In the case of Madoff, the due diligence firms and investment consultants who really looked at him told their clients to stay the hell away. But this week’s latest bust, the big Westridge Capital fraud may be the first time that big due diligence/consulting firms flopped on their face:
WSJ: Money managers Paul Greenwood and Stephen Walsh, arrested this week on fraud charges, boasted a healthy list of pension and endowment clients thanks in part to several prominent consulting firms that recommended them.
The consulting firms, including Wilshire Associates, Cambridge Associates and Mercer investment consulting, provided glowing reports about the managers’ firm, Westridge Capital Management Inc., to prospective investors, who now find themselves potentially facing millions in losses.
If an advisor, whose sole job is to help you figure out where to safely place your money, and they’re paid on a flat fee for their services, what excuse is there if they park your money in a scam? Their only service is to help you avoid these things.
A hedge fund source predicts this will seriously damage the hedge fund industry, particularly as some institutions may have planned to switch from Fund-of-funds to direct, consultant-driven investments. Now we know there are problems either way.