Who is Barun Agarwal?

Sebi lens on Agarwal-founded Factorial marks fall from its heyday

Hong Kong-based Factorial, a small but rising hedge fund, is in the midst of a storm, following the Securities and Exchange Board of India (Sebi) barring it from accessing the Indian market for alleged insider trading.

The hedge fund was founded by 30-something Barun Agarwal, a 1997 batch graduate of Kolkata’s Indian Statistical Institute. In 1999, Agarwal secured a master’s degree in finance from Indian Institute of Management-Bangalore, coming second in his batch.

Before setting up Factorial, a multi-asset hedge fund focused on the Asia-Pacific region, Agarwal had, through a decade, worked at prestigious financial institutions, including banks and brokerages. He started his career at ICICI Bank, where he focused on debt and money markets. Subsequently, he joined the equity research division of Salomon Smith Barney.

Later, Agarwal was co-head of the derivatives division of US-based investment bank JP Morgan. Ahead of launching Factorial in January 2012, Agarwal spent about seven years at another Hong Kong-based hedge fund, Oasis Capital Management. At Oasis, he worked with star hedge fund manager Seth Fischer, who managed multi-billions.

Agarwal’s flagship product, Factorial Master Fund, allegedly took “unusually aggressive short positions” in L&T Finance Holdings’ derivatives contracts, before the company’s share-sale in March this year. Sebi has alleged Factorial built these short positions based on information about the price at which L&T shares were to be offloaded by its promoters, through an offer for sale (OFS).

Factorial reversed its short positions by applying to the OFS in the cash market, making a gain of Rs 20 crore, Sebi said in its order.

Brokers said shorting of shares and covering these in an OFS, through which shares were typically sold below market rates to attract investors, was a common practice.

What actually caught Agarwal on the wrong foot were the aggressive short positions Factorial had created — it accounted for about 85 per cent of the derivatives positions in L&T Finance. In a statement to Reuters, Factorial said Sebi’s allegations were “without merit”. However, it added it would fully cooperate with the regulator in its investigations.

The timing of the Sebi order comes at a time Agarwal’s hedge fund has been scaling the popularity charts, outperforming some larger and more well-known hedge funds. In April, Factorial’s chief operating officer, Adam Wallace, had said the fund had recorded annualised returns of 14 per cent. Also, the fund’s size is said to have increased fourfold — from assets of about $25 million during its inception about $100 million currently.

Experts said the fund had performed well, managing to straddle asset classes such as equity, derivatives, debt and convertibles. Factorial has a ‘bottom-up’ approach of investing and focusing on company-specific opportunities.

Queries sent to Agarwal on the Sebi order remained unanswered. A message sent to him through a Bloomberg terminal, too, didn’t elicit any response. His profile on LinkedIn has been taken down.
TRACING HIS PATH

• Agarwal is a 1997-batch graduate of Kolkata’s Indian Statistical Institute
• In 1999, he secured a master’s degree in finance from IIM-Bangalore
• He started his career at ICICI Bank, where he focused on debt and money markets
• Subsequently, he joined Salomon Smith Barney’s equity research division
• Agarwal was co-head of the derivatives division of US-based JP Morgan
• He spent about seven years at Hong Kong-based hedge fund Oasis Capital Management