Unstructured Finance

Outrage isn’t asleep it’s just gone underground

By Matthew Goldstein and Jennifer Ablan

Where is the outrage? A year ago, the Occupy Wall Street movement was just getting started, with mass demonstrations across the nation against corporate malfeasance and greed.

But now it’s been crickets and we don’t mean the game. There’s been no marching on Wall Street nor on the steps of Capitol Hill since the latest revelations of bad behavior in the financial sector. The populist uproar has been rather sedate in the face of the deepening scandal that big banks rigged Libor–a benchmark lending rate; JPMorgan Chase’s mounting losses from disastrous credit bets and a possible cover-up attempt; and the disappearance of customer funds from Iowa futures broker PFGBest, discovered after its founder tried to commit suicide and left a note outlining a 20-year fraud.

But the lack of populist rage doesn’t mean there’s a lack of concern about these and other scandals. We think that’s a misreading of the temperature of the American people. And if Wall Street thinks the average person doesn’t care about the nearly $6 billion trading loss at JPMorgan Chase, or the alleged Libor manipulation scandal , then the street is badly misjudging things.

As documented in “Banks behave badly redux: Is it killing confidence?” earlier this week, the spate of Wall Street horror stories is having a real impact on the markets. Interest by individual investors in stocks is way down and isn’t showing signs of coming back any time soon. Retail investors are showing their disgust by walking away—something we first noted a year ago in our story on The Madness of Wall Street.

In some ways it’s a quiet protest investors are showing and in some ways maybe more damaging than protests in the street. Maybe there is no outrage because investors and the public have come to believe they don’t expect much better behavior from Wall Street. In other words, the new norm is to expect the worst of the street.

Morning Line-Up: 2010 returns, expert networks, ETFs


News and views on the asset management industry from Reuters and elsewhere:

Hedge funds offered weak returns in 2010 – Reuters

Hedge fund scandal shakes expert network industry – International Business Times

ETFs try to outdo money funds – WSJ

Nortel pensioners could gain control of funds – The Star

S.Korea NPS eyes funds for energy, resources – Reuters

Ropes & Gray: In the news again…

Law firm Ropes & Gray has gone from commenting on the Galleon insider trading case to being in the case.

Just last week, Ropes & Gray partner Christopher Conniff talked with the New York Times for an article about the Galleon insider trading case, discussing the statue of limitations for these cases.

Today, nine more people were arrested in the Galleon Group insider-trading scandal, including Arthur Cutillo, a former associate at the tony, Boston-based law firm.

It just gets worse for funds of hedge funds

rtr23yfgFunds of hedge funds are taking a greater share of the pain in the industry’s downturn.

Even as overall outflows from hedge funds slow, redemptions from fund of hedge funds are accelerating. 

Figures this week from Hedge Fund Research showed that while overall hedge fund redemptions fell in Q1 to $104 bln from $152 bln in Q4, fund of hedge fund redemptions actually rose.

Allen Stanford: Tales from Mexia

stanfordTrying to report the comprehensive story of Allen Stanford, the Texan billionaire that the U.S. Securities and Exchange Commission has accused of perpetrating an $8 billion fraud, is like trying to reassemble 100 documents after they’ve been through the shredder.

Stanford’s business and sports interests and the subsequent investigations into them stretch across the ocean, through numerous government agencies and courts and into the lives of people in places big and small.

As usual, there was too much to fit into any one story.

Last week I flew from New York to Houston and drove about three hours north to Mexia, Texas the small town where Stanford grew up. I wrote about Mexia here, and about Stanford’s complicated personal ties — apparently he charmed women as well as investors and has left an angry trail of both, including an estranged wife, several girlfriends and six children with four women.

Staying positive

rtr23yfeThere 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.