Report: Massachusetts Regulators Looking into Hedge-Fund 'Hotels'

BOSTON -- Massachusetts regulators have subpoenaed UBS as part of an investigation into investment banks that lease space in Boston to hedge funds, a report published today stated.

The probe focuses on so-called hedge-fund hotels in which investment banks allegedly lease space to hedge funds in the hope of attracting more business, the report explained.

It further explained that Massachusetts Secretary of State William Galvin is trying to determine if hedge funds are hurting their investors by paying higher undisclosed fees to banks in exchange for real estate.

Galvin reportedly called the arrangements between investment banks and hedge funds a conflict of interest issue, similar to "soft-dollar" deals that regulators have been paying attention to in recent years. These are payments that involve money managers compensating brokers in return for research and services.

The published report stressed that the state investigation is at an early stage and may not lead to any specific charges.

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