AN IRISH-DOMICILED unit of fund management giant Pioneer is facing legal action in the US over its $1.08 billion (€734.5 million) exposure to funds operated by convicted fraudster Bernard Madoff.
Pioneer Alternative Investment Management, whose registered office is at George’s Quay in Dublin, was manager of and adviser to a number of Austrian hedge funds which made indirect investments in accounts managed by Bernard L Madoff Investment Securities in the US.
The funds in question were the Primeo Select Fund and the Primeo Executive Fund and the AllWeather funds, which was formerly the Momentum funds.
The value of their $1.08 billion investments with Madoff was written down to zero after his Ponzi scheme, which continued for decades, was exposed late last year. Madoff received a 150-year prison sentence in June after pleading guilty to 11 counts of fraud. Prosecutors claimed $170 billion flowed through the main Madoff account over the years.
“The company is named, along with other persons, as a defendant to certain allegations by investors in the affected funds,” says a note in accounts for Pioneer Alternative Investment Management.
“At this point in time it is not possible to estimate the extent of any potential liabilities that might arise in connection with these events.”
The accounts say the company’s pretax profit fell last year to €20.35 million from €48.79 million in 2007, mainly due to the downturn in global financial markets and its impact on the hedge fund industry.
Assets under management fell to €3.5 billion from €6.3 billion, partly due to the Primeo write-downs in light of its exposure to Madoff.
The company’s final dividend to its parent – Italian banking group UniCredit – declined to €23.8 million last year from €44.37 million in the prior period.
Pioneer’s main operation in Dublin, Pioneer Investment Management, disclosed in separately filed accounts that its branch office in Singapore was exposed to the Madoff fraud through hedge funds in Bermuda and the Cayman Islands for which the branch carried out marketing and promotional services.
The accounts for Pioneer Investment Management say it is not possible to anticipate the extent or nature of any legal actions which may be initiated against it arising from these matters. However, sources close to this unit said its exposure “if any” was “absolutely negligible”.
Pioneer Investment Management saw its pretax profit fall last year to €201.4 million from €282.32 million, and revenues dropped 23 per cent to €294.8 million. The unit’s final dividend to UniCredit dropped to €141.94 million from €182.82 million.
The accounts say that the decline in revenues was primarily due to a 24 per cent drop in investment management fees, which fell to €279.6 million, reflecting lower average assets under management.
Although assets under management were not quantified, the accounts say the decline was driven by asset flows, investment performance and lower “basis points” earned and the migration of assets to products with lower management fees.
This migration was driven by structural change in the regulatory environment, market-driven pricing pressure and a general trend towards lower-risk products.
