Screw Turning on Sacane at Durus Capital

The Two Magics

But the board's ouster doesn't necessarily mean the investors will move to replace Sacane as Durus' manager. Mayleben said he's been told the investor group "continues to support" Sacane.

Indeed, even with the new board, Sacane still has considerable clout at Durus. The board oversees only the affairs of Durus' offshore investment fund, which is incorporated in the Cayman Islands. Sacane remains the managing partner of Durus' domestic investment fund.

It's not uncommon for hedge funds to have both domestic and offshore investment vehicles. In most hedge funds, the domestic fund is organized as a limited partnership and led by the hedge fund manager. Meanwhile, the offshore fund is run by a board, which is advised by the same hedge fund manager. Investors seeking to avoid, or minimize, paying federal taxes, tend to flock to offshore funds.

In theory, there is supposed to be an arm's length relationship between the board of an offshore fund and the hedge fund manager. But in practice, offshore boards tend to be a rubber stamp for a hedge fund manager.

Offshore boards are typically filled with so-called "professional directors": lawyers, accountants and retired business executives living in the Cayman Islands and other tax havens, who make a living by serving on hedge fund boards. And sources said that was the case with the original board of Durus' offshore fund.

It's unusual for investors in an offshore fund to band together and put their own board members in charge. If nothing else, it means Sacane must now work with a more activist board and no longer will have a free hand to buy and sell as he pleased, as he did before.

>To order reprints of this article, click here: Reprints