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UK investor confidence hit by fraud allegations: Royal Dutch Shell admits $45 million exposure

Times Online
The Times
December 18, 2008

Miles Costello

The $50 billion (£32.3 billion) Bernard Madoff fraud allegations threaten to spark a crisis of confidence in the British fund management industry, according to the chief executive of a leading blue-chip UK investment house.

Alain Grisay, the chief executive of F&C Asset Management, said: “This is a disaster for the reputation of the industry.”

Mr Grisay, whose group manages £93billion of assets on behalf of investors, said there was “no doubt” that the sheer scale of Mr Madoff’s apparently fraudulent activities would undermine the trust of savers on this side of the Atlantic.

He said that the alleged fraud confessed to by the US financier raised big questions over due diligence among investors who had lost money in the scandal, particularly feeder funds and portfolios of hedge fund investors.

Mr Grisay, who said that F&C had no exposure to Mr Madoff or any vehicles related to him, said it was right that regulators at the US Securities and Exchange Commission had taken responsibility for their failures in the affair.

“To the extent that there has been a crisis of confidence in banks, there is absolutely the risk of a growing crisis of confidence in asset managers,” Mr Grisay said. “There will be a lot more people questioning the financial soundness of asset managers as well as their investment performance.”

Up to 100 jobs were put at risk at F&C yesterday as the UK fund manager embarked on a plan to cut costs by about £15 million a year.

Mr Grisay predicted a “serious recession” in the UK and gave warning of grim times ahead for fund managers for at least the next 12 months.

“Frankly, it is simple to see. There will be smaller inflows of assets because people are saving less, their appetite for risk is less, so there is less need for supporting staff,” he said.

His comments came as the fallout from what is thought to be Wall Street’s biggest investment fraud continued to reverberate across Europe. Royal Bank of Scotland, HSBC and RAB Capital have already admitted that they are facing losses after investing in Mr Madoff’s funds.

In France, the AMF, the market regulator, wrote to the country’s investment funds with advice about what to do if they found themselves exposed to the alleged Madoff scheme, suggesting that they suspend or temporarily close funds.

French financial institutions, including BNP Paribas, the country’s biggest bank, are facing losses on their exposure to the alleged fraud.

Fresh details of the human cost of the apparent Ponzi scheme, in which capital from new investors was used to pay interest to existing investors, also began to emerge yesterday. The pension fund operated by the Netherlands branch of Royal Dutch Shell said that it had a $45 million exposure to the alleged fraud. The fund, which manages the retirement savings of thousands of Shell workers, is in deficit.

The biggest individual corporate loser so far is Fairfield Greenwich, the American investment fund, which has admitted exposure of about $7.5 billion.


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