Institutional Investor's Alpha Magazine - February 2009 - (Page 35)

and co–portfolio manager of Chicago-based Harris Alternatives, which oversees $10 billion in funds of hedge funds. “There was also an impression given that it was difﬁcult to get in, which put another level of pressure on people not to do due diligence — they didn’t want to rock the boat. “I think there were a lot of signs,” adds Martino, whose ﬁrm invests with about 50 managers. “I just don’t think people were looking for them.” Like most funds of funds, Harris Alternatives steered clear of Madoff, who was enabled chieﬂy by a handful of feeder funds set up by established fund-of-funds ﬁrms for the sole purpose of funneling money to him. Among the more inﬂuential of these enablers was Walter Noel Jr.’s $14 billion-in-assets Fairfield Greenwich Group, a New York–based ﬁrm that until December had an unimpeachable reputation. Fairﬁeld topped the list of those that lost the most (see table), and now it may have the most to answer for — its $7.5 billion Fairﬁeld Sentry fund was entirely invested in Madoff Securities. (A Fairﬁeld spokesman had little to say other than that the ﬁrm had been “defrauded by Madoff.”) Rye, New York–based $3.1 billion-in-assets Tremont Group Holdings — which, like Fairﬁeld, is registered with the Securities and Exchange Commission — had almost all of its assets with Madoff through a subsidiary, Rye Investment Management. No current or former Tremont ofﬁcials would comment, though a spokesman said that information the ﬁrm had provided to investors made it clear that their money was going to Madoff. Tremont was in fact known as the best place in town through which to get to Madoff, according to individuals familiar with the situation. “People came to Tremont because they wanted to get access and could, and were charged only minimal fees for it,” says one source. Sandra Manzke, the principal partner at Maxam Capital Management in Darien, Connecticut, and a former head of alternative investments at Tremont who helped set up some of the early Madoff feeder funds there, entrusted Madoff with practically all of her clients’ $280 million, even though in a November letter to investors she said that she was “appalled and disgusted” by what she said was a dearth of integrity in the hedge fund industry — this as she was collecting fees for routing investors to Madoff. “There are too many bad apples for my taste, and it only takes a few to bring the industry to its knees,” Manzke wrote. Maxam closed in December. Two other funds ensnared were Kingate Management (run by London-based FIM Advisers), which had $2.8 billion invested with Madoff through two hedge funds, and London-based fund of funds Bramdean Alternatives. In a December ﬁling, Bramdean said it had written off its investment in two Madoff feeder funds, Defender and Rye Select Broad Market XL Portfolio. Bramdean had about $31 million, roughly 9.5 percent of its assets, split between the two funds. Geneva-based Union Bancaire Privée, one of the biggest Swiss private banks, had $700 million from half of its 22 funds of hedge funds with Madoff-related investment vehicles, including one run by J. Ezra Merkin, the wellknown New York philanthropist and chairman of GMAC, the car ﬁnance company. The UBP-Fairﬁeld-Madoff tangle is especially interesting. The Swiss bank, which oversees about $56 billion in hedge fund investments, also provided loans and investment advice to a division of Fairﬁeld Greenwich. Merkin funneled $1.8 billion of clients’ money, including that of UBP’s clients, into Ascot Partners, a hedge fund he ran that charged a 1.5 percent management fee and a 20 percent performance fee and invested almost entirely with Madoff, a longtime friend of Merkin’s. Ascot offering documents stated that Merkin would do something else: “engage in hedging and short sales.” Ascot was also where Merkin placed money from New York philanthropies and endowments, including that of New York University, which has reportedly lost $10.5 million to Madoff. NYU is now suing Merkin, saying he never told the university that the money was going to Madoff (an Ascot offering memorandum states that “all decisions Walter Noel Jr. gambled $7.5 billion of Fairﬁeld Greenwich Group’s assets on longtime friend Bernie Madoff. FEBRUARY 2009 • INSTITUTIONAL INVESTOR’S ALPHA • 35

Table of Contents Feed for the Digital Edition of Institutional Investor's Alpha Magazine - February 2009

Institutional Investor's Alpha Magazine - February 2009 Contents Letter From the Editor Longs & Shorts Digging Out A Call to Mentor Dicey Detroit The Constant Skeptic Cover Story: The Undaunted What Were They Thinking? Dark Days in Greenwich True Stories from the Commodities Files Return of the Native The Quest for Cover Moving On from Madoff

Institutional Investor's Alpha Magazine - February 2009

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