NEW YORK (Bloomberg) — Two hedge funds run by Bermuda-based Kingate that invested all $3.5 billion of their assets with Bernard Madoff told investors it was too early to sue in an effort to recover money lost in what may be a $50 billion Ponzi scheme.

"We can certainly commence a lawsuit on behalf of the funds but we caution against that at this early stage because not only is that a costly step but it puts the Kingate Funds and potentially all of the investors' identities in the limelight," the funds said today in a letter. "We lose nothing by waiting and we gain the ability to watch as facts unfold," according to the letter, a copy of which was obtained by Bloomberg News.

Kingate Global Fund Ltd. had $2.7 billion in assets as of November, while Kingate Euro Fund Ltd. had 616 million euros ($842 million), according to reports to investors. At least a dozen funds of hedge funds have said they lost money in the alleged Madoff scam. New York-based Fairfield Greenwich Group ran the biggest feeder fund into Madoff through its $7.3 billion Fairfield Sentry Fund, which is run out of Bermuda.

Madoff, 70, was arrested in New York last month after confessing to employees that his investment company was "a giant Ponzi scheme", in which early investors were paid with money from subsequent participants, according to the FBI.

The financier faces as much as 20 years in prison and a $5 million fine if convicted.

FIM Advisers LLP, a London-based investment firm run by Carlo Grosso and Federico Ceretti, is a consultant to Kingate Management Ltd., which manages the funds.

Messages left at FIM's offices in London and New York weren't immediately returned.