer in Hong Kong and offloaded shares to help repay a US government bailout.
Segantii made its biggest mark in block trading, in which investment banks and brokerages help sellers of large chunks of shares negotiate private transactions with buyers off exchanges. Segantii would regularly get allocated at least 10% of blocks totaling $1 billion or more, including on a slew of the AIA trades.
Market Beater
Growth of $100 invested in Segantii's hedge fund and the S&P 500*
Source: Investor document
Note: 2007 return is for December and 2024 gains are through April. * includes dividends
As the fund grew, it was able to take down $500 million blocks of shares, which helped banks pull off challenging and unpopular deals. In exchange, Segantii demanded outsized allocations in popular public stock sales and block trades. Banks often sounded it out when they needed to gauge demand or line up buyers for upcoming transactions.
The firm became a prized client of many Wall Street banks, which provided it with generous financing to make big stock purchases. The hedge fund could borrow as much as $6 million for every $1 million it put down, according to people familiar with the matter. Sadler also drove a hard bargain with banks by negotiating tight commissions.
In 2021, when Bill Hwang’s Archegos Capital Management ran into trouble, banks liquidated the New York-based family office’s swath of stock holdings through block trades. Segantii stepped up to buy sizable chunks, profiting during an event that left many Wall Street firms with losses.
The collapse of Archegos, however, led US investigators to probe how banks handled non-public, market-moving information ahead of block trades. Authorities zoomed in on Morgan Stanley, and the probe widened to include several hedge funds and traders, including a former Segantii employee. That cast a cloud over the firm, and caused a few prime brokers to back away from its fund.
