AN extraordinary internal row at Tisbury Capital, one of London’s best-known hedge funds, has resulted in the ousting of one of the company’s founders for alleged improper conduct.

Stephane Carnot was forced out of Mayfair-based Tisbury Capital, which has been a major shareholder in companies including ICI, J Sainsbury, EMI and Alliance Boots, after his co-founder Gerard Griffin reported him to the Financial Services Authority for what was described as “unauthorised” personal trading.

In a letter to investors seen by The Sunday Times, Griffin said: “I wanted to draw to your attention that Stephane Carnot will be leaving Tisbury with immediate effect. I simply wanted to say that we expect the highest standards from each and every one of our people and there can be no exceptions to this principle.”

The letter explained Tisbury had discovered “unauthorised personal account transactions by Mr Carnot” and immediately called in “outside counsel” to conduct a “full inquiry”.

Under market regulations, if a manager wants to trade under his own auspices, he usually applies in writing to a compliance officer to avoid accusations that a personal account is getting preferential attention to a main fund.

Carnot could not be contacted for comment. There is no suggestion that he broke any securities laws. Insiders say the departure was the culmination of a bitter power struggle in which Griffin believed that Carnot’s ownership was disproportionate to his contribution to the fund’s success. It is thought Carnot owns a 15% stake in the business.

When the pair started the fund, the plan was for Carnot to run a credit strategy while Griffin started the event-driven equity fund. But while Griffin has made a name for Tisbury in London through investments in some of the biggest takeover battles, the credit fund struggled to take off.

One source said: “Carnot’s trading hasn’t been great recently and Griffin wanted to restructure the company to reflect that he was the significant breadwinner.

“Carnot’s view was a deal is a deal and wanted to keep his stake. The tension between them was huge.”

Tisbury refused to comment. The investigation centred on Carnot’s personal account, which he ran alongside cash that he managed for the fund, something that is common practice among hedge-fund managers.

According to the letter, Carnot broke an internal rule by not fully informing the firm’s compliance office of his trades.

Griffin’s letter states: “Tisbury partners and employees may not deal in the same types of investments as permitted for the firm’s customers without obtaining the prior written consent of the compliance officer.”

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