Posts filed under “Hedge Funds”
David R. Kotok co-founded Cumberland Advisors in 1973 and has been its Chief Investment Officer since inception. He holds a B.S. in Economics from The Wharton School of the University of Pennsylvania, an M.S. in Organizational Dynamics from The School of Arts and Sciences at the University of Pennsylvania, and a Masters in Philosophy from the University of Pennsylvania. Mr. Kotok’s articles and financial market commentary have appeared in The New York Times, The Wall Street Journal, Barron’s, and other publications. He is a frequent contributor to CNBC programs, including Morning Call, Power Lunch, Kudlow & Company, Squawk on the Street, Squawk Box Asia, and Worldwide Exchange. Mr. Kotok is also a member of the National Business Economics Issues Council (NBEIC), the National Association for Business Economics (NABE), the Philadelphia Council for Business Economics (PCBE), and the Philadelphia Financial Economists Group (PFEG).
“This is a major disaster for a lot of people. You work all your life, you finally manage to save up something, and somebody who’s entrusted with it, it turns out suddenly he’s a crook. Lots of people are getting fully or partially wiped out.”
-Lawrence Velvel, 69, Dean of the Massachusetts School of Law who said he and friends had lost millions among them.
“Those with the biggest financial gains generally had their money managed by Madoff. It was an honor having him handle your fortune. He didn’t take just anybody. He turned down all kinds of people, and that made you want to give the man even more of your money. When he took your fortune, he told you that he would tell you nothing about how he achieved his returns.”
-Laurence Leamer, a Palm Beach based journalist, writing in the New York Post, December 13.
First to the structural business issues.
Cumberland Advisors did not and does not have a single penny in any fund directly or indirectly positioned with, having custody with, or in any way associated with Madoff. The Madoff structure violates all of our internal disciplines. Madoff required that investment management, brokerage, and custody all be with him under the same roof. At Cumberland we require that each of these three functions be separated by task, separately evaluated, and separately reported.
Cumberland will not invest in any conduits or vehicles where the sponsor refuses to disclose the contents of the investment. Furthermore, we recommend that our clients avoid any investments they do not understand. We also avoid any investment about which we cannot obtain a full and completely clear description, so that the investment’s merit may be independently evaluated.
Moreover, at Cumberland, all discretionary managed accounts separate asset custody from brokerage and from Cumberland as manager. Our performance reports and asset lists are separate and independently compiled from those of the custodian broker or bank. Managed accounts that are in custody at a broker have explicit permission for us to trade “street wide” when it benefits the client. We will not accept a managed account where the brokerage transactions are captive to the broker custodian unless there is a specific pricing of transaction costs and the client knows what their broker will charge them. Cumberland never acts as broker and never mixes commissions with fees. We are a fee-for-service only manager.
We recommend this structure for all of our institutional consulting clients where we are not the discretionary manager but only consultants on the strategy. We also recommend this for those whom we are advising on boards and as trustees. In fact, we advise that those who place funds as a fiduciary in any other format should consult their legal counsel before doing so, in order to ascertain if they are in compliance with fiduciary standards.
The Madoff affair’s implications for lawyers, accountants, trustees, boards, etc…
Won’t be the last one, either: Thierry Magon de La Villehuchet, who ran a fund that invested with Bernard Madoff, was found dead at his Madison Avenue office today, a New York City police officer at the scene said. The death appeared to be a suicide, he said. De la Villehuchet, 65, was a founding…Read More
There are some people worthy of blind trust with your money. They are the ones who: 1) seem to make money over time; 2) have well-audited books, which prove indeed they have; and 3) seem to have a cogent plan to continue making money in the future. All three must be satisfied and everything else…Read More
What follows is the Harry Markopolos complaint to the SEC, circa November 2005, identifying 29 red flags that Madoff was a fraud. This highly detailed complaint was filed regarding the apparent Fraud at Madoff Securities. It was ignored by the Christopher Cox SEC, which was too busy concocting schemes to dismantle the SEC rather than…Read More
Today’s NYT (and Monday’s WSJ) each have articles which compare Madoff investors with those of recent $400 million dollar hedge fund fraud Bayou Group. I believe this misunderstands the applicable law of partnership, fraud, and investing. Hedge fund investors are limited partners, and as such, they have a fiduciary duty to their other partners. Regardless…Read More
With everyone tsk-tsking the Madoff scandal — the amount lost, the after-the-fact obviousness, the SEC incompetence — I thought now was as good a time as any to look at the actual research, due diligence and manpower thrown at investigating managers and funds. Not surprisingly, it is tiny — at least, when compared with the…Read More
Here’s a question for you: What is the actual purpose of FoF ? In theory, they are supposed to do the due diligence, the forensic accounting, the deep background checks that ordinary investors cannot. Then once they identify a group of funds they want to allocate capital too, they are supposed to run the asset…Read More
MIT’s Andrew Lo: The key concept here, developed by MIT professor and noted hedge-fund theorist Andrew Lo, is “serial correlation.” Simply put, serial correlation is the degree to which each month’s returns in a fund mirror the results of the month before. A fund that returns the exact same amount every month is perfectly serially…Read More
We interrupt the GM hearings for this brief moment of schadenfreude: Harvard’s endowment has now blown through over $8 Billion, or 22% in the last four months. Correct me if I am wrong, but wasn’t Harvard’s endowment outperforming the broad indices for a long time? And didn’t their Board of Trustees fire/replace/chase awayt hese outperforming…Read More