Report: N.Y. Pension Scandal Imperils Hedge Fund Mezzacappa

Jun 8 2009 | 1:06am ET

The pay-to-play scandal at a New York State public pension fund is having dire consequences for one fund of hedge funds shop, even though it never used the controversial placement agents at the center of the case.

Mezzacappa Management may be on the verge of shutting down, the New York Post reports. The New York-based firm never used placement agents, founder Damon Mezzacappa said. But the New York State Common Retirement Fund—Mezzacappa’s single biggest investor—has decided to liquidate its entire fund of funds portfolio in the wake of the scandal, costing the firm dearly.

Mezzacappa has already laid off a number of employees, the Post reports, although the founder denies his firm’s existence is in danger.

“We are unfortunately a victim of the scandal,” he told the tabloid.

The New York pension still has $240 million with the firm, down from more than $500 million at the end of 2007, when Mezzacappa’s assets stood at $1.2 billion. But the firm has suffered along with the rest of the industry in recent years, and New York plans to pull its remaining $240 million as soon as possible.

New York Comptroller Thomas DiNapoli last month announced he was firing all funds of funds employed by the Common Retirement Fund. An investigation by New York Attorney General Andrew Cuomo has revealed that some placement agents paid kickbacks to a pair of aides to DiNapoli’s predecessor in exchange for getting business for their clients. Two men have already pleaded guilty to charges stemming from the probe, including an employee of one of the funds, HFV Asset Management.

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