How A Prostitution Sting Could Take Down The Largest Hedge Fund In Oregon

The arrest of Jim Bisenius, founder of $3 billion hedge fund Common Sense Investment Management, rocked Portland's close-knit finance community.

Among the affluent and proper chattering classes in Portland, Oregon, Jim Bisenius, the 62-year-old founder of the state's largest hedge fund, preferred to keep a low profile, letting his evangelical Christianity and charitable contributions shape his reputation among his peers.

That's why his arrest last week in a prostitution sting shocked the Portland finance world and threw the fate of his 22-year-old firm, Common Sense Investment Management, into uncertainty.

Multiple sources close to Bisenius professionally and personally told BuzzFeed they were floored by his arrest and that Bisenius was the "absolute last person" you'd expect to be implicated in a prostitution sting. These sources said some people in the community were so surprised by the revelation that they consulted public records on Bisenius to confirm that he was indeed involved in the sting.

Outside of his nonprofit, The Master's Plan, and his substantial philanthropic donations to the Christian youth group Young Life, Bisenius kept such a low profile that The Oregonian's initial report on his arrest failed to make the connection to Common Sense.

Bisenius' Arrest Could Spell Trouble for Common Sense

Even before Bisenius' arrest, it was a poorly kept secret of the Portland finance community that his once high-flying hedge fund was in trouble.

Common Sense experienced huge financial growth beginning around 2000, with assets peaking between $4 billion and $5 billion, according to sources familiar with the hedge fund's books. But performance waned in recent years and assets dwindled to just under $3 billion, made up of mostly foundation and endowment money and that of high-net-worth families. (Common Sense did count some midsize public and corporate pensions among its clients.)

The firm got hit hard last winter after partners and portfolio managers Scott Kelly and Jonathan McGowan left abruptly, eventually starting their own fund, 801 West Capital. The departures, coupled with the fund's weak returns, resulted in a handful of client redemptions — basically, investors asking for their money back.

Despite the downward spiral, one of Common Sense's largest investors — Portland-based institutional consultancy Arnerich Massena — stuck with the fund. Sources attributed the loyalty to the fact that the consultancy's CEO, Tony Arnerich, worked together closely with Bisenius earlier in his career.

But Bisenius' arrest seems to have been too much to take. BuzzFeed exclusively obtained a memo sent by Arnerich Massena to its clients (image below) advising a full redemption of assets invested with Common Sense.

"At this time, we also believe the prudent course of action is to provide notice to CSIM for a potential full redemption of CSLB at year end," the letter said. "While our continuous due diligence of CSIM has never given us reason to question the firm's integrity or their safekeeping of our clients' assets, Mr. Bisenius' arrest raises serious concerns in spite of the fact that everyone is innocent until proven guilty under the American legal system. As such, we will continue to monitor the situation closely and will provide updates on any changes at CSIM and to our recommendation as we learn more."

Representatives for both Common Sense and Arnerich Massena did not return phone calls seeking comment. Common Sense did say last week that it would stand by Bisenius in spite of his legal troubles.

In addition, public pension clients The Fresno County Employees' Retirement Association and the Cincinnati Retirement System both also fired Common Sense this week.

Reputation Tarnished

Still, even with those redemptions, Common Sense has hundreds of millions, if not billions, of dollars under management. A consulting source familiar with the fund's investments and history said its only hope may be to shrink down to a much smaller entity to survive — and even that might not work.

Some are worried, perhaps ironically, that the fund's struggle to stay viable will be such a distraction that turning around its performance will suffocate under its weight. Closure would be a major blow not only to the roughly 60 employees of Common Sense and Bisenius' foundation, which shares an office and is closely tied to the fund, but also to the handful of smaller managers of which Common Sense, as a fund of hedge funds, is a client.

Small wonder, then, that in the eyes of Portland's rattled finance community, Bisenius' reputation will never be the same.

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