The list of clients reported to have invested in Bernard L.
The list of clients reported to have invested in Bernard L. Madoff’s collapsed fund empire has widened to include many leading hedge fund players, including Tremont Group, Man Group, EIM, Fairfield Greenwich, RAB Capital, Bramdean Alternatives, Kingate Management, Pioneer Alternative Investments and Fix Asset Management.
A flood of redemption requests from investors, following the stock market crash precipitated by the fall of Lehman Brothers, finally brought the extent of Madoff’s collapse to light, when he simply ran out of money last week to meet any further redemptions.
Among the hedge fund players, the losses reported to date include Tremont Group Holdings (USD3.3bn), Man Group (USD360m), EIM (USD230m), Fairfield Greenwich (USD7.5bn), RAB Capital (USD10.5m), Bramdean Alternatives (USD19.6m), Kingate Management (USD3.5bn), Pioneer Alternative Investments (more than USD250m), and Fix Asset Management (USD400m).
The banks and insurance companies reported to have exposure to Madoff include Axa (USD135m), Banco Santander (USD3.1bn), BBVA (USD404m), BNP Paribas (USD478.2m), Royal Bank of Scotland (up to USD610m), Société Générale (USD13.7m), Banque Bénédict Hentsch & Cie (USD48m), Dexia (USD106.9m), Fortis (up to USD1.4bn), Natixis (USD614), Nomura (USD302m), UniCredit (USD102.5m) and Union Bancaire Privée (less than USD1.08bn).
The biggest loser is Fairfield Greenwich, which had around USD7.5bn of its total USD14.1bn in assets invested with Madoff. Fairfield Greenwich announced in September that it would merge with Banque Bénédict Hentsch & Cie (which also stands to lose USD48m), but the Swiss private bank has now announced that the merger has been called off.
Tremont Group Holdings, which is owned by insurance company Massachusetts Mutual, had USD3.3bn, more than half its total assets, invested with Bernard Madoff, according to Bloomberg. Tremont’s Rye Investment Management unit had USD3.1bn, virtually all the money the group managed, allocated to Madoff.
Tremont, which manages a total of USD5.8bn, had another USD200m, about 7 per cent of its total assets, invested through its fund of funds group, Tremont Capital Management. Maxam Capital, run by former Tremont founder and chief executive Sandra Manzke, is also reported to have lost money invested with Madoff.
Bramdean Alternatives, the listed fund of alternative funds run by Nicola Horlick’s Bramdean asset management firm, has announced it has two holdings that maintain trading accounts with Bernard L. Madoff Investment Securities, Defender and Rye Select Broad Market XL Portfolio, representing around 9.5 per cent of the listed fund’s net asset value at the end of October.
In a statement, Fortis Bank Nederland said that while it and its subsidiaries had no direct exposure to Bernard L. Madoff Investment Securities, parts of the group do have a risk exposure to funds to which they provided collateralised lending to. If as a result of the alleged fraud the clients cannot meet their obligations, the bank’s losses could amount to between EUR850m and EUR1bn.
Similarly, Royal Bank of Scotland says it had exposure through trading and collateralised lending to funds of hedge funds invested with Bernard L Madoff Investment Securities. If as a result of the alleged fraud the value of the assets of these hedge funds is nil, RBS’s potential loss could each some GBP400m.
Union Bancaire Privée said the exposure of its clients to Bernard L. Madoff Investment Securities represented less than 1 per cent of the bank’s total assets under management and that UBP itself had no investment with Madoff on its own account.
HSBC has confirmed reports that it provided financing to a small number of institutional clients who invested in Madoff funds. The group says that a preliminary assessment suggests that its total potential exposure through these transactions is in the region of USD1bn. HSBC also has custody clients who invested with Madoff but does not expect these dealings to expose the group to risk.
Man Group says that RMF, its predominantly institutional fund of hedge funds business, has around USD360m invested in two funds directly or indirectly sub-advised by Madoff Securities and for which Madoff Securities acts as the broker-dealer executing the investment strategy. The investments represent around 1.5 per cent of RMF’s funds under management at the end of September (although probably a larger proportion now), and 0.5 per cent of funds under management for Man Group as a whole.
Man says the two Madoff-advised funds pursued a market neutral equity option strategy on S&P 100 stocks and index options. The group notes that even if the investments have to be completely written off, the performance of RMF’s flagship Absolute Return Strategies 1 fund would still have been ‘materially ahead’ over the first 11 months of this year.
While banks, other financial institutions and hedge funds assess the extent of the damage on their books – much worse for some than others – the process to unearth the exact extent of Madoff’s collapse has begun, with some reports suggesting that the total might not be as large as the USD50bn first cited last Friday.
Louis Stanton, a US district court judge for the Southern District of New York, has granted the Securities and Exchange Commission’s request for emergency relief for investors, and issued an order freezing assets and appointing a receiver for Madoff and his firm, Lee Richards of Richards Kibbe & Orbe.
