Tremont shuts down Rye, talk surfaces about future

BOSTON Wed Jan 28, 2009 10:16pm GMT

BOSTON Jan 28 (Reuters) - Tremont Group Holdings Inc said it shut its Rye Investment Management unit and laid off employees after investing heavily with suspected swindler Bernard Madoff, raising questions about its future.

The Rye unit lost roughly $3 billion, virtually all of its assets to Madoff, who allegedly confessed to his sons last month the firm's investment advisory business was "one big lie" and estimated the losses at $50 billion.

"Tremont has restructured its business to reflect market conditions and the reduced amount of assets under management," Tremont spokesman Montieth Illingworth said on Wednesday.

He declined to say exactly how many people were laid off at the Tremont family of funds, but said the cuts were a "significant reduction." He also did not say how many people worked at the privately held company based in Rye, New York.

The job cuts raised questions about what Massachusetts Mutual Life Insurance Co will do with its Tremont unit, which also faces at least two law suits related to the scandal surrounding Madoff. Madoff had a close business relationship with former Tremont executives Sandra Manzke and Robert Schulman.

A MassMutual official declined to comment.

The company's Tremont Capital Management unit, which has long selected hedge funds for wealthy investors, is still in business. At the end of 2008, it invested $2.7 billion, but industry experts expect the number to be much lower now considering the unit suffered a one-two punch late last year.

Not only was the unit hurt by the firm's strong ties to Madoff, but also when investors turned their backs on hedge funds of funds in general, hedge fund managers and investors said.

Talk has surfaced that MassMutual, whose OppenheimerFunds Inc unit paid $140 million for Tremont in 2001, may want to sell it. But some question whether there would be buyers.

"I suspect they are probably dead in the water," said one hedge fund investor who is familiar with the firm, but is not authorized to speak about it publicly.

"They would have so much trouble raising assets that I suspect their parent will have little choice, but to write down the investment," the person added. (Reporting by Svea Herbst-Bayliss; Editing by Andre Grenon)