Do you even have to ask?
NYT: The Fairfield Greenwich Group charged clients an annual fee of 1 per cent of assets invested for providing access to exclusive hedge funds and performing due diligence on them, in addition to a fee of 20 per cent on investment gains each year, according to people close to the fund’s operations. At that rate, an investment of $7 billion paid Mr. Noel’s company $70 million annually, and then $140 million more in a year in which Mr. Madoff reported a 10 per cent gain (he steadily reported returns of 10 to 12 per cent).
Which is no big revelation. Businesses aren’t charities. What makes the fees a bit more galling in this case, though, is that, contrary to what its marketing materials say, the Fairfield Greenwich Group existed primarily as a Madoff marketing vehicle:
The 78-year-old [Fairfield founder Walter] Noel had a master’s degree in economics and a law degree — both from Harvard — and had worked for decades in banking before he founded Fairfield Greenwich, which established itself primarily as a marketing entity. “As it grew beyond, you know, an informal, personal concern where Walter and a couple of people were investing money for his friends, they developed as a marketing force to put Madoff and investors together,” said George L. Ball… Mr. Noel met Mr. Madoff in the early 1980s and the businesses of both men grew symbiotically. Mr. Noel was as good a salesman as Mr. Madoff could have wished for.
And there would be nothing wrong with that, either, except that Fairfield’s web site doesn’t even mention Madoff. It just extols the extraordinarily comprehensive and sophisticated screening techniques the firm uses to select only the best money managers in the world.
And even that wouldn’t so bad if the firm could look all of its clients in the eyes and say, “we did everything we could.” But it appears that Fairfield barely did anything it could let alone everything because if it had it would have run away screaming:
People in the industry continue to question Fairfield’s due diligence. Michael Markov, a hedge fund consultant, said that he was hired by a fund two years ago to look into Fairfield Sentry’s returns and found that it was “statistically impossible to replicate them,” he said. Mr. Markov said that he found only one hedge fund whose returns correlated to Mr. Madoff’s. That was the Bayou fund, which was prosecuted by the government for fraud in 2006.
The one silver lining: As Fairfield’s shattered clients beat themselves up for trusting Fairfield, at least they don’t have to wonder why Fairfield didn’t look more closely: FGG’s preferred access to Bernie Madoff’s ponzi scheme was making the firm $150 million a year.