Trust Me; I'm a Funds Manager.

I am a long time subscriber to the theory that if it ain’t bricks and mortar don’t invest in it. Of course the global economy wouldn’t survive long if everybody shared this view; but then again how much worse can it get. At least with home prices depreciating you can still see where your investment went – and as history will testify; its all cyclic and in measuring property values the trend over time is always upwards.

Who the hell would be a market investor these days when it is so patently obvious that (1) management fees are a rip off, (2) you will have no idea where your funds are really going or if you will ever get them back and (3) regulatory agencies are so ineffective you would be better off stuffing your funds under your mattress.

Have you been following the Bernard Madoff affair here in the States? What an incredible story of felony, greed and incompetence. Felony by Madoff who, it is alleged, has defrauded investors out of up to $50 billion. Greed on the part of investors who kept lining up to give money to Madoff despite most of them now confessing they believed his returns were “too good to be true”. And incompetence by the Securities and Exchange commission who failed to investigate Madoff’s company despite complaints and early warning indicators that can be traced back to almost a decade ago.

What makes this story more remarkable is that the victims in this “ponzi scheme” (using funds from new investors to pay previous investors in the guise of returns) are not just greedy individuals; indeed they are some of the world’s biggest banks, charities, pension funds, other investment funds and multinational corporations – most of whom have (or say they have) their own screening and oversight systems and Risk Managers. Indeed some of these companies employ Fund Managers who are actually paid a lot of money (and I mean a LOT of money) to safeguard and “manage” the funds of investors - but it now turns out there was no “management” being undertaken at all…they just dumped investor’s funds into Madoff’s firm and waited for the returns to flow in, while receiving literally millions in “management fees” in the meantime. In the case of these firms who have charged hefty management fees to provide such screening and oversight on behalf of investors I hope the SEC does find them accountable and makes them pay back the money that was lost through their careless investment in Madoff.

I heard a guy being interviewed on National Public Radio the other morning; he was the President of a large New York based investment firm . When asked how investors can avoid losing money to schemes such as Madoff’s he replied simply "do your own homework but frankly, at the end of the day there's a fair amount of trust that goes into it". Trust eh?…now there’s an idea worth exploring in the investment industry – they might even consider calling it a “trust account”. Go figure.