Massachusetts Regulator Probing Hedge Fund Hotels, Reports New York Times

The practice by which prime brokers lease space to hedge fund start-ups has attracted the attention of William F. Galvin, the Massachusetts secretary of state. According to a report in the New York Times, he has sub-poenaed UBS and is looking at other investment banks hosting hedge funds in Boston on grounds they may be capturing prime brokerage business on terms that are not necessarily in the best interests of investors, and failing to disclose the expense to investors. The report says the investigation is at a preliminary stage and may not lead to any specific charges. However, many prime brokers have sought to exit the hedge fund hotel business in recent years anyway.