LEAKED MEMO: Anthony Scaramucci mourns his relationship with $2.2 trillion Merrill Lynch after it downgraded SkyBridge's main fund

By Meghan Morris

Anthony Scaramucci sent a strongly-worded letter to the president of Merrill Lynch Wealth Management on Thursday after the $2.2 trillion wealth manager recommended dumping SkyBridge Capital's fund of hedge funds. 

In Thursday's six-page letter to Andy Sieg reviewed by Business Insider, Scaramucci acknowledged his fund's performance suffered in March – it was down 24.7% after a big debt bet, which led to significant redemptions and staff changes under its two portfolio managers. But he highlighted that the fund had its best second quarter – up 6.49% – since 2012.

Credit-focused hedge funds took a big hit in March, on average down 23.2%, per Hedge Fund Research. The only worse-performing strategy in the volatile month were activist funds, which were down 25.3%. Data for the second quarter, which ended Tuesday, have not yet been released. 

In April, Citigroup cut ties with the firm, which could lead to clients pulling $100 million from SkyBridge, the Wall Street Journal reported. The story also said that Merrill Lynch had recently decided against making new investments in SkyBridge.  

With the recommendation to sell, Merrill Lynch's clients currently invested in SkyBridge could be next to exit the firm's Series G fund, its main product that's geared toward wealthy individuals. SkyBridge managed $9.3 billion as of March 30.

A spokeswoman for Merrill Lynch said: "We have full confidence in the rigor and expertise of our due diligence team. We have received the letter from SkyBridge and plan to respond to them directly."

Scaramucci and SkyBridge did not respond to requests for comment. 

"Yet another casualty of the pandemic"

Scaramucci said Merrill Lynch published an inaccurate due diligence report on June 26. These due diligence reports signal to its financial advisers how they should think about various investment strategies on behalf of their clients. 

Scaramucci called the firms' relationship "yet another casualty of the pandemic," writing that the report "reflects a breakdown in communication" between the firms – one he didn't think would happen if executives had met in person.

After the fund's disastrous March performance, SkyBridge sold some of its investments, including in EJF Capital and Hildene Capital Management, and invested in some of the industry's biggest funds: Canyon, Bridgewater, Point72, Renaissance, Brevan Howard, and Oaktree's Value Opportunities Fund.

Those changes shifted the fund from 81% credit on March 1 to 74% on July 1, with more distressed corporate credit and less structured credit. Scaramucci said that Merrill Lynch's report criticized the SkyBridge fund for moving away from a "highly-concentrated, thematic" strategy, which Scaramucci said is not true. 

His other complaints included issues with Merrill Lynch's assessment of the SkyBridge's due diligence, its secondary sales communication, and its Oaktree investment, among other issues.

Scaramucci also criticized Merrill Lynch for refusing to speak with him and another SkyBridge executive.

Scaramucci said Merrill Lynch staff have told financial advisors that SkyBridge lied in due diligence.

He said it felt like Merrill Lynch's due diligence team "spent the last three months playing 'gotcha' in search of a lie. They came up empty handed," he wrote. 

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