Select Asset Management has dropped the institutional marketer for its fund-of-hedge-fund manager Gottex Fund Mangement, after alleged fraud in an underlying fund, dismal performance, and a freeze on redemptions made the prospect of investor appetite less likely.

Jonas Daly, an institutional investment specialist hired by Select to exclusively promote the Gottex funds to institutional clients, has been made redundant, as has his sales support colleague, Thomas Jor.

Select chief investment officer Dominick McCormick said that the redundancies were a business decision, and that Select would continue to market the Gottex funds to institutional investors.

But market sources said that investors were unlikely to put money in a “supposedly market neutral fund” that “had lost 18 per cent in October”.

“At these times the fund is supposed to be delivering zero per cent, or even a positive return. With losses in line with the market, it does not appear to be doing what it is supposed to,” the source said.

The poor performance was primarily due to foreign exchange positions that blew out in the wild currency swings of October. The steep depreciation of the Australian dollar forced Gottex to halve its currency hedging level when a credit line it held with a prime broker that financed the position was closed. Since its investments are mostly illiquid, Gottex depended on the credit line to keep its currency hedge in place.

On November 13 Gottex announced it was freezing redemptions indefinitely to stem the flow of investors headed for the exit.

In September, Gottex wrote off 2.5 per cent in performance due to the exposure of its market neutral hedge fund-of-funds to underlying funds with investments in Petters Company, whose chairman and chief executive officer, in addition to several associates, are facing allegations of scheming to defraud investors of at least $US 100 million.

McCormick said the results for the funds had been disappointing, but added that during this period there have been few places for asset managers to hide.

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