In Focus

June 19, 2006

ho We Are…?" That's the question Hennessee Group LLC poses on its website, and it is an important question for all investment advisors to answer. However, in the case of Hennessee Group, known recently for investing $70 million of its clients' money in the failed and fraudulent Bayou Management hedge funds, the answer is not so clear.

Hennessee Group used to boast of managing $1.35 billion of assets as "pioneers in hedge fund consulting." But its Bayou Management bet has caused that number to drop by more than 50%, according to a recent issue of Investment News. And while Hennessee Group proclaims that it does not "market money managers", or offer products, because the "investor is our client", that same Investment News article states that, "Industry sources think Hennessee Group's days as a hedge fund consultant for retail or institutional clients may be numbered", because "sources said its practice of accepting fees from hedge funds in exchange for recommending them to clients was a significant conflict of interest and left a bad taste in the mouths of many fund managers."

So, which is the true Hennessee Group? We soon may learn the answer, as two lawsuits have been filed against the firm for its investments in Bayou. One, filed by DePauw University, alleges that Hennessee failed to "exercise the due diligence it touted" when recommending Bayou.

To date, the Bayou bankruptcy trustee has recovered less than 25% of Bayou's assets ($100 million of $450 million). Hennessee Group investors (and other investors who relied on consultants and advisers in connection with investing in Bayou), should consider following the lead of DePauw University.

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James J. Eccleston is a securities attorney, representing customers as well as brokers and brokerage firms nationwide in arbitration, litigation and regulatory matters. He maintains an informative website at www.FinancialCounsel.com. He is an equity partner with Shaheen, Novoselsky, Staat, Filipowski & Eccleston, and can be reached at 312-621-4400.