Galvin reviewing UBS ties to funds

Massachusetts Secretary of State William F. Galvin has subpoenaed records from investment bank UBS in a probe of its relationship with hedge funds, Galvin's spokesman said late yesterday.

Galvin is reviewing whether close ties between the Swiss bank and hedge fund traders who lease space in a UBS facility in Boston might hurt investors by leading to higher undisclosed fees, said the spokesman, Brian McNiff.

McNiff was confirming details of an investigation by Galvin's office first reported in The New York Times in Tuesday's editions.

The Times reported Galvin is investigating other investment banks with offices in Boston as well, a matter with which McNiff said he was unfamiliar. Galvin did not immediately return messages last night, and UBS spokespeople could not be reached for comment.

According to McNiff and the newspaper, the investigation is focused on whether the hedge funds are paying higher trading fees to the banks to compensate them for the office space, and failing to disclose the expense to investors.

The arrangement could amount to a conflict of interest, Galvin told the Times, comparing it to "soft dollar" payments. These drew criticism when they were commonly paid by mutual funds in the 1990s, because the services often benefit managers more than shareholders who cover their costs.

The paper reported that UBS and other investment banks lease space to young hedge fund traders in various cities, hoping they may become larger clients eventually.

Ross Kerber can be reached at kerber@globe.com.