Tarred by Market-Timing Brush, Hedge Funds Quit the Business

That's made folks in the already secretive hedge fund world as talkative as Harpo Marx, and few are laughing, either.

Several funds have closed their doors, industry sources said, including one manager who sent $500 million back to investors.

Some of this activity may be a hedge against legal entanglements in the future, and some may be the simple desire of market-timing hedge fund managers to lead quiet, wealthy lives.

Robert Reis, whose Houston-area firm DLR Advisers once traded mutual funds and now uses Rydex funds, said investors have withdrawn all but $40 million of the $500 million they managed 18 months ago. It is now considering using stock baskets such as I shares, QQQs and Spiders.

"It's cost us a lot of business," he said of the investigations. "We lost clients because at one time, we traded mutual funds. The only reason we used them was because the execution was cheap."

He said the firm, a registered investment adviser and commodity pool operator, was audited by the SEC in May 2002, and then received a subpoena requesting documents last month.

William Beckers, a Santa Barbara hedge fund manager who runs the SBIC Timer Fund, a fund of hedge funds, said half the 16 managers he invests with withdrawn from his fund, and some have closed their doors. He said one manager returned a total of $500 million to investors within the last 30 days. He says some funds are no longer trading U.S. mutual funds, and that others quit trading in and out of variable annuity funds, which are set up by insurance companies and managed by mutual fund companies.