Funds News

Two U.S. pension funds see $52 mln hit from Madoff

BOSTON, Dec 15 (Reuters) - Two U.S. pension funds said losses from the scandal surrounding money manager Bernard Madoff may have reached $52 million, raising questions about whether U.S. retirement savings have adequate safeguards.

A pension fund covering about 800 police, firefighters and other employees in the wealthy Connecticut town of Fairfield had about $40 million managed by Madoff, according to Fairfield’s First Selectman Kenneth Flatto.

“Right now we are assuming the worst case, which is we could have lost up to $40 million out of the approximately $290 million that we felt we had last month,” Flatto told Reuters.

The Town of Fairfield Employees Pension Fund had invested the amount with Maxam Capital Management LLC, a fund-of-hedge- funds that in turn invested it with Madoff, Flatto said. The official said that, despite the loss, the funds assets would be sufficient to meet its liabilities.

U.S. prosecutors and regulators have accused Madoff, 70, a former chairman of the Nasdaq Stock Market, of running the fraud through his investment advisory business. Banks and investment funds around the world lined up on Monday to disclose they dad invested billions of dollars with him.

The $40 billion state pension fund of neighboring Massachusetts faces losses of up to $12 million after it invested the money with Austin Capital Management, a Texas- based fund-of-hedge-fund, which put the money with Madoff, said Michael Travaglini, executive director of the fund.

Mark Williams, a professor at the Boston University School of Management and an expert on risk management, said the pension funds should also share some responsibility for doing the ‘due diligence’ on the investments.

“You are outsourcing the duty, but it doesn’t mean that you relinquish responsibility,” Williams said.

The California State Teachers’ Retirement System told Reuters when contacted they had no exposure to Madoff.

The Massachusetts and Connecticut funds are exploring legal options to recover at least some of their investments, the officials said.

The Massachusetts fund has tasted failure before with its hedge fund investments. It was in both Amaranth Advisors and Sowood Capital when they collapsed.

“We’ve had individual hedge funds that have suffered similar fates and we have not terminated those fund-of-hedge- funds who were holding those hedge funds,” Travaglini said.

“So anyone who’s a hedge fund investor understands that this is one of the risks of investing in hedge funds.”

Flatto, the Fairfield town official, said the Connecticut pension fund is likely to adopt strict diversification regulations after the Madoff episode and cap exposure to a single investment firm at 10 percent. Its exposure to Madoff was about 14 percent when the scandal broke.

“We were always diversified, but we were not diversified enough. That’s one thing we learned,” he added. (Editing by Jason Szep and Andre Grenon)