February 3, 2009 / 9:42 PM / 11 years ago

Mass. fund fires firm that put money with Madoff

BOSTON, Feb 3 (Reuters) - Massachusetts’ state pension fund fired a hedge fund firm on Tuesday that lost millions by putting money with accused financial swindler Bernard Madoff.

Trustees for the state’s $38 billion pension fund voted to pull back $130 million from Austin Capital Management after the firm had lost $12 million of the state’s money to Madoff.

“This is not what we expect from our hedge funds of funds,” said Michael Travaglini, the pension fund’s executive director. “We pay a price to have them conduct due diligence.”

Pension fund staff asked the trustees to fire Austin Capital only four months after the fund had allocated $170 million to the Austin, Texas-based firm. That investment is now worth $130 million.

Austin, which appealed to the Massachusetts fund because it boasted steady returns, funneled the state money into Tremont Group Holding Inc’s Rye Investment Management unit, which then put it with Madoff, Travaglini said.

Austin Capital had invested with Madoff for more than a decade, Travaglini said.

Austin Capital did not immediately return a phone call seeking comment.

The state has been betting on hedge funds since 2004 when its trustees voted to put 5 percent of the pension fund’s assets into alternative strategies. It selected a handful of hedge funds of funds to act as a middleman and help spread the risk.

Austin Capital was a relative newcomer at the state pension fund, having been hired only in August when the trustees also added the Blackstone Group and EIM Group.

The Massachusetts state pension fund is among the many investors that have lost personal and public fortunes to Madoff, who has been accused of having masterminded a $50 billion Ponzi scheme.

Massachusetts top securities regulator also began investigating the matter shortly after Madoff’s arrest in December.

The Massachusetts trustees also voted to fire Ivy Asset Management, which managed $430 million for the fund, and was one of the original hedge fund firms selected in 2004.

The pension fund grew nervous because Ivy had experienced heavy turnover in staff in the last few years, Travaglini said. (Reporting by Svea Herbst-Bayliss, editing by Leslie Gevirtz)

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