Funds Hub
Money managers under the microscope
Morning Line-Up: Madoff staff arrested; Hands says PE must lower expectations
News and views on the asset management industry from Reuters and elsewhere:
Private equity must accept lower returns says Hands - Reuters
US SEC to step up supervision of hedge funds - Reuters
Two long-time Madoff employees arrested and charged - Reuters
Threadneedle appoints Yu as Asia-Pacific chairman - HedgeWeek
Japanese hedge fund hires veteran Lipschutz for currency launch - HedgeWeek
GAIM 2009: Paranoid? You should be…
It doesn’t take a genius to work out that the hedge fund industry has changed markedly over the past year — a quick glance at delegate numbers here in Monaco shows that.
But one means that shows quite how drastic the change has been is in the area of risk management — not normally the sexiest topic but now an area of real concern for investors.
Jonathan Feeney of Investcorp Investment Advisors, which allocates money to and conducts due diligence on underlying hedge funds, makes the point.
Madoff Junkies
One of the more striking aspects about the Madoff affair is the large number of people who appear to have been ‘hooked’ on Madoff products.
Money managers were drawn by Madoff’s air of mystique, his stellar reputation as a market timer, the apparently steady returns with rock bottom volatility and the absence of fees, which some collected from clients anyway.
Those wanting more could simply have increased allocations but some chose to create new investment vehicles instead. Behind the banks and asset managers which lost money, some names appear again and again.
Take the circle of managers revolving around Sandra Manzke, founder of Tremont, whose Rye unit lost substantially all of its roughly $3 billion in assets.
BERNARD MADOFF
I really did not get that surprised with the expectation this man had on his judgment day, right in New York City.
He is really worth it. He has the honour to be the most important robber in World´s history.
BM is the proof of how greedy we are !!!… While he returned a 20% return on investment to his customers, nobody asked. Nobody realised it was impossible such a sustained return along so many years.
The markets going down, and I continue receiving from my “advisor” BM a 20% annual profit.
I can imagine the conversations among the rich people spread all over the golf fields along the US:
” Are you losing money ???… Come on Clark, let me tell you the person you must trust within your investments. Call this guy, his name is Bernard Madoff.
But, is he a trustwirthy person ???…- Of course, I have been his customer for 10 years, and he is a money making machine… “”
Even, along the hollywood studios, I can also imagine Steven Spielberg talking to his crew during a film shooting break, teling them how fortunate he was to find Mr Madoff advisory and management services. Steven would have been saying something like this:
” I do not know how he gets it,… he is a really smart investor and he has a good team behind… very professional. He has many customers and a long career in Wall Street. Very respected, very shy, he does not like the spotlight, like Buffet or Soros… He is a great person !!! ” .
This is the world of CAPITALISM. The world that cannot fall because it is intrinsic to the human being condition. ” If I can play golf with Bill Gates, why do I have to keep on living under the poverty doorway ???
I already told in a previous article that today, you do not need a long stock covering your face and robbing a 7-ELEVEN night shop to be a robber … You only need a fancy suit and the promise of a high return on investmets. People will believe you and trust you if during some months you give them their profit money. They will never ask you how you get it.
It is incredible how we forget history.
Almost 20 years ago, Soros already played with HEDGE FUNDS located in TAX HAVENS. In fact, this was the source of his astonishing fortune.
Almost some time ago, we woke up with the ENRON scandal. The audit world crunched, but the only impact was to change the ARTHUR ANDERSEN brand to DELOITTE. The auditors continued being the same !!!
Almost 12 years ago, NICK LEESON, a young trader, bankrupted BARINGS BANK, playing with leveraged instruments in Singapore.
Now, politicians meet again during G-20 last week, and launch the following statement to the world:
” The lack of regulation, as well as, the hedge funds or the bank secrecy have been the main cause of this historic crisis, we are going to fight against them seriously”.
Come on !!!… 20 years ago, we already knew that. Ask Mr SOROS about it.
I do not know if Mr MADOFF will spend the rest of his days in jail. But, for sure, he will write a book, someone will make a biopic movie ( I would like this movie project to be conducted by Steven Spielberg… maybe with the box-office he could regain the money he lost… ) , and obviously, Mr MADOFF case will be studied in Wharton and Harvard.
But, I am also sure, that in the next 15 years, another MADOFF will arise, and nobody will remember the original one.
You will see…
Jose Luis Revilla Escudero
President
WWShares, Inc
The kiwi has landed
City workers may dream of relocating out of London to somewhere a bit more laid back, particularly at rush hour, but one hedge fund manager is going the other way and is swapping the peace, quiet and good weather of New Zealand for the Big Smoke.
Jerry Haworth, founder of Auckland-based hedge fund firm 36 South, is moving to London’s West End in a bid to be closer to clients and to attract more assets.
The driving factor?
Hedge fund investors’ sudden rush to do all the due diligence they can in the wake of the Bernard Madoff fraud.
“I wouldn’t have contemplated coming to London if Madoff hadn’t happened,” Haworth tells me.
“But Madoff came along, and investors are now saying, ‘now we have to come to New Zealand to do due diligence, and we have to come regularly.’”
Unfortunately regular due diligence trips to New Zealand are out for most investors (however nice that would be). So 36 South’s investment management team, which now runs $34 million after the industry’s recent wave of redemptions, despite returns of 55.83 percent from the main Kohinoor options fund over the past year, is moving to London.
Shadow of Madoff
It’s hard enough for fund firms to get investors to put money into markets when stocks are so volatile, but it seems they’re also still having to wrestle with the bad publicity from U.S. financier Bernard Madoff’s giant fraud.
Ashraf Mohamed, portfolio manager and head of Islamic funds at investment firm Stanlib in South Africa, told the London leg of the Reuters Islamic Banking and Finance Summit that investors are still nervous of another Madoff.
“All they are doing right now is saying we want to make sure there isn’t any risk. One comment is ‘let’s make sure we don’t have another Bernie Madoff situation’,” Mohamed said.
However, he doesn’t seem too worried about a repeat of the massive Ponzi scheme.
“My take is that it’s all hit the fan,” he said. “You don’t need to concern yourself with assets being inflated (or) with people trying to deceive you because that’s come and gone.”
Madoff blow for funds of hedge funds
Today’s update by S&P Fund Services on its ratings for seven funds with exposure to Bernard Madoff’s fraud shows just what a blow to the fund of hedge funds industry the scandal has been.
S&P said that five funds of hedge funds that invested in Madoff and whose ratings it placed under review in December when the scandal broke have now been downgraded to “not rated” — Bonhote Alternative Multi-Arbitrage, DGC Pendulum, Dinvest Concentrated Opportunities, Dinvest Total Return and RMF Four Seasons.
A further two — Constantia Composite and Constantia Low Volatility — have withdrawn from the ratings service.
S&P’s judgement was simple: “due diligence fell short of the standard expected of a rated fund”.
Most investors in funds of hedge funds were expecting fund selectors to diversify their holdings and reduce the risk of investing in individual hedge funds, whilst also avoiding the landmines.
Only a minority of such funds invested with Madoff, but the reputational damage to these funds is likely to be huge, whilst many investors are now assessing the industry’s model and deciding if this is how they want to invest in future.
from Global Investing:
Reuters Funds Summit: Madoff, the silent presence
Master-fraudster Bernie Madoff is the invisible guest at an annual fund fest in Luxembourg, the European capital for fund administration.
Even though the former Nasdaq chairman is under arrest thousands of miles away from this discreet financial centre nestled between Belgium, France and Germany, his presence was omnipresent. Fund managers just can't stop mentioning him.
One example: "The hedge fund bubble has popped. The market bubble has popped, and to put a cherry on the top you had the Madoff probe in December," said Ken Kinsley-Quick from hedge fund Thames River Capital.
Other speakers have gone into deep soul-searching, accepting that more transparency and due diligence is needed. But few would openly beat their chest and admit any wrongdoing as they all seemed to agree that if the Securities and Exchange Commission could not catch Madoff's wrong doing over 20 years, no-one could.
"Except for a few whistle blowers no-one had expected anything. I really do not think that custodians did not take their role seriously. But it's not helping the industry," Yves Francis, a partner from Deloitte said.
Even Luxembourg's budget minister, Luc Frieden, got into the act, suggesting that a deal should be made out of court to compensate Madoff investors who had gone through Luxembourg-based investment vehicles.
He clearly wanted Madoff to just go away.
Staying positive
There seems to be an endless wave of bad news hitting the hedge fund industry at the moment — gates and suspensions, record poor performance, the Bernard Madoff scandal and so forth – but there are still one or two reasons to be positive.
According to a survey of institutional investors by alternative assets data group Preqin, conducted in January (and therefore after the alleged Madoff fraud came to light), only 8 percent said they were no longer confident about hedge funds and would reduce investments.
By contrast, 26 percent said they would be increasing their allocations this year.
This appears to be a more positive picture than for high net worth individuals, who, according to some anecdotal evidence, have become more cautious on hedge funds.
Institutions such as pension funds, in contrast, tend to have time horizons running into decades, so a year of bad performance is not necessarily the be all and end all.
They have also seen equities, which constitute a far greater portion of their portfolios, plummet last year, leaving hedge funds, relatively speaking at least, looking quite good.
Having followed wealthy individuals into hedge funds and helped fuel the industry’s massive growth of recent years, they could end up supporting it through the difficult times.
Yes, paying more attention to history would probably have helped in this crisis. But it’s a tough one when it comes to hedge funds – the industry has not been going, on this scale at least, for very long so there is not much history to learn from.
Hope springs eternal – time to plant a hedge?
By Alexander Smith
If redemptions are getting the better of you and you thought your industry was about to disappear, you may be amazed to hear there are still those wanting to start their own hedge funds.
An email from Financial Technologies Forum LLC brings news of a new course in New York next month giving you everything you need to get going.
“How to Launch a Hedge Fund” opens with sessions on “Up-front decisions – an overview of key decisions to be made before starting a hedge fund” and ”legal issues”. If you get through those and make it to the end of the day you’ll finish off with instruction on “compliance issues” and “investor due diligence – why it is done and what to expect from the investor”.
There doesn’t appear to be a session on “dealing with massive redemptions” or “what to do if you invested in Madoff”, but you wouldn’t want to be scared off.
