Following last week’s report that the NFA was removing AlphaMetrix360 as its third party vendor to monitor real time FCM segregated customer accounts, the regulator has now notified its parent company, AlphaMetrix Group LLC that it has until November 1st to repay $600,000 in rebates owed to its managers and partners. AlphaMetrix Group, which operates a fund marketplace to match investors with hedge funds and CTA’s, announced to its clients that it was experiencing financial woes which had caused a delay in payments to its partners. The news led to the ousting of the firm’s CFO, as well as the NFA notifying its members that it will no longer be contracting AlphaMetrix’s hedge fund monitoring service, AlphaMetrix360.
According to the current NFA Member Responsibility Action letter (MRA), AlphaMetrix was reported to be acting as a commodity pool operator (CPO) for 90 pools, with $700 million under management as of August 31, 2013. Among the pools include investments in commodities, financial, and FX futures products. Although AlphaMetrix announced to clients that customer funds were safe and being held at separate financial institutions, they did state that the failure to pay third-party managers could affect their accounts by saying, “(AlphaMetrix LLC) has recently encountered significant cash flow issues and is working to strengthen its current financial position and its continued operations. As a result of this, the CPO has delayed fee rebates owed to certain of its third-party money managers and participants, which should have been reinvested into various pools, but were not. The fact that these fee rebates were not reinvested may have an impact on the pools’ net asset values.”
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As a result of the cash shortfall, AlphaMetrix has been reportedly seeking to raise funds by selling ownership stakes in the company. According to the NFA, failure to meet the November 1st deadline will lead to the prohibition of trades and fund transfers in its pools from being placed without approval from the regulator.
Looking ahead, even if AlphaMetrix were to meet the payment deadline, the firm could be vulnerable to investor withdrawals due to lack of faith in the company. As such, barring the entrance of a new financial partner that is deemed trustworthy by the investment markets, AlphaMetrix may continue to experience cash flow woes.