Mackenzie hedge fund victim of Madoff

Date: Friday, January 9, 2009
Author: Shirley Won, GlobeAdvisor.com

Canadian investors in Mackenzie Financial Corp.'s only hedge fund have become victims of Bernard Madoff's alleged giant Ponzi scheme.

Mackenzie Alternative Strategies - a fund of hedge funds run by U.S. based Tremont Capital Management Corp. - had about 20 per cent of its assets invested with Mr. Madoff's New York investment firm.

Mackenzie has suspended redemptions, and started winding down the $19-million fund after it shed 47 per cent in December. The fund lost 59 per cent in 2008.

"I'm mad as hell," said James Mumby, a 75-year-old Oakville, Ont.-investor who found out this week about the investment in Mr. Madoff's firm. "I'm hoping Mackenzie will sue [for lack of due diligence]."

Mr. Mumby said his adviser is asking Toronto-based Mackenzie, a unit of IGM Financial Inc., to cover losses by clients as result of the exposure to alleged falsified returns by Mr. Madoff.

David Feather, president of Mackenzie's fund unit, said his firm became aware of the indirect exposure to Mr. Madoff's firm when notified last month by Tremont.

Mr. Madoff, 70, was arrested Dec. 11 on securities fraud charges alleging he duped investors out of as much as $50-billion (U.S.). The former Nasdaq chairman is under house arrest in Manhattan and his assets have been frozen.

Cash will be distributed to investors in the Mackenzie hedge fund following an "orderly liquidation" of securities, Mr. Feather said yesterday.

The investment in Mr. Madoff's firm has been written down to zero, he indicated.

Asked whether Mackenzie would consider suing Tremont or its parent firm, he would only say that it would "assess all options available," but was not specific.

Besides hedge funds, thousands of investors who lost money in the scheme include Hollywood celebrities, international banks and charities.

The Mackenzie multistrategy hedge fund, which was launched in 2001, has an average annual loss of 13 per cent for the five years ended Dec. 31. The fund had $177-million (Canadian) at its peak in 2004.

This Mackenzie investment product is the latest among domestic hedge funds sold in Canada to suffer woes.

Arrow Elmwood Fund shut down recently, while Epic Ltd. Partnership, Epic Trust and Arrow Epic Capital are in the process of winding down. Lawrence Partners Fund has suspended redemptions and will restructure or wind down. The Sextant Strategic Opportunities Hedge Fund has suspended redemptions while its managers are under investigation by the OSC.