Monday, December 15, 2008

Their Job

Nice to see someone make the obvious but important point.

The $7.3 billion Fairfield Sentry Fund invested solely with Madoff, taking a cut of 1 percent of assets and 20 percent of gains, which averaged about 11 percent annually in the past 15 years, according to data compiled by Bloomberg. Fairfield Greenwich is one of at least 15 hedge-fund firms and private banks, including Tremont Holdings Group Inc. and Banco Santander SA, that earned similar fees for sending customers’ cash to the 70-year-old money manager.

“It’s mind-boggling that people like Tremont and Fairfield Greenwich had been doing this for so long,” said Brad Alford, who runs Alpha Capital Management LLC in Atlanta, which helps clients choose hedge funds. “It’s the job of these funds of funds to be doing due diligence. That’s why they get paid.”

I've seen some around the internets ask why people would invest in a fund which did little other than invest in another fund and take a cut. The only reason is because you're paying them to do due diligence. Which they weren't because Madoff's investment strategy was the "secret magic box" that no one was allowed to look inside. Nice work!!