Some Argus pension holders will see their retirement funds take a hit as a result of the alleged $50 billion fraud in the US that has sent shock waves through the financial world.

Argus revealed last night that its Argus Select Funds' Moderate Fund, used by pension and some investment clients, had a 2.1 percent exposure to funds run by Bernard Madoff, the New York hedge fund manager at the centre of the scandal.

Chief executive officer Gerald Simons said clients who invested in the AFL Portfolios administered by Argus Financial Ltd. had an exposure to Madoff of between 1.3 percent and 1.8 percent. He added that the Aggressive Fund used by some pension clients had no exposure.

Institutions, as well as hedge funds and the super wealthy were among Mr. Madoff's clients. Police arrested the 70-year-old former chairman of the Nasdaq Stock Exchange last Thursday, after prosecutors said he told his sons that his operation was "a giant Ponzi scheme" which had been insolvent for years.

"Argus has looked into the impact of alleged fraud by Bernard L Madoff and has discovered that unfortunately some of our pension and investment clients had a small exposure to Bernard L Madoff Investment Securities LLC through the Momentum AllWeather Institutional Fund, in which both the Argus Select Funds and the AFL Portfolios are invested," Mr. Simons said last night, in response to questions from The Royal Gazette.

"We are continuing to look at the ramifications of the alleged Madoff fraud on both our company and our clients and will keep them abreast of the latest developments."

According to its 2008 annual report, dated March 31, Argus's pension division has more than $600 million in assets under management, of which clients have invested more than $250 million in the Argus Select Funds.

The report said AFL administered close to $1.5 billion of client assets and was "poised for significant growth in future".

Argus was not alone, as financial institutions around the world declared billions in exposure.

HSBC said it has $1 billion at risk after providing financing to funds that invested with Madoff. Whether any of the funds at risk are on the books of HSBC Bank of Bermuda has not been revealed, as the local bank did not elaborate on the head office's statement.

It has also been reported that Bermuda-based Kingate Management Ltd. suffered exposure through its Kingate Global Fund Ltd., a hedge fund with some $2.8 billion in assets. A spokeswoman for Kingate, which is based at 99 Front Street, said the company had no comment on the matter.

US business news television channel CNBC has reported on its website that Mr. Madoff's "comptroller" — effectively the chief financial officer — was based in Bermuda. CNBC on-air editor Charlie Gasparino, who wrote the piece, added no detail about the alleged Bermuda link, but said it was unusual for a hedge fund manager's comptroller not to be in-house.

Butterfield Bank, Capital G Bank and Bermuda Commercial Bank (BCB) all confirmed they had no direct investments with Mr. Madoff's company.

Insurer and pension provider BF&M Ltd. and investment company First Bermuda Securities also said they had no direct exposure.

Horst Finkbeiner, chief operating officer of Bermuda Commercial Bank, said: "We have no exposure to the Madoff funds. We have no exposure to the credit markets, to Lehman Brothers, or AIG either."

BCB specialises in dealing with high net-worth individuals, who are the main clients of hedge funds that might have exposure to Madoff's investments.

"At the moment, I've not heard of any of our clients having any exposure," Mr. Finkbeiner said. "But they would not do that sort of business through us, so we would not know unless they told us.

"Only when we see how many people and different investors have been impacted will we get a better idea of how it will impact Bermuda. Nobody really knows at the moment."

Many hedge fund managers are based in Bermuda and one of the biggest is the Butterfield Fulcrum Group (BFG), which has $100 billion in assets under administration from nearly 1,000 hedge funds, fund of funds (funds which invest in a variety of hedge funds), private equity and institutional investment management clients.

BFG chief executive officer Akshaya Bhargava said he would not comment on whether the Madoff scandal had affected his clients. But he was clearly shocked at the scale of the alleged fraud.

"I'm somewhat mystified as to how something like this could have happened," Mr. Bhargava told The Royal Gazette. "There are processes for fund management which have built-in controls. I think there must have been a breakdown in multiple ways."

Many of Bermuda's insurance companies have investments in hedge funds — often referred to as "alternative investments" — in their portfolios.

Max Capital has had a greater weighting of its investments in hedge funds than most other insurers. Last Friday, Max stated it had "no known exposure to funds managed by Bernard L. Madoff Investment Securities LLC". Yesterday, XL Capital and Flagstone also confirmed they had not invested in any Madoff funds.

Read more on the Madoff scandal on page 21