Abracadabra, goat's leg…
The acquisition platforms were powerful and diverse, such as, for example, the platform itself Fairfield Greenwich Group, with over 14 billion $ that they dutifully handed over to the conjurer.
Starting from a corrupt foundation—a white-collar criminal who poses as a financial genius, leaving half the world (mainly the non-American half) gaping in astonishment—the collateral damage is multiplying. What is this damage? The answer is that it is so extensive that it is impossible to imagine it all. In addition to the reputational damage caused by hedge fund practices in general, whose effect I’m not entirely sure is unhealthy, for example, their results served as false benchmarks against which the honest hedge fund sector (and there is one) had to compete. The consequence of this was, of course, greater risk-taking, frenetic trading and commission-chasing, or simply the disappearance—by the natural Darwinian law—of good products and management styles that were unsellable in the face of unattainable benchmarks. Another obvious collateral damage is reputational harm, that is, the potential for fraud in opaque operations that are impossible for the end investor to control or understand, or even for the intermediary or ‘fishmonger’.
And what can be said about structured products or derivatives linked to everything to do with Ali Baba Madoff? Here’s a leveraged example: Fairfield Sentry Ltd. USD x3. The securitisation virus has also spread to various structured products whose underlying assets smack of Madoff, and as a result, its shockwaves extend even further than the 50 billion officially acknowledged by Ali Baba.
It would be easy to say now that a large fortune should not invest significantly in anything it does not master, understand and control, but let us acknowledge that it is very difficult to resist eating chocolates when we are constantly being offered a tray of mysterious delicacies that appear to be exquisite. Nevertheless, it never ceases to amaze us that illustrious fortunes such as Koplovich and other major family offices and SICAVs have risked more than a significant portion of their fortunes on opaque investments. Perhaps their respective advisers needed the Magia Potagia like Ali Baba Madoff and his 40 thieves, to cover up their shortcomings as strategists and managers, and only in this way exceed the benchmarks demanded by their clients. But let us not forget that resisting seemingly tempting opportunities must be part of the job of any high-net-worth advisor or family office. Therefore, those who advised investing millions upon millions in hedge funds are not exempt from responsibility, since even if they had invested only in the honest ones, the lack of transparency should have weighed much more heavily in their strategic decisions.
It would be somewhat understandable for an average or even small investor to lend their money blindly in the face of stratospheric track records, given the notion that «some people really know their stuff» and that many of them are willing to take on greater risk. But the Potagia Magic should not dazzle those who professionally manage larger portfolios. And, paradoxically, it is those advisers who lent the most money to Ali Baba, although, of course, it wasn’t their own.