Fairfield Greenwich A Shadow Of Its Former Self, Thankfully
Fairfield Greenwich, the hedge fund that was one of the biggest losers in the Madoff scandal, has seen the “bulk” of its funds taken over by Sciens Capital. The company are going to rename its funds and gain complete control over them, though as Hedge Fund Alert notes: “Because no money is changing hands, the deal isn’t being described as a sale.” It can be described as “just desserts”, however.
Fairfield Greenwich was a fund-of-funds business, or “feeder fund”, which means that they invested clients’ money across a range of different funds; they acted as a medium between investors and individual hedge funds, feeding money to those funds, and taking a commission for doing so. If you plot a line of “honest hard work”, with doctor, fireman, aid worker etc at one end, then feeder-fund manager is about as far down the other end as you can get.
Unfortunately for their investors, Fairfield Greenwich was investing their money with Madoff, who was giving Fairfield handsome rewards for providing him with the much needed capital to keep his Ponzi scheme paying out. Fairfield presumably didn’t care to investigate Madoff’s funds too deeply; the money was rolling in, and that’s what counted. Their website describes one range of investments as being ”selected and managed with the same level of care and professionalism as all FGG products”, which sounds a little hollow now. About half of its $14bn-worth of assets under management were in Madoff funds.
Regulators from the state of Massachusetts, where Fairfield Greenwich is based, weren’t impressed with them for channelling so much money to Madoff, and accused them of fraud, citing a lack of “fiduciary responsibility to their clients”. Fairfield responded: “Nothing more than 20-20 hindsight that supposes that anyone familiar with Madoff’s operations should have determined that it was a Ponzi scheme”, later saying “The complaint here was rushed into existence and is so filled with errors and factual distortions as to completely misstate the conduct of the companies that make up the Fairfield Greenwich Group”. There are also various other lawsuits being made against the group from individual investors, and last week they also contested a range of statements made about them in a TV documentary about the Madoff case.
To be fair, they’re on pretty strong ground. If the America’s financial services regulators the SEC didn’t notice, then maybe they had no reason to suspect anything; Madoff did pay out $3bn to Fairfield funds over 18 years. They’re also arguing that Madoff gave them false data about his investments. But Jeffrey Tucker, one of the firm’s founders, knew that Madoff’s accountancy firm was just one man, despite also saying that the accountants were responsible for hundreds of clients. Fairfield were too blinded by the returns – $100m a year in fees – to bother questioning curveballs like this too deeply.
The scandal dragged the Fairfield Greenwich brand into the mud, hence the sell-off. It’s an ignominious end for 78-year-old founder Walter Noel, whose identikit socialite family looks like the product of a eugenics program sponsored by Piz Buin. Noels daughters are regulars on the New York rich kid scene, and they sound like a delightful bunch – known as the “Aspirina sisters” because of the headaches they gave female classmates after constantly stealing their boyfriends, four of them slept with the same guy one after another, while one of them dated an Italian mafioso while still in her teens. They’ve also been banned from their country club. Read the whole story of the family, including their annoying yapping on tennis courts and “tone-deaf” socialising amid the breaking scandal, in this typically epic and stately Vanity Fair piece; and read a pre-scandal VF piece on them here. The other founder, Jeffrey Tucker, is also hurting from the scandal – he and Noel have had to sell their private jet, and he’s had to sell off his horse farm.
While we hope the rumours that Noel has Alzheimer’s are false, this is a company that we’re not sad to see the back of. Hopefully feeder funds, with their extra level of opacity, will become a thing of the past in the wake of the Madoff scandal and the financial crisis in general.
Posted by Ben Beaumont-Thomas in Hot Money | May 14, 2009 1:37PM |