Hedge
Fund Investors Abandon Funds Accused in Mutual Fund Scandals
Mutual fund scandal and hedge funds
New released survey shows that many hedge fund investors are fleeing
from hedge funds charged in the mutual fund trading scandals. Late last
year, New Jersey based hedge fund manager, Canary Capital Partners LLC
agreed to pay $40 million settlement to New York without admitting any
wrongdoing, following market timing and late trading charges by the New
York State Attorney General Eliot Spitzer.
Hedge fund outflow due to mutual fund scandals
According to Hedge Fund Research Company Inc. of Chicago, [HFR] those
funds charged in the illegal trading and market-timing activities saw
a net outflow of US$1.8 billion, from their portfolios in 2003. Such assets
walked out of the door during the fourth quarter when such allegations
surfaced. Those withdrawn assets represent over half of the management
assets of the companies involved in the mutual fund scandals.
Hedge Fund Research of Chicago also said that Investors also pulled out
$3.04 billion from hedge funds charged in market-timing illegal trading
from October through December. Such loss more than offset the $1.25 billion
of new assets, which those funds gained in during the first three quarters
of 2003.
Federal and State investigators also expanded the investigation including
some large hedge funds, and investment professionals. Commenting on the
magnitude of investor asset pull-out, Joshua Rosenberg, the President
of HFR said the degree of the pull-out suggests that hedge fund investors
are concerned as federal and state authorities subject market timing strategies
under a microscopic view, other hedge funds employing such strategy may
find it difficult to operate under such conditions. Rosenberg said, “There's
not a huge tolerance of that kind of risk in the hedge-fund world.”
Total hedge fund assets
Hedge funds tracked by HFR gained an average of 15% in 2003, the average
hedge fund returned about 17% in 2003. The broader hedge funds gained
about $75 billion in 2003, bringing total hedge fund assets to over $750
billion.
Paul Oranika
Editor-in-Chief
HedgeCo.Net
Email: Editor@hedgeco.net
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