Mass. Seeks Info On Banks' Hedge Fund Recruiting Services

Oct 12 2011 | 6:41am ET

A day after its parent company's flagship first reported on the issue, the Boston Globe was able to say that its hometown securities regulator has launched an investigation into banks' provision of head-hunting services to hedge funds.

William Galvin, secretary of the Commonwealth, sent a letter of inquiry to five major banks yesterday, asking them for a list of clients they've offered employment referrals to over the last three years. Galvin was quoted in a Monday article in The New York Times saying that such services are "the type of relationship investors should know about, or simply shouldn’t exist."

Galvin, who has earned a reputation as something of a bête noir for hedge funds in recent years, said he isn't sure where his inquiry will go, if anywhere. He said the letters to Bank of America, Deutsche Bank, Goldman Sachs, Morgan Stanley and UBS were designed both to find out and to put those firms "on notice that these are issues that need to be explored."

Those banks and others on Wall Street have in recent years formalized previously informal recruiting services for hedge funds, hoping that the added service would help attract and retain prime brokerage clients. But Galvin believes the arrangements may violate gift-giving rules and other Massachusetts regulations, and that they may need to be disclosed to a hedge fund's investors.

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