ZURICH (Reuters) - One of five directors of wealth manager Aurelia charged with mismanagement of client assets said the financial crisis prompted Aurelia to place client assets into Madoff-run funds, L’Agefi reported on Tuesday.
Pascal Cattaneo said Aurelia, reported to have lost up to $800 million in Bernard Madoff’s $65 billion fraud, invested in The Hermes range of funds which offered conservative, balanced or dynamic risk profiles.
This range of funds, which is in no way connected to U.K. based asset manager Hermes, invested in some 150 managers, but increased allocations to Madoff funds as market conditions worsened.
“This was especially true in 2008 when we no longer wanted to hold deposits for fear of a bank failure,” Cattaneo told the French language daily.
“In effect, the allocations we believed safest from a historical perspective and bearing in mind the prevalent market conditions in September and October were the “Madoff areas” of the Hermes range of funds,” he said.
Asked why the funds increased their allocation to Madoff to around 80 percent of assets, removing any diversification benefits, Cattaneo said this was only true for three clients who had chosen their own allocations, overriding Aurelia’s investment policy.
These clients, three sisters, invested via Aurelia in March 2008, with an initial allocation of 40 percent to Madoff on the advice of the husband of one of them, a fund manager (but not a director) at Aurelia.
A further 40 percent was initially held in a money market fund, but when in September the bank holding the assets said it could not guarantee them, the fund manager switched them to Madoff, hence the outsize Madoff allocation, Cattaneo said.
“They were the only clients with such an allocation. It is totally false to say that 80 percent of our clients’ assets were invested in Madoff,” he said.
Cattaneo said Aurelia met Madoff as part of its due diligence process, but that neither Aurelia nor Hermes had placed money directly with Madoff. The Hermes funds were deposited with HSBC, which was also the fund administrator.
Cattaneo dismissed as “totally false” clients’ claims Aurelia took commissions of between 3 and 4 percent for a total of $25 million in 2007, L’Agefi reported.
Fees for the Hermes range totaled 2 percent, and while new investors paid an entry fee of 3 percent, Aurelia clients paid just 1 percent, he said.
Aurelia did not divert assets to Madoff from other funds in order to get higher commissions, Cattaneo said. All funds paid the same commissions and the main objective behind fund selection was safeguarding client assets.
Cattaneo also said his personal portfolio was similar to those of Aurelia clients, implying that he too had lost a portion of his wealth to Madoff’s fraud.