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Hedge funds: There are no winners in the blame game

Archeus Capital’s recent closure suggests that hedge funds should beware of relying on administrators to maintain vital data and should keep their own back-ups.

One has to feel some sympathy for hedge fund administrator Globe Op after Archeus Capital squarely blamed it for redemptions to the tune of $2.3 billion. The founders of Archeus, former Salomon Brothers bond traders Gary Kilberg and Peter Hirsch, wrote to their investors advising of the fund’s closure and blaming the failure of its administrator to maintain accurate records.

Archeus, a multi-strategy fund, had seen assets drop from $3 billion one year ago to less than $700 million. Some sources say Globe Op was late in its net asset value reporting, and administrative problems at Archeus undermined investor confidence. The resulting redemptions triggered the liquidation of assets that ultimately affected the fund’s performance, leading to yet further investor redemptions, say the founders.

It’s unclear exactly what Globe Op did, and whether the blame falls as squarely on the administrator as Archeus implies. It’s certainly hard, though, to find anyone in the industry who blames Globe Op and Globe Op alone for Archeus’s debacle.

Admittedly, Globe Op is paid to provide a quality service, and if it did not do this because of incompetence it could indeed be blamed for administrative failings. However, it might be expected that a $3 billion fund would have been cross-checking with its administrator and keeping its own set of records as a back-up – especially when the industry is under such scrutiny.

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