BBVA to Exit Hedge Funds Due to Poor Market Conditions

Wall Street Journal – Spain’s Banco Bilbao Vizcaya Argentaria SA said Thursday it has decided to pull out of the hedge-fund market, shutting down Proxima Alfa Investments and exiting two other joint ventures.

Spain’s second-biggest bank by assets said the pullout was the result of tough market conditions and in anticipation of potential effects from the financial crisis on the hedge-fund industry. The closure affects around 100 employees, and represents less than 1% of the bank’s €130 billion ($165 billion) in assets under management, said a BBVA executive, whose name the bank declined to release.

The global financial crisis has cooled a once-blossoming romance between banks and hedge funds, with some banks experiencing how being too closely associated with the industry could taint their image. BBVA’s larger rival Banco Santander SA recently took a hit to its reputation from news that its fund-of-hedge-funds manager Optimal Investment Services had an exposure of €2.3 billion to Bernard Madoff’s alleged Ponzi scheme. It has since said it would shut down Optimal.

In addition to Proxima, BBVA is winding down Altitude and exiting BBVA Partners, two smaller alternative-investment managers. Most of the 2,000 or so clients that are invested in the 24 funds affected by the closure are institutional investors, the BBVA official said.

With $930 million in assets under management, Proxima Alfa was BBVA’s biggest bet on hedge funds. The bank invested $1 billion of its own funds when it formed Proxima in 2006 as a $3 billion joint venture with hedge-fund company Vega Asset Management.

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