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Top hedge funds take battering over Madoff
Robert Lea17.12.08
There was grave embarrassment at London's biggest hedge-fund group as FTSE 100 Man Group insiders admitted the firm effectively breached its own standards to invest in and lose $360 million in the Madoff scandal.
Shockwaves from the $50 billion "Ponzi" fraud by Wall Street investor Bernard L Madoff Investment Securities continued to batter London as St James's-based hedge-fund manager FIM and its $3.5 billion Kingate funds were named as a key Madoff "feeder" investor and another major loser.
Tower Bridge-based Man Group, a titan of the global hedge-fund scene, has admitted its RMF institutional fund-of-funds business invested in two Madoff funds.
Defending itself, Man said: "It appears that a systematic and comprehensive fraud may have been committed, evading a range of structural controls." But insiders admit that investing in funds with such poor oversight and control arrangements breaches the high industry standards Man has signed up to.
Last night, the London-based Hedge Fund Standards Board put out a statement trying to limit the reputational damage to the wider alternative-investment community.
The board's chairman, former Goldman Sachs boss Antonio Borges, said: "The Madoff scandal highlights just how important it is to have independence of process in relation to administration of the fund and the valuation process. It also highlights the need for robust governance practices and oversight via independent boards which will challenge management procedures and behaviour.
"Hedge-fund standards are designed to address exactly these issues, to help prevent such events from happening and to provide investors with necessary transparency." One leading backer of those standards, who last night put his name in support of Borges' comments, is Man Group's managing director, Peter Clarke
The board statement, whose backers also include Michael Hintze of CQS, Paul Marshall of Marshall Wace, Manny Roman of GLG and George Robinson of Sloane Robinson, was taken as a slight to Madoff lossmakers in London such as Nicola Horlick, Arkie Busson and RAB Capital's star stockpicker Philip Richards.
Reader views (2)
Actually Peter your comments are more relevant to the traditional long only funds whose business model is about "funds under management" Hedge funds normally have the partners money alongside the clients and therefore they are bearing the same risks. Far from being the icing on the cake, the share of profits is essential and also is the primary method for attracting new funds.
The amount of leverage hedge funds are operating and the potential to disrupt a market in the event of difficulties are all things regulators should consider.
Peter
- Peter, London
The problem with hedge funds is the clear conflict of interest. The more funds they manage the greater the fees. In addition the managers take no personal risk, unless they invest themselves. So they have no concern about overseeing the quality or the performance of their investments. True they might lose out on the potential 20% share of gains. But this is like icing on the cake. But despite the hefty cost of investing in hedge funds, the potential high returns, often passing through offshore accounts in tax havens, made them irresistible to banks and other funds, eager to make more money regardless of the risks. After all, the banks and funds were gambling with their client's money, not their own. It has all been about collective greed and now it should be pay back time. All those bankers and fund managers who lost millions of their client's money should be held to account and made to refund the losses given the unimaginable damage they have caused to the world's economies bringing misery to millions of people.
- Peterfieldman, paris france
