In April 2016, Steve Kuhn, the star bond-portfolio manager since 2008 at Pine River Capital, told Bloomberg TV that he was leaving and planned to donate unspecified millions of his ownership in the $14 billion-asset hedge fund manager to the Pine River Foundation.
Kuhn was the key player whose market-beating performance from 2009 to 2013 helped assets soar at a small four-partner hedge fund that grew into a red-hot shop of $15 billion in assets, 400-plus employees and offices from Minnetonka to Hong Kong.
Kuhn's ostensibly happy moment on camera belied internal turmoil at the shrinking hedge fund firm.
Kuhn and founder Brian Taylor's relationship had soured by 2015 over performance, compensation and ownership issues, according to a federal court fight that has played out over the past two years. Now, lawyers in the case have informed the presiding judge that a settlement could be in the works.
The parties declined to comment on the court fight last week. Court filings in lawsuits filed by both parties present versions of the dispute.
Kuhn's performance faded after directing industry-leading returns in 2009-13 that helped provide tens of millions in compensation to some partners during the gravy years, according to filings.
Pine River funds were shrinking by 2015 as investors bailed.
Kuhn, who was the firm's public face at industry conferences, by 2016 had become the second-largest owner at nearly 18 percent, behind only Taylor. And he was the top-earner at the firm from 2010 to 2015, according to court filings.
Kuhn is a native of Columbia Heights and 1991 economics graduate of Harvard College who now lives in Austin, Texas.
He was part of a team at Wall Street's Goldman Sachs that managed $40 billion worth of mortgage-backed securities. He and a Goldman partner who joined him at Pine River saw great upside opportunities investing in hugely devalued pools of mortgages that other institutions were running away from in 2008-2009, following the housing-and-financial industry crisis that led to the Great Recession and a federal bailout for many financiers.
In 2009, Pine River launched Two Harbors Investment Corp., a publicly traded real estate investment trust that raised hundreds of millions from investors to buy mortgages, and later another fund, Silver Bay Realty Trust Corp., to invest directly in depressed housing. That fund later was sold.
At its peak in 2013, Two Harbors was valued at more than $5 billion. It paid Pine River an annual management fee of 1.5 percent, or about $75 million.
By 2015-16, assets were declining and partners were leaving Pine River. The easy money in the once-depressed mortgage bond market had been made. And investors, who pay hedge funds up to 2 percent to manage and 20 percent of profits, were seeing more money being made in stock-market funds that charge less than 1 percent. Hedge fund returns and assets were declining around the nation, according to Bloomberg Markets.
Kuhn spent months talking to Taylor in 2015-16 about his diminished performance and future with the firm, according to court documents. After unsuccessful talks in March 2016, Taylor gave Kuhn no bonus and reduced his partnership interest to 17 percent. Kuhn made his TV appearance in April.
"The aftermath of Mr. Kuhn's Bloomberg appearance was disastrous," Pine River asserted in a recent court filing. More investors at the shrinking firm started pulling out money in 2016.
Assets managed by Pine River are believed down to about $9 billion, according to Bloomberg.
In a lawsuit, Pine River said it fired Kuhn on Sept. 9, 2016, after Pine River partners owning more than 75 percent of the company approved the move following failed negotiations over the size of Kuhn's severance package. And the two sides also disagree over how much Kuhn is owed for a 0.75 percent additional stake in Pine River he bought for $3.375 million in early 2014.
That indicates the value of the then-soaring firm at more than $450 million.
In his counter suit against Pine River, Kuhn alleges that Taylor reneged on their agreement, after Kuhn put up the $3.375 million. That would have enabled Kuhn to buy up to 25 percent of the firm from his future partnership profits. Instead, Kuhn charged, Taylor cut his pay and his ownership.
This summer, U.S. District Judge Ann Montgomery ruled Kuhn's counterclaim lawsuit could proceed to trial against Pine River on two of six counts.
Kuhn asserts that Taylor breached Kuhn's limited partnership agreement when Taylor unilaterally cut his compensation by 85 percent in 2016. And Kuhn wants compensation for the stake that he paid $3.375 million for in 2014.
"Two years after Mr. Kuhn exchanged millions of dollars for an additional partnership interest and the right to receive additional partnership interest based upon partnership profitability parameters, Mr. Taylor … lowered Mr. Kuhn's partnership interest below where it was before the purchase, and refused to grant the increases called for in the 'partnership percentage increase agreement,' " according to Kuhn's lawsuit.
Meanwhile, the judge canceled a Sept. 20 pretrial scheduling conference, after the lawyers for the parties informed her they were working toward a settlement.
Late Friday, Kuhn said through his lawyer that he has spent the last year focused on philanthropy and investments in "new and growing companies. I wish Pine River success and remain open to ways to work with Pine River and its partners and employees on charitable and for-profit ventures."
Neal St. Anthony has been a Star Tribune business columnist and reporter since 1984. He can be contacted at firstname.lastname@example.org.