January 22, 2015

The Past Imperfect: Mr. Neuger and Mr. Fitzmaurice Would Like Your Money, Again

The website of a new Minneapolis venture, EcoAlpha Asset Management, strikes a different chord for a hedge fund, holding itself out to the deep-pocketed as not just a way to maybe beat the market, but as a vehicle to economically engage with the vexing questions of access to natural resources, population growth, wealth creation and renewable energy.

Its pitch to investors is simplicity itself: as countries around the world pour countless billions of dollars into solving these problems, EcoAlpha will (presumably) benefit mightily from owning the shares of companies and the physical assets that address these issues.

Like many a nascent fund—EcoAlpha launched in early October—its investment team is heavily credentialed, with ample experience and prestige schooling. But the brief biographical sketches of  its co-founders, Win Neuger and Matthew Fitzmaurice, are most compelling for what is left out.

Neuger, as chief of AIG Global Investment Corp., engineered and oversaw perhaps the most economically destructive episode of the entire global financial crisis: AIG’s securities lending portfolio’s headlong foray into mortgage-and asset-backed securities between 2005-2007, which ultimately forced the Federal Reserve to engineer a nearly $44 billion rescue. For his part, Fitzmaurice was for three years the chief investment officer and, briefly, the chief executive, of Amerindo Investments Advisors, the money management operation that was a poster child for Wall Street’s Dot Com era loss of judgement.

With an investment thesis that is gaining traction as so-called Impact Investing evolves away from philanthropies and into the for-profit realm, and launched with the help of Ron Blaylock, a key fundraiser for President Obama, and a private equity executive with  his own past regulatory headache, Messrs. Neuger and Fitzmaurice want institutional capital–and plenty of it.

What they don’t want, in all probability, are probing questions.


Fitzmaurice, whose bachelors and law degree are from Georgetown University, arrived at Amerindo after a decade long stint at Wessels, Arnold & Henderson, a Minneapolis-based small-cap stock underwriter. Amerindo was famous for its outsized returns—one portfolio reportedly booked an astonishing 249% increase in 1999—making it an investor and media darling throughout the decade. But just as its massively concentrated portfolio soared as all things tech were frantically bid up, it collapsed when the Dot Com bubble burst spectacularly in the spring of 2000.

Fitzmaurice dutifully pitched Amerindo’s bull case for tech shares in the face of the rout, but Amerindo was mortally wounded and by August 2002 he had resigned. Several months prior to his leaving, The Wall Street Journal noted in a May 2002 article that in the span of just three years, Amerindo’s assets under management dropped to $1.4 billion from $8 billion.

In 2005, the Securities and Exchange Commission and the Department of Justice jointly sued and indicted Amerindo’s high-profile founders, Gary Tanaka and Alberto Vilar, for allegedly misappropriating a $5 million client account as well as an alleged parallel fraud related to failing to both provide certain investors contractually guaranteed minimum levels of returns and failing to return their capital. Both were convicted and are serving lengthy jail sentences. (None of the civil or criminal cases brought against Amerindo or its founders suggested that Fitzmaurice was aware of or played any role in the fraud.)

After Amerindo, Fitzmaurice opened a pair of small hedge funds in and around Minneapolis. In 2003, he and Mitch Bartlett, a former colleague from Amerindo, put together Talaria Partners, a long/short equity fund whose details are sparse (Bartlett, now an analyst at Craig-Hallum, did not return a call seeking comment.) In 2006 he launched AWJ Partners with current EcoAlpha colleague Jonathon Clark. A type of hedge fund known as a fund-of-funds, AWJ allocated its investors capital to hedge funds with investments in water, renewable energy and sustainable agriculture. According to Securities and Exchange Commission filings, AWJ managed slightly over $47 million in assets as of February 2014; its performance results could not be obtained. (Despite Fitzmaurice’s billing as a “rising star” in hedge funds by Institutional Investor magazine, he and Clark shut AWJ shortly afterwards.)

Win Neuger, a Minnesota native and Dartmouth graduate also at AWJ with Fitzmaurice, is perhaps the least understood central character in the entire credit crisis.

[A brief personal disclosure: I wrote “Fatal Risk,” a 2011 book about the collapse of AIG that featured Neuger and the securities lending portfolio story in several sections. Reached at his home prior to the book’s publication and informed about its reporting, Neuger declined comment.]

Recruited to AIG in 1995 to consolidate its far-flung investment businesses, as both the company and AIG grew (in both profitability and by acquisitions,) so did Neuger’s role.

By 2005, when Neuger’s boss, AIG’s legendary CEO Maurice “Hank” Greenberg, ran afoul of both a skittish board of directors and a crusading Attorney General named Eliot Spitzer and was forced to resign in haste that March, Neuger had become a very powerful man: he oversaw more than $700 billion in AIG Global Investment Corp. assets, sat on AIG’s executive committee and would take home a $6 million compensation package that year.

Somehow, though, it wasn’t enough. Free from Hank Greenberg’s risk-management constraints, Neuger implemented a plan he called “Ten Cubed” that would have the institutional asset management unit generating a $1 billion operating profit within several years (about half the asset management unit’s operating income was coming from the sale of guaranteed investment contracts.)

Central to this scheme was a sleepy corporate backwater called AIG Global Securities Lending that even long time AIG insiders were only faintly aware existed.

(By way of explanation: for life insurance companies, securities lending is an ancillary business. As policies are written and premium payments come in, insurance companies take that cash and purchase highly-rated corporate bonds whose maturities roughly approximate their expected pay off dates. Hedge funds and other money managers often need to borrow corporate bonds for a short period of time and to do so, will post as collateral the bonds par value plus a small interest rate, say $1,020, for the loan’s duration. The insurance company then takes the $1,020 and buys a short-term, highly rated government bond. When the borrower takes their collateral back, the insurance company sells the government bond and keeps the accrued interest as profit.)

Neuger, whose lieutenant Peter Adamczyk oversaw the securities lending portfolio on a daily basis, managed to convince the AIG General Counsel’s office to approve of a change in risk-parameters for the securities lending program, as this lawsuit alleges, without informing its “clients,” e.g. AIG’s various life insurance subsidiaries. (The suit was settled without terms being disclosed.)

In mid-2005, the then $60 billion AIG securities lending portfolio begin to invest borrowers’ collateral in mortgage-backed securities, capturing vastly more yield but exposing them to a series of risks that were ignored when AIG insiders raised concerns.

The first risk was that the MBS purchased were known as Alt-A, a category falling between prime and sub-prime on the credit spectrum, but in 2005, with loan verification practices collapsing, these bonds were carved from loan pools whose credit profiles were deeply troubled.

Moreover, the portfolio, which had always sought to closely matched its assets and liabilities–when the bonds loaned out were due and when they were expected to return the cash collateral–was, by the end of 2006, almost $900 million skewed towards the liability side. With cash coming in as more life insurance bonds were lent out, no one was the wiser as the new cash met redemption requests from the insurer and the return of borrower’s collateral.

Then the market for sub-prime bonds seized in early 2007 and the fate of AIG Global Securities Lending was sealed: the life insurers demanded their portfolios of corporate bonds returned and borrowers demanded their cash back. By late 2007 AIG was forced to use its operating cash to keep both the portfolio afloat and increasingly angry insurance regulators at bay. As market after market froze throughout 2008 even AIG’s once seemingly limitless resources wouldn’t be enough.

Anyone looking for evidence in AIGs corporate filings between 2005 and 2007 of the security lending program’s colossal build up of assets and risks is out of luck, however, as it isn’t mentioned, even obliquely.

For his part, Win Neuger never hit his “Ten Cubed” goal as the $43.7 billion Federal Reserve portfolio bailout got in the way, but as consolation, he earned just under $23 million between 2006 and 2008, including over $6.3 million in 2008, a year when AIG booked a $99.3 billion loss.

In the aftermath of AIG’s bailout, Neuger was interviewed several times by congressional officials and federal regulators examining AIG’s role in the credit crisis but avoided any sanction. Nor does mainstream media, as evidenced by this interview with Fox Business Channel’s Maria Bartiromo, appear to have any interest in his past.

After resigning from AIG in 2009, Win Neuger became president of PineBridge Investments, AIG’s old hedge fund unit that was acquired by Hong Kong-based private equity firm Pacific Century Group in 2010. He resigned in February, 2012.

In a small irony, Pinebridge’s headquarters are located several floors below C.V. Starr, the insurance company helmed by his old boss, Hank Greenberg.


The Southern Investigative Reporting Foundation made attempts via phone and E-mail to obtain interviews with Neuger and Fitzmaurice but EcoAlpha spokesman Eric Olson declined to make his colleagues available, saying by E-mail, “As a new company we prefer to remain focused on our present goals rather than participate in interviews at this time.”

An earlier call to Fitzmaurice’s cell was referred to Olson. A work colleague of Ron Blaylock’s told SIRF via phone that he was attending a funeral and would be unable to comment.


2 thoughts on “The Past Imperfect: Mr. Neuger and Mr. Fitzmaurice Would Like Your Money, Again

  1. Well done.

    The article itself is a touch saddening though, as there seems to be this persistent Sisyphean loop in financial markets where those without risk management capabilities are entrusted with new capital to manage, then blow up, and then are trusted with new capital to manage…

Leave a Reply

Your email address will not be published. Required fields are marked *