05/13/2009

Fairfield Taps Sciens to Run Funds of Funds

Fairfield Greenwich, which had more investor capital tied up with Bernard Madoff's Ponzi scheme than any other firm, is turning over the bulk of its fund-of-funds business to Sciens Capital.

While the exact terms of the transaction are unknown, Sciens will initially advise New York-based Fairfield as it restructures four funds of hedge funds whose combined assets under management have fallen to about $2.5 billion, from a peak of $5 billion last year. Assuming investors sign off on the restructuring plan, Sciens would then take over management of the funds, sharing some of the fee revenue with Fairfield.

Because no money is changing hands, the deal isn't being described as a sale. However, Sciens eventually is expected to have complete control over the business and to rename the funds. Fairfield will retain a stake in the business. Together, the four funds of funds invest in about 40 hedge funds.

Fairfield had about half of its $14 billion of assets under management tied up with Madoff when he admitted in December that he was running a massive fraud. Fairfield, founded in 1983 by Walter Noel and Jeffrey Tucker, now faces charges by securities regulators in Massachusetts, as well as investor lawsuits.

The deal with Sciens leaves Fairfield with a fraction of the business it once ran. Sciens will gain control over Fairfield's Chester Global Strategy, Chester Global Emerging Markets, Chester Horizons and Irongate Global funds. Fairfield, meanwhile, will retain a few small funds of funds, some feeder funds and a placement business, which raises investor capital on behalf of other firms. One of Fairfield's feeder funds, called Sentry, funneled some $7 billion of investor equity to Madoff over the years, making it the single-biggest casualty of the fraud scheme.

While they weren't all exposed to Madoff, some of Fairfield's funds of funds incurred significant losses last year as the financial crisis deepened. Investors in Irongate Global and some of Fairfield's other multi-manager vehicles flooded the firm with redemption requests, forcing Fairfield to freeze withdrawals from some of its funds and cut staff.

With help from Sciens, Fairfield will now seek to restructure its four main funds of funds, dividing each into two share classes - one for redeeming investors and one for continuing investors. The firm will present a restructuring plan to investors within a couple of weeks.

Fairfield began shopping its fund-of-funds business in January and received bids from eight firms. It narrowed the list to three finalists before choosing New York-based Sciens, which employs 110 people in offices around the world.

Sciens, largely known for its private equity and venture capital business, has been looking to strengthen its standing among multi-manager operators. Last July, for instance, it bought the fund-of-funds business of London outfit Atlas Capital. The purchase lifted Sciens' assets under management to around $5 billion.

Sciens chief executive John Rigas, who founded the firm in the late 1980s, oversees three funds of funds, as well as investments in private equity, venture capital and structured finance. Prior to Sciens, Rigas specialized in mergers and restructurings at E.F. Hutton.

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