Investors in Portus Alternative Asset Management Inc. will recover just 86% of their money according to a preliminary report from the hedge fund firm’s bankruptcy trustee.

Portus bankruptcy trustee, KPMG Inc., has estimated Portus’ assets at $678.5 million, compared to investor claims of $790.8 million, a report released yesterday said.

The report comes ahead of the first meeting of Portus creditors, slated for this Wednesday, at the Ricoh Coliseum, in Toronto.

“The trustee’s preliminary estimate of realization on investor’s claims before additional costs of realization and additional recoveries is 85.8%,” said the report.

“In view of the uncertainties surrounding an entity in bankruptcy, the ultimate financial position of the estate and the ultimate realizations will undoubtedly differ from the information provided in this report.”

More than 26,000 investors purchased Portus investment products which promised strong returns.

But the company, founded by Boaz Manor and Michael Mendelson, spiralled into receivership and eventually bankruptcy, amid regulatory investigations launched last year.

KPMG cites two principal factors contributing to the bankruptcy of Portus in the report; “misappropriation of investors’ funds that were used to finance the operations of the Portus group; and misappropriation of investor funds that were used for personal use of the principals and related parties.”

The RCMP is investigating and the Ontario Securities Commission has laid charges in the Ontario Court of Justice against both Manor and Mendelson.

In the report, KPMG said it has identified $687.9 million in Portus assets, before costs associated with recovery. Among those costs are $13.3 million in professional fees and expenses related to the receivership and bankruptcy of Portus incurred by KPMG and investigators up until the end of March. KPMG said the total of additional costs of the receivership and bankruptcy are “unknown.”

The majority of Portus assets are tied up in investment notes issued by Societé General Canada. The notes were purchased by Portus for $529.3 million. Upon maturity, the notes are expected to be worth approximately $611 million. However, some of the notes do not mature until 2011, while the earliest maturity date for some of the notes is 2008.