Pensions, SEC Eye Fletcher Hedge Fund

Jul 13 2011 | 12:17pm ET

Hedge fund Fletcher Asset Management is under investigation by the Securities and Exchange Commission and three Louisiana pension funds, which have raised questions about the firm's liquidity.

The three pensions plan to look into New York-based Fletcher's records and financial statements after two of them received promissory notes when they sought to redeem about $32 million in March. The pensions, the Municipal Employees' Retirement System of Louisiana, the Firefighters' Retirement System of Louisiana and the New Orleans Firefighters' Retirement System, invested a total of $100 million in Fletcher three years ago. They say the hedge fund has cooperated with its "preliminary assessments."

The SEC probe is separate from the pension investigation, The Wall Street Journal reports. It is unclear what that agency is looking into.

The Federal Bureau of Investigation, the Louisiana inspector general and the Louisiana legislative auditor have been looking into the pension funds' investments, reported the WSJ, citing people familiar with the matter.

The pensions said that auditors have verified that their investment has returned at least 12% per year, as promised by Fletcher and backed up by the holdings of other investors. But they said that the failure to pay redemptions in cash—which Fletcher has said was permissible under the terms of the investment—has them worried.

"The distribution of a promissory note in lieu of immediate cash has raised concerns with each of the systems' respective boards," the pensions said in a joint statement, and "gives rise to questions regarding the liquidity" of Fletcher's FIA Leveraged Fund "and the accuracy of the financial statements."

The notes give Fletcher two years to pay out cash to the pensions and pay a 5% coupon. According to the pensions, Fletcher told them that a "cash distribution would first require an orderly liquidation of assets."

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