Fairfield Greenwich Group sees Swiss merger collapse after USD7.5bn Madoff loss

Date: Wednesday, December 17, 2008
Author: Fairfield Greenwich Group

US fund of hedge funds manager Fairfield Greenwich Group, facing the possible loss of more than half of its assets through the collapse of Bernard Madoff's investment management business through apparent fraud, has also seen the merger it announced in September with Swiss private bank Banque Bénédict Hentsch collapse.

In a statement, the Geneva-based bank said: 'Following the massive securities fraud by Bernard L. Madoff on the clients of his investment advisory business, the board of directors and management of Banque Bénédict Hentsch have immediately taken all appropriate steps in order to protect the interests of its clients and those of the bank.

'The founding shareholders of the bank have terminated their partnership with the Fairfield Greenwich Group. They have concluded an agreement with the latter whereby they have repurchased the total capital of the bank.

'Thus, the bank regains its complete independence as well as its name, Banque Bénédict Hentsch & Cie. The transaction signed on December 14 is conditional upon approval of the Swiss Federal Banking Commission.'

Banque Bénédict Hentsch also confirmed that the total exposure of its clients to products managed by Bernard Madoff amounted to CHF56m, less than 5 per cent of the total assets under management by the bank, and that its own capital was not at risk. The Swiss bank had around USD2bn in assets under management at the time the merger was announced, while Fairfield Greenwich had USD16bn.

The future of the Connecticut-based alternative asset manager is now in question after its announcement that around USD7.5bn of its total of USD14.1bn in assets under management at the beginning of November was invested in vehicles connected to Bernard L. Madoff Investment Securities.

'We are shocked and appalled by this news,' says Fairfield Greenwich founding partner Jeffrey Tucker. 'We have worked with Madoff for nearly 20 years, investing alongside our clients. We had no indication that we and many other firms and private investors were the victims of such a highly sophisticated, massive fraudulent scheme.'

Tucker says the firm will take 'all necessary steps' to protect its investors from 'what may well be the largest securities fraud in history', although it is not clear what if any assets will be available in restitution to Madoff's investors and creditors.

'It is our intention to aggressively pursue the recovery of all assets related to Bernard L. Madoff Investment Securities,' he says. 'We are also committed to the operation of our continuing funds. We hope to have a better idea of the entire situation as the facts develop.'

Founded in 1983, Fairfield Greenwich Group offers single manager hedge funds, funds of funds, customised portfolios, structured products, real estate/private equity and other investment vehicles. As of September it had more than 125 employees, including 21 who were shareholders