12/17/2008

Fairfield Peddled Madoff to the Bitter End

Fairfield Greenwich Group, which steered more investor capital to Bernard Madoff's con game than perhaps any other player, was pitching a new Madoff offering as late as Dec. 11, the day of his arrest.

Only about two weeks ago, marketers for Fairfield Greenwich, a New York money manager, told a fund-of-funds operator that investors had already snapped up $300 million of a $500 million offering from Bernard L. Madoff Investment Securities. The pitches described a strategy that could return 14-16% a year - more than the returns from Madoff's typical strategy - but with more risk. Sales people said the opportunity would no longer be available by the end of January.

Also during the week of Dec. 1, another hedge fund professional was pressured by Fairfield Greenwich representatives, who insisted Madoff would punish redeeming investors and those declining to participate in the fresh offering. The marketers said such investors would be shut out of future Madoff opportunities.

A separate fund staffer was offered a chance to invest in a Fairfield Sentry fund - a Fairfield Greenwich vehicle allocated entirely to Madoff - at around 4 p.m. on Dec. 11. Madoff had been arrested that morning.

As the fallout of Madoff's Ponzi scheme spread rapidly across the global investment community, a federal judge this week ordered a liquidation of his asset-management business.

Fairfield Greenwich, established in 1983, is reported to have $7.5 billion of client money tied up with Madoff, which accounts for more than half of the $14 billion that Fairfield says it has under management. The $7.5 billion equals about a quarter of the $30 billion that Bloomberg estimates investors had with Madoff.

Fairfield - led by founders Walter Noel, Jeffrey Tucker and Andres Piedrahita - was having serious problems even before the Madoff scandal erupted last week.

A week before Madoff confessed to his sons that his operation was "one big lie," Fairfield sent a letter to investors notifying them that it was shuttering its multi-billion dollar fund of funds called Irongate Global Strategy Fund.

In the Dec. 2 letter, the firm gave investors the choice of redeeming their shares in Irongate or rolling their interests into Chester Global Strategy Fund, the other multi-billion-dollar fund of funds run by Fairfield. Irongate Global Strategy was down 33.7% through the end of November. Chester Global Strategy was down 34.5% through November. Both vehicles have a multi-strategy focus.

Unlike the firm's Fairfield Sentry vehicle, Irongate and Chester Global Strategy had little exposure to Madoff. Only 1.2% of Chester Global Strategy's assets and 0.6% of Irongate Global Strategy's assets were allocated to Madoff. Fairfield is planning to suspend redemptions in both vehicles as of Dec. 31. Irongate Global Strategy Fund had about $2.4 billion under management at one point this year, while Chester Global Strategy had about $2.6 billion.

Fairfield sent a subsequent letter on Dec. 12, letting investors know that the firm was extending the deadline for electing to transfer their stakes from Irongate Global Strategy to Chester Global Strategy into 2009.

The firm is slated to hold a shareholder meeting on Dec. 18 to amend the terms of both funds so the firm is able to publish the net asset values of the vehicles while redemptions are suspended.

The firm also runs funds of funds named Chester Global Emerging Markets Fund, Chester Horizons Fund and Irongate Absolute Fund, all of which are much smaller than the two main multi-manager vehicles.

Kim Huynh, a director at Fairfield, is responsible for analyzing and evaluating hedge fund managers that hold capital from Chester Global Strategy and Irongate Global Strategy.

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