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IQDAX- If it's opaque, just maybe there's a reason?

zenbrewzenbrew
in Fund Discussions
I've was intrigued with this fund as an alternative type approach a few years ago & purchased into it (though admittedly didn't actually understand it). Note to self- lesson learned.

About a month ago, they stopped taking any further purchases- either new or from existing shareholders. I got uneasy as their website didn't mention this closure and over the past year, they really stopped updating any information. I redeemed all except a very tiny foothold. Today I went to their website & found this:

infinityqfunds.com/

Which also included this link:

https://sec.gov/rules/ic/2021/ic-34198.pdf

At least
The Chief Investment Officer of Infinity Q has been relieved of his duties, effective February 21, 2021.
because
According to the SEC’s Order, the Fund learned on Thursday, February 18 that the Chief Investment Officer of Infinity Q had been adjusting the methodology for obtaining certain asset valuations, and that the resulting valuations may not have accurately reflected the fair value of those assets.
That makes me feel better!
«1

Comments

  • JD_co
    Wow, and the fund returns weren't exactly Madoff-like. Still, this would be unnerving info. to receive as a shareholder. Scary stuff.
  • TheShadowTheShadow
    edited February 2021
    Follow-up article:

    https://finance.yahoo.com/news/bronstein-gewirtz-grossman-llc-notifies-163500375.html

    The fund's closure was noted on this board:

    https://www.mutualfundobserver.com/discuss/discussion/57518/infinity-q-diversified-alpha-fund-to-close-to-new-investors
  • zenbrewzenbrew
    @The Shadow:
    Thanks for the link.

    From that page:

    https://bgandg.com/iqdnx

    Correct regarding the previous mention in MFO. My days/months seem to get blurred anymore. I actually sold most all my shares only a week ago. So it was a closer call for me than I realized. They stopped taking redemptions on 2/19.

    I know that this isn't the first time that this has happened with a mutual fund but the first for me.


    @JD_co
    Agree. The returns weren't extreme. The appeal was an uncorrelated return vs stocks/bonds & maybe a return of 3-5%/year. Should have stated in the prospectus- uncorrelated to reality as well.




  • TheShadowTheShadow
    Just ran across another article:

    https://finance.yahoo.com/news/infinity-q-seeks-halt-redemptions-232858497.html
  • zenbrewzenbrew
    @TheShadow

    Thanks for that last update. That was helpful.
    Will be interested to see how this all plays out.
  • zenbrewzenbrew
    From the Institutional Investor:

    https://institutionalinvestor.com/article/b1qphp8ytrkv20/Months-Before-SEC-Investigation-Infinity-Q-s-CIO-Touted-Strong-Performance

    "In September 2019, the Texas Municipal Retirement System allocated $125 million to the firm’s volatility alpha fund, meeting minutes show. The State Teachers Retirement System of Ohio also lists Infinity Q among its investment managers, a 2020 annual report shows."
  • Baseball_Fan
    Very disturbing news.

    I'm invested in the fund through Schwab and several weeks ago received at least 15 statement letters in the mail notating adjustments to the closing nav

    Thought that kind of strange and that with the vaccine development sold off 90% of my holdings in iqdax but still hold approx $25k. Maybe I should say what my account says I hold

    I'm sure by the time the class action law suits are settled and the sell down of the fund it will be notably less. Hard to believe the fund manager would play make believe with the valuations of the holdings

    Always knew it was kinda black boxey and I could deal with a large drawdown due to black swan bad investment but not fraud bullspit

    I know it's a reach but have to say I'm concerned about tmsrx as they are big into derivatives and swaps etc. Of course t rowe is very reputable but so was Lehman and aig and bear stearns etc

    Someone said keep it simple. Probably right

    Best

    Baseball Fan

  • zenbrewzenbrew
    From the SEC report above:
    According to Applicants, the Fund’s current portfolio includes swap instruments (the “Swaps”) for which Infinity Q calculates fair value using models provided by a third-party pricing vendor.
    Applicants state that on February 18, 2021, based on information learned by the Commission staff and shared with Infinity Q, Infinity Q informed the Fund that Infinity Q’s Chief Investment Officer had been adjusting certain parameters within the third-party pricing model that affected the valuation of the Swaps.
    Aren't annual audits for the mutual fund supposed to uncover this? Or were they just looking at the cooked books?

    Would ETF (transparent ones) format prevent this as pricing discrepancies would be seen more immediately on a day-to-day basis?
  • Baseball_Fan
    Hey @zenbrew,

    Audit...you mean like who is auditing the Fed? You mean like the audit of Enron?

    I want to know what the young man who was running the fund was exactly doing? Was there malfeasance? Or did he really believe the 3rd party model was incorrect and there was a "tweaking" for good reason? He's obviously lawyered up. Who else knew and who challenged him on his actions? Wasn't there a compliance/risk officer? What was he doing/not doing/getting paid for?

    Sheet. Let's assume innocence until proven guilty and then if guilty #&$^#*(!

    I recall an interview with The Gundlach (similar vernacular like The Ohio State, what is that all about?) Gundlach stated he is not a fan of derivatives etc...asked the rhetorical question, guy goes on vacation to Hawaii...things happen overnight in the market...what happens to his wealth...he literally said, "does it go poof".

    Let's hope this is not a "poof" moment for holders of Q Infinity Fund

    Best

    Baseball Fan
  • sma3
    I am sorry you are stuck in this situation. After IOFIX we found out that "fair value pricing" was fair until it was not. I posted several years ago about selling MXBIX at one NAV and receiving another when the cash arrived.

    This seems like fraud, not mistaken assumptions.

    I think T Rowe Price is unlikely to allow things like this to happen and would be relatively comfortable with their methodology, but not so much so that I would put in big bucks.

    While I don't fully agree with Buffet, "never invest in things you don't completely understand" doing due diligence and depending on reliable partners will help.
  • Baseball_Fan
    @sma3

    Thanks for the reply and input. Do like your phrasing of "fair value pricing".

    I did NOT listen to my own thought process...I've stated in the past on this board, "know what you own...and do you really know what you own" when referring to certain mutual fund holdings.

    Yes, I am going to scale way back on TMSRX.

    As Bush Jr. said, " fool me once, shame on - shame on you.. Fool me..you can't get fooled again"

    We'll see how it all plays out.

    Best,

    Baseball Fan
  • Derf
    TMSRX What would be a reasonable amount , per cent, to own in a retirement account of say 500 K ? Just wondering. Possible in the 4 - 5 % range .
    Stay safe, Derf
  • zenbrewzenbrew
    @Baseball_Fan
    I want to know what the young man who was running the fund was exactly doing? Was there malfeasance? Or did he really believe the 3rd party model was incorrect and there was a "tweaking" for good reason? He's obviously lawyered up. Who else knew and who challenged him on his actions? Wasn't there a compliance/risk officer? What was he doing/not doing/getting paid for?
    Good questions. To those I would add what was it that finally did bring this to the SEC's attention?

    Regarding the audit question, I was referring to the annual reports.

    This is from their August 2020 annual report:
    REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

    To the Board of Trustees of Trust for Advised Portfolios and the
    Shareholders of Infinity Q Diversified Alpha Fund

    Opinion on the Financial Statements

    We have audited the accompanying consolidated statement of assets and liabilities of Infinity Q Diversified Alpha Fund, a series of shares of beneficial interest in Trust for Advised Portfolios, and Subsidiary (the "Fund"), including the consolidated schedule of investments as of August 31, 2020, and the related consolidated statement of operations for the year then ended, the statements of changes in net assets for each of the years in the two-year period then ended, the statement of cash flows for the year then ended, and the financial highlights for each of the years in the three-year period then ended, and the related notes (collectively referred to as the "financial statements"). The consolidated financial highlights for the years ended August 31, 2017 and August 31, 2016 were audited by another independent registered public accounting firm whose report, dated February 1, 2018, expressed an unqualified opinion on those consolidated financial highlights. In our opinion, the financial statements present fairly, in all material respects, the consolidated financial position of the Fund as of August 31, 2020, the consolidated results of their operations for the year then ended, their cash flows for the year then ended, the changes in their net assets for each of the years in the two-year period then ended, and financial highlights for each of the years in the three-year period then ended, in conformity with accounting principles generally accepted in the United States of America.

    Basis for Opinion

    These financial statements are the responsibility of the Fund's management. Our responsibility is to express an opinion on the Fund's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

    We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Fund's internal control over financial reporting. Accordingly, we express no such opinion.

    Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of August 31, 2020, by correspondence with the custodian, prime broker and third-party counterparties. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
    Bold emphasis my own.

    To answer my own question. My interpretation is that the audit just makes sure that there are no irregularities in the numbers or accounting in the financial reports but not an assessment of the validity of how the asset values are obtained or the actual pricing of the assets themselves. But I'm no expert on financial reports.

    I also think the comparison of Infinity Q and T. Rowe Price is like comparing apples & oranges, even concerning TMSRX. Especially as Infinity Q was essentially a one man operation. Anything is possible & I definitely understand the concern.

    @Sma3
    Regarding IOFIX, my impression was they were not disclosing to shareholders the risks involved with some of their holdings- their method of buying & valuing odd lots not widely traded which during times of stress (ie last March) might become difficult to unload.

    @Derf
    I have no idea what a "reasonable" amount would be but for me, in general, I tend to limit any one holding to no more than 5-7%. TMSRX is currently around 6.5%. The main exception to that is PRWCX which I started investing in back in the 1990s. It sits around 16%.







  • Baseball_Fan
    Article in WSJ today by Zweig, "Safe, Sometimes Isn't Safe"...IQDAX....

    "The fund's prospectus says that when pricing service "provides a valuation that in the judgement of the adviser does not represent the security's fair value," the manager may override that number - a standard warning in such disclosures.

    Reference @sma3 mention prior of the notated "fair value pricing"

    Zweig's article mentions "an investor"...who thinks fund holders could lose 20% or more of their monies...

    Article speaks to reach for chocolate cake instead of broccoli...alternatives to high priced stocks, high priced bonds, uncorrelated investments with smoother rides...maybe better to go with less spending, save more.....mentions "jolt of heartbreak" over the years by investors thinking they have found the ideal low risk, uncorrelated strategy/fund.

    Got it, lesson learnted.

    Good Luck to all,

    Baseball Fan
  • Old_JoeOld_Joe
    How did I ever miss this one? Must be losing my touch, thank goodness.
  • WABACWABAC
    Nobody is smart enough to deserve a 2.46% ER.
  • ducrow
    I have learned from past mistakes and would never buy a new unproven fund like IQDAX. And I might add I would not buy the TMSRX fund either. For a low risk fund for my portfolio I would prefer a funds like bampx, wbalx, hblix. I own all of them. they usually hold 50% bonds 50% stocks.
  • stillersstillers
    edited February 2021
    ducrow said:

    I have learned from past mistakes and would never buy a new unproven fund like IQDAX. And I might add I would not buy the TMSRX fund either. For a low risk fund for my portfolio I would prefer a funds like bampx, wbalx, hblix. I own all of them. they usually hold 50% bonds 50% stocks.

    I have no interest at all in IQDAX.

    I have been DCA'ing into TMSRX. FWIW, it has easily been outperforming those three AA funds since its inception with only ~28% stocks.

    In the 30%-50% cat, I own CFIAX and FMSDX (the latter which I regard as Best in Class). If I were to add another, it would be AZNAX. After that, I'd consider adding BAMPX and likely stop there.
  • zenbrewzenbrew
    Yeah I get it. Not my shiniest brightest marble in my investing jar of ideas. As I stated in my OP, lesson learned.
    With a bitter taste in my mouth, I'll wait to see what happens with the remaining couple of thousand that I had in the fund.

    A couple of questions:

    Should MFO premium great owls have a new category of "funds under investigation" & would IQDAX still be a great owl as it was for "alternative multi-strategy"?

    If IQDAX had been an ETF, could this still have happened? I ask because maybe this would be another advantage of ETFs. Though now there are nontransparent ETFs as well.

    @stillers
    stillers said:

    I have been DCA'ing into TMSRX. FWIW, it has easily been outperforming those three AA funds since its inception with only ~28% stocks.

    So was IQDAX vs other alternative multi-strategies.

  • stillersstillers
    edited February 2021
    zenbrew said:


    @stillers

    stillers said:

    I have been DCA'ing into TMSRX. FWIW, it has easily been outperforming those three AA funds since its inception with only ~28% stocks.

    So was IQDAX vs other alternative multi-strategies.

    Not sure that's true but I'll take your word on it.

    That said, LOTS of funds start out great.

    Infinity funds have NEVER showed up as a possible BUY in ANY scopings of funds I've EVER done since ~1980. I actually never heard of them until this thread. So I read the PM roster for IQDAX and (to be kind) was NOT impressed.

    TRowe Price on the other hand is a whole 'nother story, as are TMSRX PMs Hubrich and de los Reyes.
  • Baseball_Fan
    Well as they say hindsight is 20-20 right?

    Should note that the fund did have a nice pedigree and backing, David Bonderman, chair and founder of TPG, private equity firm w/~$85B in assets backed (per WSJ, TPG/Bonderman had no day to day participation in the mgmt or valuation of investments in the fund") InfinityQ and per the WSJ article, according to people familiar with the matter had approx $100MM invested in the fund.

    To the Monday morning QBs...Please show me any other fund that was around since Oct 2014 and had the same combo of low drawdown, volatility and return and zig when the SPY zagged downward...(potential fraud and make believe numbers not withstanding)

    @Wabac, noting that the return of the fund was after paying the high fee, still not a bad return...dunno, I get it that expenses eat into returns, but if I'm going to the Doc, Dentist, auto mechanic, I look for the most experience, value and quality etc...not low price necessarily. If he was not cooking the numbers, I would argue that this fund was worth the high cost.

    Just be careful, you might be next...we might be talking about the wisdom of those who put their monies into a SPY index fund that includes Tesla and the Cathie Wood funds as something that in hindsight looked really foolish...let's be intellectually honest with each other as why not, we don't know each other anyways...but I'd argue that the ARK funds could easily go down another 50% from here...we know they are way overvalued but some pour money into them until maybe last week. That to me, seems like a way crazier investment that putting monies into a fund with an over 5 year track record and backed by a very experienced private equity founder.

    So, anyways, let's hope it all works out and no one loses too much monies for this financial lesson....as always, respect, good health and good luck to all,

    Baseball Fan
  • wxman123
    Why single out TMSRX? Pretty much any fund except the most vanilla of the vanilla might hold hard to value assets. It sounds to me like these guys had problems way beyond that, like fraud. I would rely more on the integrity of the firm than the assets it holds (generally speaking). If something like this happened at T.Rowe it could destroy the firm, so it won't, even if the firm needed to back a fund with its own money.
  • ducrow
    fmsdx cfiax azanx hold a lot of non investment grade bonds so they dont compare well to hblix, wbalx or bampx. they are all classified as conservative allocation funds. but fmsdx cfiax and azanx loose a lot more when the market melts down. I would rather buy moderate allocation funds with more stocks. such as lkbax,msfrx,mapox.Which I own.
  • stillersstillers
    edited February 2021
    ducrow said:

    fmsdx cfiax azanx hold a lot of non investment grade bonds so they dont compare well to hblix, wbalx or bampx. they are all classified as conservative allocation funds. but fmsdx cfiax and azanx loose a lot more when the market melts down. I would rather buy moderate allocation funds with more stocks. such as lkbax,msfrx,mapox.Which I own.

    Hmmm...Many believe non-investment grade bonds is the place to be right now and for the near-to-intermediate future.

    Not sure about the volatility of the respective funds but "Volatility is the price you pay for growth" is the wisest and most profitable investment advice I ever received.

    In the 50%-70% cat, I have long owned PRWCX, FBALX, and VBIAX. All 5* funds that all have better TR performance for just about every period than 4*/3* LKBAX, MSFRX and MAPOX.

    Never heard of LKBAX before you posted about it. MFS is a worthy family but MSFRX clearly ain't their best fund. Used to own MAPOX long ago but do not like their overall strategy.

    Based on this post of yours, I trust you'll have something negative to say about my three, but not sure it will make any sense to me. To wit, if I only owned three funds, it would be these three.

    Really don't care to discuss this any further. Good luck to you.
  • Baseball_Fan
    So. .this former fund manager...his Dad wrote a book about when fund manager was recruited to play college football. Recruiting confidential

    Chicago tribune writer wrote Amazon book review..stating..velissaris comes across as an honest but tacturin soul in a somewhat dishonest world

    Sheet. You can't make this stuff up

    What burns me too is he went to good high school in the same conference where I played high school ball

    Best,

    Baseball Fan
  • JonGaltIII
    There are so many kernels of wisdom in this post. I hope everyone keeps posting and sharing their viewpoint. I hold a few similar funds of @stillers but its so interesting to see peoples approach to choosing funds. Like @WABAC - ER is important to me as well. So - different strokes for different folks. But - starting the post and then the comments are so worthwhile. Plus - they have the added benefit of 3 years from now - someone searches up IQDAX - they will see what people were thinking.
  • zenbrewzenbrew
    IQDAX Liquidation Update

    Talk of pouring salt on a wound:
    In reaching a determination as to the timing of initial distributions, the Fund must consider potential expenses it may incur going forward. These expenses include, among others, the costs of litigation that has been or may be filed against the Fund, or against others that the Fund is, or may be required to, indemnify. Any potential recalculation of the Fund’s historical NAV could also lead to additional claims against the Fund or against others it is, or may be required to, indemnify. Additionally, although the Fund expects Infinity Q to pay for the liquidation and the fees charged by RIIS and the third-party valuation expert, the Fund may need to pay some or all of these costs in the event that Infinity Q is unwilling or unable to pay them. The Fund intends to estimate and establish a reserve to cover these costs and liabilities.
  • Baseball_Fan
    Me thinks we're going to get the "high and tight" haircut....

    What day think zenbrew, the class action lawsuits weren't gonna cost anything?

    What's your guess, less 25%??

    Sheet,

    Baseball Fan
  • Baseball_Fan
    BTW, thanks for the update!!
  • Baseball_Fan
    What concerns me a great deal is there was kind of a similar fund LJM that invested in vol. Took a 80% haircut in like two days and Wham-O, they gone

    I remember thinking hmm, can that happen to iqdax...nah ..but at least from what I remember the other guys weren't tweaking numbers

    I also believe that the swaps, options in question were less in iqdax but not sure

    Good luck to all

    Baseball Fan
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