NEW YORK'S AMAZIN' METS CAN'T CATCH A BREAK. First, they
choke away two division titles late in the season, then the sponsor
of their new ballpark, Citigroup, is forced to write down tens of
billions of dollars of bad paper, making its $20 million-a-year
sponsorship of Citi Field seem like a ridiculous extravagance. Now,
it turns out, the team's principal owner, Fred Wilpon, is among the
victims of Bernie Madoff's apparent investment scam.
Equities, a real-estate investment firm founded by Wilpon and Mets'
team president Saul Katz, on Friday confirmed that it had invested
with Bernard L. Madoff Investment Securities. The day before,
Madoff, a former Nasdaq chairman, was arrested and charged with
running a Ponzi scheme that clipped many wealthy investors in
what's estimated to be a $50 billion fraud. He reportedly has
admitted the fraud.
our various investments, we have accounts managed by Madoff
Securities," Sterling said in a statement. "We are
shocked by recent events and, like all investors, will continue to
monitor the situation." Also affected is the Wilpon Family
REVERBERATIONS FROM MADOFF'S scheme go far beyond the Mets.
Doug Kass, of Seabreeze Partners, wrote Friday that the mess is "a
major blow in a market that is already fragile and in which
confidence has been materially shattered." A major issue:
Where was the due diligence? Another problem: Index funds tied to
Madoff's performance will have to be reworked, causing further
uncertainty to investors, whether they were in a Madoff fund or
SEC and, later, my former Barron's colleague Erin Arvedlund
challenged Madoff's operation. In 1991, the SEC charged two Florida
accountants with raising $440 million in unregistered investment
pools run by an unnamed broker who ultimately turned out to be
Madoff. The funds were shut down. In 2001, Erin raised questions
about Madoff possibly front-running trades, which means putting the
broker's interest ahead of his customers'. He denied the
consultants expect redemptions from hedge funds generally to
accelerate as a result of this nasty incident. Three feeder funds
have been instrumental in keeping money flowing to Madoff in recent
years. The three oversee about $15 billion in money invested with
him. Fairfield Greenwich Group funds run $7.3 billion of that,
Kingate Global has $2.8 billion, and the Tremont funds, known as
Rye Select Broad Market, handled $4.5 billion. The latter was
formerly known as the Tremont Broad Market Fund.
funds tend to have a long reach in the opaque, global world of
hedge funds. In September, Fairfield Greenwich joined with Banque
Benedict Hentsch, a Geneva-based private bank, to sell Madoff's
investment funds in Europe.
funds that either sold Madoff vehicles under another name or used
Madoff as part of a multi-strategy product presumably will have to
revalue their investments downward considerably.
Madoff feeder funds are components of the market-neutral categories
of the Credit Suisse Tremont Hedge Fund index. It's likely that
results from the index, and a financial index product that tracks
it, could have been overstated for years based on Madoff's
consistent double-digit returns.
Fairfield Greenwich Website offered this statement Friday by its
founding partner, Jeffrey Tucker. "We had no indication that
we and many other firms and private investors were the victims of
such a highly sophisticated, massive fraudulent scheme." The
alleged scheme fell apart when Madoff failed to meet a reported $7
billion in redemptions.
hedge-fund participants didn't view Madoff's operation as
particularly sophisticated. A fund-of-fund operator who evaluated
the Madoff operation and decided against investing with him in 1990
says he saw potential conflicts. First, this source noted, Madoff
was unwilling to manage assets over which he didn't have
custodianship, which is akin to investing and providing your own
return information, an arrangement that raises immediate conflicts.
This source says that Madoff also wanted to clear his own trades,
giving him an unusual amount of control.
Madoff claimed strong, steady returns averaging 12%, from
inception. In 1998, when hedge fund Long Term Capital Management
failed amid the Russian ruble crisis, one Madoff-managed fund
generated a nearly 13% return. Most funds were down that year.
now will shift to due diligence in the hedge-fund world. "This
is going to bring a huge differentiation between those fund of
funds who have done their jobs and those who have been mere
marketing machines," comments one manager.
the clubby private banking community in Switzerland is abuzz with
rumors of big losses coming to European funds that purchased a
Madoff product that was leveraged two and three times. Amazin'.
Cash Wins: Equity funds had average weekly outflows of
$599 million for the four weeks ended Wednesday, reports AMG.
Money funds saw weekly net inflows of $37.5 billion. Taxable
bond funds had outflows of $3.3 billion, and municipal funds'
outflows were $423 million.