More than 200 U.S. hedge funds close

Date: Wednesday, March 18, 2009
Author: Advisor.ca

Between the bear market run on the stock market and the Bernard Madoff Ponzi scheme scandal, the American hedge fund industry has come under heavy pressure. While politicians clamour for more regulation of the industry, the funds themselves are blowing up.

Last year, more than 200 hedge funds or fund families either began to liquidate their assets or simply shut their doors, according to a report in Absolute Return magazine. These funds accounted for $84 billion in assets. In 2007, just 48 funds shut down, with assets of $18.7 billion.

The number of fund closures could have been even higher, had several funds not suspended redemptions.

The Madoff scandal played a major role in the closures, with feeder funds to his Ponzi scheme shutting down. These funds accounted for $16 billion in assets.

The largest fund to shut its doors, Fairfield Greenwich Group's Fairfield Sentry Fund, managed about $6.9 billion, and was a Madoff feeder.

Two other Madoff feeder funds, Tremont Group Holdings' $3.1 billion Rye Investment Management and Kingate Management's $2.7 billion Kingate Global Fund, were the ninth- and tenth-largest funds to close.

But the Madoff affair wasn't the only alleged impropriety to claim a fund. The $4 billion Zwirn Special Opportunities fund was closed after an SEC investigation into accounting irregularities.

Not all of the fund closures were due to scandal, however. Citigroup shut down its Old Lane Partners after appointing two of the fund's founders. Fund chief Vikram Pandit was named CEO of the entire bank, while co-founder John Havens was named head of investment banking.