BBVA is closing its $1bn (€785m) hedge fund business amid tumbling markets and potential lawsuits over the distribution of products linked to US fraud suspect Bernie Madoff. "The straw that broke the camel's back was its involvement in the distribution of structured products linked to hedge funds managed by Bernie Madoff, the US hedge fund broker under investigation for an alleged ponzi-scheme," said a source close to the bank. In common with other such businesses, BBVA's hedge fund division has also faced massive withdrawals, poor performance and a very volatile environment.
The Spanish bank said it will wind down its $930m Próxima Alfa Investments unit and Altitude, a €125m fund of hedge funds managed jointly with Schroeders' New Finance. It is apparently still mulling the future of BBVA Partners, which runs a host of hedge funds. The move comes three years after BBVA launched Próxima as a high-profile joint venture with Vega Asset Management, the Spanish, and once Europe's biggest, hedge fund manager.
Hedge funds made limited headway as new structured products underlyings for Spanish retail investors after a new law was passed in 2007. Progress has been brought to a halt, however, as providers such as UBS, Bankinter, Nmas1, Barclays and Consulnor all abandon alternative investments.
Local media reports suggest BBVA will become a distributor for third party providers of hedge funds, and will focus on traditional investment products, including structured products. As we reported earlier, the distribution of structured products linked to hedge funds has created a €300m loss for the Spanish bank.