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Abstract: 

Financial institutions that act in a fiduciary capacity face increasing challenges in connection with the administration of complex financial instruments and structures in fiduciary accounts. Recent experience with auction rate securities in fiduciary accounts is a sobering reminder of the risks associated with the management of such investments. Hedge fund products are another example of increased complexity in fiduciary account administration, as over the past 30 years the hedge fund industry has grown to an estimated 8,000 funds with approximately $2 trillion in assets and many fiduciaries have expanded their asset allocations to hedge funds. This article discusses the recent experience with auction rate securities in fiduciary accounts as a type or example of considerations germane to investment in any complex financial instrument, product or structure in a fiduciary account.

Keywords: Auction Rate Securities

Affiliations:  1: Chapman and Cutler LLP.