I have been looking at Highland Capital Management with respect to their NexPoint Merger Arbitrage fund (HMEZX). In the process, I came across an article in the Wall Street Journal from October 16, 2019 that indicated that the firm filed for bankruptcy.
HMEZX has a very good record, but I was curious why the fund had only attracted $68 million in assets since it opened in September 2016. The answer may be found in this article:
"Highland Capital Management LP, once a giant in high-yield debt markets, filed for bankruptcy protection Wednesday as investors and former employees seek more than $200 million from the firm for alleged improprieties.
The Dallas-based firm founded by Jim Dondero helped pioneer trading of corporate loans rated below investment-grade and managed about $39 billion in 2007, but it took heavy losses during the financial crisis and has been embroiled in lawsuits ever since. The company had been trying in recent weeks to settle some of the litigation it faces, warning its adversaries that it would seek bankruptcy protection if they didn’t compromise, people familiar with the matter said.
Highland entered chapter 11 in U.S. Bankruptcy Court in Wilmington, Del., listing as its largest debt a disputed $189 million claim from investors in Highland Crusader Fund, a hedge fund that has been in liquidation since the financial crisis. The second-largest creditor is Patrick Daugherty, a former Highland portfolio-manager who has been in personal and legal conflict with Mr. Dondero since 2012 and has an $11.7 million claim against Highland, according to its bankruptcy filing.
A group of investors in Crusader sued Highland in 2016 in Delaware Chancery Court, demanding Highland be fired as manager for delaying the fund’s liquidation and claiming that Highland wrongfully paid itself $30 million. The group subsequently won an arbitration award that Highland has yet to pay, court documents show.
In a statement, Highland said the bankruptcy filing was made “in consideration of its liquidity profile” and stems from a potential judgment in favor of a committee of Crusader Fund investors."
I don't know the current status of of the bankruptcy filing, but, needless to say, I am no longer interested in HMEZX as a potential investment opportunity.
If anybody has more up to date information on the fund advisor's bankruptcy status, I would appreciate hearing from you.
But, buyer beware.