Hedge fund Pine River manager O'Connell leaves for Paloma Partners

October 28, 2016 4:54 PM EDT

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By Maiya Keidan and Svea Herbst-Bayliss

LONDON/BOSTON (Reuters) - Pine River Capital Management has lost a veteran portfolio manager and his team to rival Paloma Partners, three people familiar with the move said on Friday, the latest in a string of exits from the U.S. hedge fund.

Michael O'Connell, who ran Pine River's capital structure arbitrage strategy, which seeks to profit off different valuations between a company's debt and equity, took with him a team that included Joel Nelson, who had been a portfolio manager, James Sura, who had been a trader, and Gabriel Diaz, who was a credit analyst, said the people, who were not authorized to speak publicly about personnel matters.

The resignations are the latest exits at $10.7 billion Pine River, one of the industry's biggest players that scored out-sized gains during the financial crisis only to lose money last year in a rare misstep through investments in junk bonds. The firm employs 412 people, according to a recent regulatory filing.

A Pine River spokesman declined to comment.

O'Connell had worked at Pine River for nearly 14 years. He ran the Pine River Credit Relative Value fund which invested $140 million when it was shut down last year.

It was one of a number of funds that were closed down over the last year after the firm decided to eliminate some of its smaller portfolios.

Pine River's flagship Pine River fund is up 1.35 percent for the year after losing 2.75 percent last year. Its Liquid Rates fund is up 10.85 percent after a 13.5 percent gain in 2015.

At Paloma, founded 35 years ago by Donald Sussman, O'Connell will run a capital arbitrage strategy.

Besides, O'Connell and his team, there were two other recent departures. Gaurav Tejwani, who had been co-head of structured credit, and Brian Zied, who had been co-head of equities, both left. Their co-heads have taken over their duties at the firm.

These resignations follow Pine River's biggest personnel change which occurred in April when Steve Kuhn announced plans to leave and focus more on philanthropy. Kuhn was one of the hedge fund industry's best known fixed income traders and a steady presence on the conference circuit where he explained complex trading strategies in simple language.

Two months later, Pine River's founder, Brian Taylor, said the Pine River Fixed Income fund, which Kuhn had co-founded and which earned a 93 percent return in 2009, was being shut. Taylor also took back over as co-chief investment officer with James Clark earlier this year.

The string of departures also touched the firm's European operations where the head of European Credit Evan Pearce left in August and portfolio manager Tamas Eisenberger left in July.

(Reporting by Svea Herbst-Bayliss and Maiya Keidan; Editing by Carmel Crimmins and Lisa Shumaker)

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