The Highflying Hedge Fund With a Habit of Giving Investors IOUs
Despite decent performance, Armistice Capital plans to give clients shares in new investment vehicle in lieu of cash—again
- Hedge fund Armistice Capital recovered from a midyear loss exceeding 30% to achieve a nearly 12% gain by the end of November.
- For the fourth time in two years, Armistice will likely return client redemptions partially as IOUs.
- Illiquid assets appear to be the source of the firm‘s issues.
Hedge fund Armistice Capital pulled off a remarkable rebound in 2025, turning a midyear loss of more than 30% into a double-digit gain in a few months.
Armistice’s clients aren’t exactly popping champagne, though.
For the fourth time in two years, Armistice told investors who want to cash out that much of their money would likely be returned in the form of what are essentially IOUs, people familiar with the matter said.
Few hedge funds have had as turbulent a ride as Armistice over the past few years. A fondness for owning thinly traded investments in volatile companies contributed to swings in performance and its struggles to cash out clients for the full amounts they are due.
The firm began this year by forcing clients into a holding pen that prevented them from redeeming any money until 2026 and limiting withdrawals thereafter. Several senior executives departed Armistice with little explanation given to investors, the people said. The firm has disclosed few details about the illiquid assets that appear to be the source of its issues, according to the people and investor documents reviewed by The Wall Street Journal.
Armistice declined to comment.
Steven Boyd, a former McKinsey consultant and hedge-fund analyst, launched Armistice in 2012. Its annualized return over the following dozen years topped 24%, with only one down year. It began 2025 with $2.1 billion under management that it amplified with borrowed money to trade mostly biotech and consumer stocks.
By June, it looked as though Armistice was headed for its second down year after it lost hundreds of millions of dollars over a five-month stretch. The firm blamed policy disruption of the Trump administration—from potential tariffs on drugs to layoffs at the Food and Drug Administration and budget cuts at the National Institutes of Health—for creating a “buying strike.”
The market punished three drugmakers in its portfolio—Travere Therapeutics, Cytokinetics and Biohaven—after they announced the FDA would take longer than expected to act on treatments seeking its approval. Armistice’s healthcare positions subtracted about 14% from the fund’s returns in the first half of 2025, according to a Sept. 4 letter to investors. Its consumer positions subtracted another 8% or so. Assets under management shrank to $1.4 billion.
“I want to acknowledge, candidly and unequivocally, how disappointed I am in our recent performance,” Boyd wrote in the letter.
As performance deteriorated, top consumer portfolio manager VJ Cerniglia took a job at Point72. Armistice also parted ways with its chief operating officer, its top trader, its head of marketing and investor relations and its head of data.
Things started to turn around in July. A pickup in merger activity and positive readouts from clinical trials helped spark rallies in beaten-down biotech companies. Shares in PTC Therapeutics, Armistice’s largest disclosed holding, traded as low as $36 earlier in the year; they reached $86 in late November.
“We believe we are now at an inflection point that allows us to capitalize on dislocations and inefficiencies,” Boyd continued in the letter.
By the end of November, Armistice was up nearly 12% for the year, according to people familiar with the matter.
What wasn’t clear to investors was how much of Armistice’s profit came from good stock picking and how much came from largely discretionary markups on illiquid investments. Armistice owned a large portfolio of warrants, or the right to buy shares in the future at a set price, in volatile biotech companies. Such assets are difficult to value and difficult to unload in times of stress.
At the end of 2024, Armistice’s book of warrants and similar investments stood at $1.1 billion, or about 54% of its net assets, according to the firm’s audited financial statements sent to investors and viewed by the Journal. A private-equity position accounted for another 7% of the fund’s net assets.
Armistice’s cost basis, or what it paid to acquire assets, for the warrants and privately held stock were $36 million and $18 million, respectively, suggesting significant markups over time.
The size of the illiquid portfolio was one reason Armistice ran into trouble last year. Armistice repeatedly couldn’t sell enough assets to raise cash needed to pay those who wanted out without adversely affecting those who would remain. Investors who requested redemptions in late 2024 received about two-thirds of their money in the form of shares in a liquidating investment vehicle known as a side pocket.
Armistice hasn’t told exiting investors how much money will be returned in side pockets next year or how long it would take to liquidate them. Boyd thinks some clients might change their mind and opt not to redeem after all, a person familiar with his thinking said.
Most of the underlying assets in a side pocket Armistice previously placed investors in were warrants, according to a midyear transparency report. Of those, about 87% were out-of-the-money, meaning the related stocks were trading below the warrant’s strike price.