Sanford C. Bernstein & Co., LLC, Multi-Strategy Fixed Income Hedge Fund Losses

Sanford C. Bernstein & Co., LLC, through its investment manager, Alliance Capital Management, LP, sold a proprietary hedge fund, called the Multi-Strategy Fixed Income Hedge Fund. The Multi-Strategy Fixed Income Fund was sold by Sanford C. Bernstein & Co., LLC as an alternative to traditional fixed income. Sanford Bernstein stressed that the Multi-strategy Fund would generate positive returns with less volatility than intermediate bonds. Sanford Bernstein represented that the Fund would capitalize on various opportunities in the bond markets to generate returns for investors. The Multi-Strategy Fixed income fund represented that it monitored the Fund's risk closely, implementing an adequate hedging strategy utilizing interest rate swaps and credit default swaps to minimize risk and maximize returns.

 

Sanford Bernstein also stressed to many investors that the Fund combined two separate investment strategies, a Credit Strategy and a High Grade Strategy. The Credit Strategy focused on corporate investments, while the High Grade Strategy focused on asset backed bonds, government, government agency, and mortgage related investments. Respondent represented that the Fund's multi-strategy approach minimized risk for investors, while creating various opportunities in the bond markets for positive returns comparing the risk to that of an intermediate bond fund.

 

Unfortunately for the Fund's investors, the Fund's volatility was significantly greater than intermediate bonds. What may not have been disclosed to Investors was the Fund exceeded its leverage restrictions of up to 12 times the net asset value of the Fund. Furthermore, the Fund was not properly hedged to protect the downside of the Fund's investments.