F-Squared Investments, the beleaguered ETF strategist, filed for Chapter 11 bankruptcy protection Wednesday in the U.S. Bankruptcy Court for the District of Delaware. Broadmeadow Capital, a subsidiary of Cedar Capital, will acquire the intellectual property, investment strategies and investment management contracts of the firm.
Cedar Capital owns Good Harbor, a Chicago-based ETF portfolio manager, which had about $2.3 billion in its Tactical Core U.S. portfolio, according to Morningstar.
In August 2013, WealthManagement.com named F-Squared co-founder Howard Present one of the “Ten to Watch in 2014.” By March 2014, F-Squared had surpassed competitor Windhaven as the largest ETF managed portfolio manager, with $24 billion in total assets at the time, according to Morningstar. But the euphoria didn’t last long. By the end of the first quarter of 2015, the firm fell back behind Windhaven, dropping to about $15 billion in total ETF managed portfolio assets. F-Squared saw $5 billion in outflows during the quarter.
In December 2014, the Securities and Exchange Commission charged F-Squared and Present with misrepresenting performance data for its flagship AlphaSector strategy. The firm was advertising seven-year performance data, yet the data was derived through backtesting, the SEC claimed. F-Squared settled with the SEC for $35 million and agreed to wrongdoing.
"This acquisition presents a timely opportunity to expand Broadmeadow's product portfolio,” Broadmeadow President David Cabot said. “We see merit in the AlphaSector investment strategies and methodologies, despite how their performance track record prior to 2009 was portrayed to investors."
F-Squared currently has liabilities of $1 million to $10 million, according to the bankruptcy filing. Throughout the sale process, F-Squared will continue to serve customers, and the firm has filed motions to continue paying employees on a timely basis.
