The Risk Factor
Platinum has attracted enough pension funds, endowments and other institutional investors to bring their share of the firm's assets to about 35 percent, according to the person with knowledge of the firm, who declined to identify any of those investors. But they remain too few and their investments too small to vault Platinum into the big league.
An important reason is what industry insiders call "headline risk." Nordlicht's investments and his approach to them, these hedge fund investors say, come with too many potential public-relations challenges. On top of that, some investors worry that many of Platinum's investments are too complex to exit quickly to cover heavy redemptions.
A Reuters review of Platinum's investments, interviews with hedge fund investors familiar with the firm, as well as former employees, clients and associates, and a review of marketing and other documents show that Platinum has a history of investing in controversial businesses.
In their pursuit of outsize returns, Platinum and Nordlicht have put money into a consumer finance company repeatedly fined for predatory lending before and after Platinum's involvement, a pair of investments that turned out to be Ponzi schemes, and two energy companies that later went bankrupt and are facing criminal charges.
"Investors looking beyond the impressive headline returns will find a pattern of behavior that raises serious questions about ethics, morals, and a host of other risks an investor must take to achieve those returns," said Ted Seides, the recently departed co-founder of hedge fund investment firm Protégé Partners.
The person familiar with Platinum's thinking said the firm was aggressive with its investments, but always within the limits of the law.
One longtime Platinum investor, Bernard Fuchs, praised Nordlicht and said he was not concerned about liquidity issues or investments that might generate negative press.
"I know he's an ethical, honest person," said Fuchs, the former CEO of Lenoxx Electronics Corp who now invests personal and family money. "I would mortgage all our houses to invest with him, anything that he would go for."
One of the companies Platinum invested in that's now in bankruptcy, Black Elk Energy Offshore Operations LLC, began to unravel after three workers died in an explosion on one of its rigs and oil prices collapsed. Documents reviewed by Reuters, including internal company emails and legal agreements, show how Platinum rescued its investment even before bondholders and contractors were paid.