The 2001 article below from MAR/Hedge examined Bernie Madoff’s trading strategy in detail and raised serious questions about his reported returns. A similar article in Barron’s that year did the same.
As the Madoff litigation proceeds, the funds-of-funds and other institutions who gave client money to him will need to explain how and why they got comfortable with Madoff’s record, when the experts interviewed for this article (and many others on Wall Street) could not.
Full article embedded below (click “full-screen” icon in lower righthand corner to enlarge). Here’s an excerpt:
[M]ost of those who are aware of Madoff’s status in the hedge fund world are
baffled by the way the firm has obtained such consistent, nonvolatile returns month after month and year after year. Those who question the consistency of the returns, though not necessarily the ability to generate the gross and net returns reported, include current and former traders, other money managers, consultants, quantitative analysts and fund-of-funds executives, many of whom are familiar with the so-called split- strike conversion strategy used to manage the assets.
These individuals, more than a dozen in all, offered their views, speculation and opinions on the
condition that they wouldn’t be identified. They noted that others who use or have used the strategy—
described as buying a basket of stocks closely correlated to an index, while concurrently selling out-of- the-money call options on the index and buying out-of-the-money put options on the index—are known to have had nowhere near the same degree of success…