A group of hedge fund investors, including over 20 pension funds representing unions in New York State, has received a welcome Christmas present — a court decision that will allow them to eventually recover money they invested in funds operated by Bernard L. Madoff Investment Securities. In 2009, Madoff pleaded guilty to operating what may have been the largest financial fraud in U.S. history, with losses now estimated at around $18 billion and is serving a 150-year sentence. But his victims won’t see their money any time soon, a lawyer representing the plaintiffs told Institutional Investor in a recent interview.

The total sum to be recovered is modest — $206 million — and may have been higher if the plaintiffs had taken the Madoff estate to court. But investors in the two White Plains, N.Y.­–based hedge funds that acted as Madoff feeder funds, Beacon Associates and Andover Associates, decided to negotiate a settlement with the trustee in charge of liquidating Madoff’s firm instead of taking the case through litigation. In addition to individual and family-office clients, investor clients of the two funds included local unions all over New York State representing carpenters, electricians, engineers, plumbers and other working people. “Negotiating gave us certainty that the investors would be made whole and potentially make a profit, and....