Institutional investors likely will not be hard hit by the Ponzi scheme Bernard L. Madoff allegedly perpetrated in hedge fund strategies managed by his eponymous firm.
Sources with knowledge of Bernard L. Madoff Investment Securities LLC said most of the money management clients were wealthy individuals who invested directly in his hedge funds and hedge fund of funds companies that catered to high-net-worth investors, particularly from Europe.
Fairfield Greenwich Group, a hedge fund-of-funds company, invested in Mr. Madoff’s funds. Other U.S.-based hedge fund-of-funds companies reportedly investing in Mr. Madoff’s funds included Tremont Capital Management and Maxam Capital Management.
According to data provided by the firms to Pensions & Investments, Fairfield Greenwich Group managed $6.3 billion in hedge fund of funds, 78% of which was managed for institutional investors, as of June 30. Of that total, only 7% was managed for U.S. institutional investors. Tremont Capital Management ran $4.3 billion as of June 30, of which 78% was managed for institutional investors, 35% of which were U.S. institutions. Information about Maxam Capital Management’s client base was not available. The firm manages $1.4 billion for 21 clients, according to its ADV filing, which is not dated.
Officials from the three firms did not return calls, and it cannot be determined how much of their assets were invested in Madoff Investment Securities and what portion of those came from institutional investors.
Fairfield Greenwich Group issued the following statement on its website: “Fairfield Greenwich Group learned today that Bernard L. Madoff has been arrested and charged with criminal and civil violations of the federal securities laws. Like numerous other money managers and investors, certain funds managed by Fairfield Greenwich Group have accounts with Bernard L. Madoff Investment Securities LLC. Needless to say, this is a shocking development and we are working with counsel to assess the situation and take all steps necessary and appropriate to protect our investors and the firm.”
Mr. Madoff was arrested Thursday in New York and charged with securities fraud by the SEC. He was released on bail. According to the SEC’s complaint, filed late Thursday in U.S. District Court in New York, Mr. Madoff defrauded clients in hedge funds he managed. Madoff Investment Securities managed $17.1 billion for 23 clients, according to the firm’s ADV Investment Advisor Disclosure form, filed with the SEC.
Mr. Madoff’s attorney, Daniel J. Horwitz, a partner at Dickstein Shapiro in New York, did not return a call seeking comment.