Investor demands fund checks
By James Mackintosh
Published: December 23 2008 23:58 | Last updated: December 23 2008 23:58
The second-biggest investor in hedge funds will demand that some of the largest names in the industry, including Cerberus, Citadel, DE Shaw and SAC Capital, appoint independent administrators or face it pulling its money.
Switzerland’s Union Bancaire Privée, in an internal memo, instructed managers of the $56bn it has allocated to hedge funds to put in immediate redemptions for any fund that does not have independent administrators and custodians, following its heavy losses from the alleged fraud by Bernard Madoff.
EDITOR’S CHOICE
In depth: Madoff scandal - Dec-18Madoff investor warned its clients - Dec-23The move by UBP has the potential to reshape the US industry, where the oldest and largest funds typically do not use third-party administrators, the common practice in Europe. Many specialists in hedge fund fraud say the use of external administrators, who value the funds’ assets and communicate with investors, provides a valuable check on management power.
Christophe Bernard, chief investment officer of UBP, told staff by e-mail: “Senior representatives from UBP will meet with the managers of the . . . . funds to attempt to convince them to move to fully independent administration.
“If accepted by these managers we will consider the situation remedied and rescind redemptions.”
Mr Madoff, according to several investors, insisted on acting as custodian of assets placed with him, and had no external administrator because he ran a brokerage rather than a hedge fund.
UBP, which declined to comment, has some of America’s biggest hedge funds on its list to redeem.
The memo lists funds from ESL Investments, run by Eddie Lampert, chairman of Sears Holdings, the department store group; Renaissance Technologies, run by Jim Simons; Chicago’s Citadel, run by Ken Griffin; DE Shaw, the New York group; SAC Capital, run by Steven Cohen; Millennium International, run by Israel Englander; Cerberus, one of the oldest hedge funds; Dallas-based HBK Capital; and Caxton Associates, run by billionaire Bruce Kovner.
Caxton already uses a third-party administrator for some functions, according to an investor, while DE Shaw is planning to appoint a bank to confirm its valuations.
Several hedge funds on the list contacted by the Financial Times said they had no plans to appoint outside administrators.
Some funds of hedge funds already insist on third-party service providers. Christopher Peel of Blacksquare Capital in London said he would never invest with a fund that did its own administration and valuation.
Copyright The Financial Times Limited 2008
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