Hedge fund titans who bet big on India now say they were scammed

The $1.5 billion India wager that went horribly wrong for some of the world’s biggest hedge funds began with a tantalizing offer. It was a rare chance to invest in prime real estate in one of the fastest-growing economies on Earth. The private equity style venture -- steered by a politically connected Indian businessman, a former Goldman Sachs Group Inc. partner, and a one-time principal at Michael Dell’s investment firm -- promised to deliver outsized returns with a unique combination of local expertise and world-class corporate governance. Masters of the Universe piled in: Dinakar Singh’s Axon Capital, Chris Hohn’s Children’s Investment Fund Foundation and Ken Griffin’s Citadel LLC joined dozens more. Ireo, as the venture was called, quickly became one of the biggest players in Indian real estate. More than a decade on, it’s hard to imagine how things could have gone worse. Not only has India’s property market fizzled, but Axon and CIFF now say they are victims of a massive fraud orchestrated by Ireo co-founder Lalit Goyal -- allegations that Goyal and Ireo have denied. The remarkable turn of events -- details of which have been pieced together from court records, police complaints and interviews with more than two dozen people involved -- illustrates how even the most sophisticated investors can get burned in opaque corners of emerging markets. As the feud between Ireo and its investors wends through India’s labyrinthine legal system and plays out in the press, it also threatens to undermine Prime Minister Narendra Modi’s efforts to attract much-needed foreign capital. The stakes are particularly high for Singh, who plowed more than $200 million into Ireo funds and has seen his star fade in recent years after a series of wrong-way bets and client withdrawals. The hedge fund manager is leading an effort by Ireo clients to oust Goyal through a U.S. arbitration process and has filed criminal complaints in India, telling more than 70 fellow investors at a gathering at the Westin New York Grand Central Hotel last month that, “If we do nothing, we will largely bleed dry.”