UPDATE 1-Co-founder of defunct hedge fund Diamondback launches new firm
(Adds details on Diamondback, new fund)
NEW YORK, Sept 17 (Reuters) - Richard Schimel will launch a new hedge fund later this year, less than 12 months after closing Diamondback Capital in the wake of an insider-trading investigation by the U.S. government.
"The investment model at Sterling Ridge will focus on a single integrated portfolio that I will manage, similar to what I did in the main portfolio at Diamondback," Schimel wrote in a letter to potential investors on Tuesday, a copy of which was obtained by Reuters.
He also wrote that he is excited about the fund's launch in the fourth quarter.
A spokeswoman for Schimel declined to comment beyond the letter.
Diamondback, once an industry darling, shut down in December 2012 when nervous investors demanded the firm return more than a quarter of its assets.
Co-founded by Schimel, Larry Sapanski and Chad Loweth, Diamondback once managed as much as $6 billion in assets and counted the Blackstone Group and New Mexico's pension fund among its clients.
But a raid of its office by federal agents and the arrest of Todd Newman, a former portfolio manager who has since been convicted of insider trading, soured the firm's fortunes.
Neither the founders nor the firm were ever charged with any wrongdoing, but the firm's association with SAC Capital, where all three founders had worked, eventually hurt Diamondback as the government's probe picked up speed.
SAC Capital Advisors was charged with securities fraud a few weeks ago. SAC has pleaded not guilty to the charges.
When Diamondback's assets dwindled to $1.45 billion, Schimel and Sapanski decided to close down the firm.
While employment at SAC once provided the kind of marquee pedigree that paved the way to assets, investors have become significantly more cautious in writing big checks and have been seen to be especially nervous about SAC Capital alumni, according to investors and analysts.
Schimel has been making the rounds on Wall Street and beyond to raise money, but despite his long history in the industry, he too is offering some fee cuts. Early investors will pay lower management and performance fees, the letter said.
Pay for key staff will be based on how all funds perform, Schimel added, noting that an alignment of interests fosters better teamwork and collaboration about investment ideas.
But he also said that the time is now ideal to generate "alpha" through thoughtful stock selection.
Schimel will not reunite with his former partners at Sterling Ridge, but some former key staffers will be back including Anthony Bechalany, who will be head trader and Keith Brenner, who will be director of operations. (Reporting by Svea Herbst-Bayliss; editing by Maureen Bavdek, G Crosse)