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Funds of Funds May Feel Investor Angst From Spitzer Probe

Institutional Investor, September 14, 2003

Hedge fund of funds firms that have allocations to underlying managers that practice mutual fund market-timing could be feeling some pressure from high-net-worth investors upset at their indirect exposure to the strategy in light of New York State Attorney General Eliot Spitzer's recent crackdown. Industry experts said that many major funds of funds have at least a 5% exposure to mutual fund market-timing because many arbitrage, event-driven or special situation hedge funds employ the strategy for at least a portion of their portfolios. High-net-worth investors comprise about half of the hedge fund of funds investors, they noted.

Investors and their advisors should find out if their investments have exposure to the asset class, said Joe Omansky, a consultant at Sky Fund LLC, which advises family offices, hedge fund firms and software providers. One fund of funds official said he had been contacted by a major brokerage house to confirm in writing that his fund of funds did not have exposure to market-timing strategies, which it doesn't. Officials concurred that most investors would want to eliminate any indirect exposure to the strategy.
Investors and their advisors should find out if their investments have exposure to the asset class, said Joe Omansky, a consultant at Sky Fund LLC, which advises family offices, hedge fund firms and software providers.


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