大象传媒

Made off with all our money

• Robert Peston
• 19 Dec 08, 11:20 AM

A well-known wealthy entrepreneur told me last night that he'd lost about 1% of his net worth on an investment in Madoff and is setting about getting his money back from every hedge fund that he's invested in.

Nor is this chap untypical. Erstwhile superstars of the hedge-fund industry - who currently have all the glamour of the Bay City Rollers in the post Shang-a-Lang years - are braced for very substantial collateral damage from Madoff's gigantic swindle.

Many of their investors want out.

And the reason is simple. Managers of funds and of funds-of-funds, who placed their clients' money in Madoff, usually claim that they spend a great deal of time and effort looking under the hood of those to whom they entrust cash.

This excerpt from the 2007 prospectus of , the investment company which announced last week that 9.5% of its net assets had been placed with Madoff, is pretty typical: "in-depth due diligence will also be conducted on the fund managers' compliance procedures, risks systems and governance structure."

Hmmm.

Whatever vetting Bramdean and others carried out at Madoff plainly wasn't enough (I should point out here that its only because Bramdean's prospectus is a public document that I've singled it out: its losses, and therefore its grounds for turning flaming pink with embarrassment, are considerably smaller than those of many other money managers).

That these professionals apparently allowed Madoff to get away with it on such a scale for so long has shattered the confidence of many investors in hedge funds and funds-of-funds.

Which is why Madoff's shocking demise has massively increased the risk premium applicable to hedge funds: they'll find it more expensive and more difficult to borrow from banks and to retain the cash of their investors.

The $1.5 trillion hedge-fund industry, which generated half the earnings of the world's biggest investment banks and defined the debt-binge years, is shrinking before our eyes.

And as I've mentioned before, that has a negative impact on all of us.

As hedge funds deleverage, de-risk and reduce their debt-financed investments, there's a substantial knock-on to the ability of all banks to lend, because of the vicious interconnection of falling asset prices - caused by funds dumping their assets - and the availability of credit (see my notes, the New Capitalism and Made off with 拢50m).

Hobbled hedge funds mean weakened banks - which means less credit for us.

• Permalink
• Comments (0)