OppenheimerFunds’ Angelo Manioudakis Resigns
After a string of bad bets on high-risk mortgage-backed securities and credit-default swaps, OppenheimerFunds’ Senior Vice President Angelo Manioudakis has left the company. On Manioudakis’ watch, the Oppenheimer Champion Income Fund has lost more than 80% of its value this year - the biggest decline of any bond fund tracked by Morningstar, Inc. By comparison, the average junk-bond fund fell 32%.
Manioudakis’ departure may be the least of the issues for OppenheimerFunds, however. OppenheimerFunds owns Tremont Capital Management, an investment-management business that placed hundreds of millions of dollars of investors’ money in funds run by Bernard (Bernie) L. Madoff, who was arrested last week for operating a $50 billion Ponzi hedge fund fraud scheme.
Meanwhile, Jerry Webman will temporarily take over for Manioudakis as head of OppenheimerFunds’ Core Plus team.
Problems for the Oppenheimer Champion Income Fund began shortly after Manioudakis and his team took over management responsibilities for the fund in 2006. The fund’s demise was then hastened by too many derivative bets gone bad and, in particular, something called total-return swaps. As reported Dec. 16 in the Wall Street Journal, total-return swaps are agreements between parties to exchange cash flows in the future based on how a set of securities performs. In the case of the Oppenheimer Champion Income Fund, the fund was betting that top-rated commercial mortgage-backed securities would recuperate this year. It was a gamble that failed miserably.
Credit-default swaps (CDS) and mortgage securities tied to financially ailing companies like Washington Mutual and mortgage giant Freddie Mac also became a major source of trouble for the Oppenheimer Champion Income Fund. Compounding the fund’s problems were purchases in Lehman bonds between June and September with nearly $30 million in principal value. When Lehman filed Chapter 11 bankruptcy protection on Sept. 15, those bonds plummeted in value to $144,000.
Moving forward, other OppenheimerFunds offerings that held the Oppenheimer Champion Income Fund could be headed for their own set of financial problems. One of the funds includes the Oppenheimer Conservative Investor Fund, which had 4% in the Champion Income fund through November, according to the Wall Street Journal. Year to date, the Oppenheimer Conservative Investor Fund is down an astonishing 40%, making it one of the worst-performing conservative allocation funds followed by Morningstar.
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