By Jenny Strasburg and Aaron Lucchetti
Of THE WALL STREET JOURNAL
In 2010, Morgan Stanley (MS) helped Zoe Cruz, the co-president
pushed out of the firm three years earlier, launch a hedge fund by
writing her a $20 million check and expressing willingness to pour
in more money later.
Last month, though, Morgan Stanley asked for its money back,
disappointed by the hedge fund's performance and worried about the
shrinking size of Cruz's firm, according to people familiar with
the matter.
The retreat by Morgan Stanley was part of broader moves to sell
off assets that Chief Executive James Gorman felt exposed the
company to unnecessary risk or otherwise didn't serve clients, the
people said.
(This story and related background material will be available on
The Wall Street Journal website, WSJ.com.)
On Thursday, the 57-year-old Cruz told clients in a letter that
she has decided to close down Voras Capital Management.
The letter cited "the difficult capital-raising environment for
new funds and the enormous uncertainty and volatility in the
markets," according to a person who saw the letter. It was signed
by Cruz.
"Rather than subject my investors to an unattractive risk-reward
proposition, with no signs of improvement in sight, I have
proactively sought to return your capital."
Cruz declined to comment through a spokeswoman. For several
months, she had discussed with some investors her plans, a person
close to her said.
Asset managers and banks have been in touch with Cruz about
potential jobs, said people familiar with the matter.
The previously undisclosed details behind Cruz's moves show how
much her longtime employer supported her re-emergence on Wall
Street despite their rocky history together.
In 2007, she was pushed out of Morgan Stanley after 25 years,
including overseeing some of the firm's most profitable trading
desks and steadily climbing the ladder.
Cruz, whose profit-making status and management style resulted
in the nickname "Cruz missile," lost her job after a unit she
supervised suffered a $4 billion loss from mortgage-market
bets.
Morgan Stanley shared other investors' impatience with Cruz's
fund after it lost 8% in 2011 and failed to attract investors as
she hoped, said people familiar with the matter.
Earlier this year, Voras Capital reported having $90 million in
assets under management, compared with roughly $200 million Cruz
had previously said the firm managed, according to people familiar
with the matter.
A portion of the decline was due to the closing of a hedge fund
that aimed to invest in distressed assets. The remaining fund made
bets on broad economic trends.
Morgan Stanley's decision to put $20 million in Cruz's hands
goes back to a 2009 lunch she had with John Mack, then the
securities firm's CEO, according to people familiar with the
matter.
Mack had fired Cruz. Yet after the lunch, he told bank
executives that he would like to help her start her new investment
business, according to people familiar with the matter.
Mack, explaining the decision to invest in late 2009, said
Thursday: "She's been an outstanding trader and made money for the
firm" over her career. Despite the "buzzsaw" Cruz and others ran
into with the 2007 mortgage-market decline, he said, "her track
record was a very good track record."
Around the time Mack pledged the money, Cruz was talking to some
ex-colleagues at Morgan Stanley and elsewhere about joining her.
She named the firm Voras after the Greek word for "north" and a
mountainous region near the small town in Greece where she was
born.
In her letter Thursday, Cruz said that despite losing money last
year, she had "very strong views: The equity markets and U.S.
Treasury yields would go up, and the dollar would collapse."
She placed trades through derivatives that would "lose some
money" if her views were wrong, according to the letter.
"But if I were right, we would make multiples of the
investment," it said, adding, "Unfortunately, I have no such strong
convictions now."
Cruz said she has been "investing and managing risk across every
asset class and every geography for three decades," and in that
time learned that "hard work--no ethical shortcuts--and having a
long-term horizon are ultimately the keys to investment
success."