Over on Clusterstock, Henry Blodget picks apart Fairfield Greenwich Group’s self-aggrandizing claims abouts its due-diligence process. Fairfield Greenwich is the leader in the clubhouse of the Bernie Madoff Invitational Golf Tournament and Ponzi Scheme, with $7.5 billion in reported losses.
Fairfield Greenwich is a fund-of-funds that purports to earn its “one and 10″ (it takes annual fees of 1% of assets and 10% of gains – half that of the actual primary funds) by its superior ability to investigate and pick managers to invest in. Despite being “introduced to several hundred managers in the course of a year,” Fairfield Greenwich went through its rigorous process and decided to put half its assets under management with Madoff.
Think about that the next time you’re doing or reviewing due diligence. You can’t just check the “Former NASD Director” box and think it’s all going to work out OK.
More after the jump.
Blodgett also turns up two articles, one from the May 2001 issue of MAR/Hedge and another from Barron’s later that year, in which a number of skeptics called Bullshit on Madoff’s strategy and results. Among other headscratchers, Blodgett’s lack of volatility was off the charts, his strategy was inarticulable, and there were already a host of complaints to the SEC and other regulators.
So how is it that a few reporters go out and talk to market makers, brokers, traders and investors and realize something stinks, but Fairfield Greenwich thinks everything is hunky dory?
According to the fund itself:
FGG’s due diligence process is deeper and broader than a typical Fund of Funds, resembling that of an asset management company acquiring another asset manager, rather than a passive investor entering a disposable investment.
I guess we’re supposed to believe that the hierarchy of investment investigation (from least inquiry to most) is:
- my wife;
- passive investors;
- asset managers;
- Fairfield Greenwich;
- financial journalists.
That might make sense. If the journalists are wrong, they suffer a hit to their reputation and maybe lose their jobs. Fairfield Greenwich just loses other people’s money and misses out on some carry.
Related posts:
