Can you imagine a worse morning for a pension fund manager than this past Monday when the FBI raided the same hedge funds that hold a portion of your retirement account?
According to the Boston Globe, Michael Trotsky, the pension board's executive director, wrote to trustees that a portion of its retirement money for state employees was invested with the two hedge funds, Diamondback Capital Management of Stamford and Level Global Investors of Greenwich, that were raided earlier this week. The money found their way inside these funds via funds-of-funds, which are large portfolios that spread investments across a number of managers.
In his letter, Trotsky wrote that "While very few details of the investigation are currently available, our team is working diligently to ensure that we are doing everything we can to avoid a permanent loss of capital.''
So far, Trotsky - a former hedge fund manager himself despite his namesake - is holding tight. In the Boston Globe interview, he said he had no immediate concerns about losing money in the hedge funds. "We're keeping our antennas up,'' he said. "If we ever sniff that this is going south, we're going to protect ourselves."
It will be interesting to see if investors pull their money from these funds while they are under federal investigation. It begs the question, can investors divest without onerous fees? Is there a clause that states that if a fund is under a serious federal or regulatory investigation, clients may get their money back without fees or questions? If so, how long would it take?
Phil Albinus is the former editor-in-chief of Advanced Trading. He has nearly two decades of journalism experience and has been covering financial technology and regulation for nine years. Before joining Advanced Trading, he served as editor of Waters, a monthly trade journal ... View Full Bio