Wait, Did Fairfield Greenwich Partners Really Lose Personal Money With Madoff?


At the core of Fairfield Greenwich Group’s effort to portray itself as Bernie Madoff’s biggest victim instead of his biggest enabler is the partners’ contention that they invested side-by-side with the firm’s clients. 

Most people have taken this to mean what FGG wants it to be taken to mean: That FGG partners had so much confidence in Bernie Madoff that they invested a significant portion of their own personal net worth with The Ponz.

According to figures provided by a spokesman for FGG, however, this doesn’t appear to be the case. The spokesman says that FGG partners had only $60 million with Madoff, less than 1% of the $7.3 billion of client funds FGG had placed with Madoff and only about 10% of the $500 million in Madoff-related fees the firm has received in the past five years.

If that $60 million is personal partner money, it’s still not a big vote of confidence (again, the firm has earned $500 million from Madoff in recent years). But the reality may even be worse. The money FGG’s “partners” had with Madoff could presumably just be the asset-based fees the firm had accrued on Madoff money so far this year. If so, this is not personal partner money at all.

For the first 11 months of this year, Bernie Madoff was on track to book his usual 12%-ish annual returns. On $6.5 billion of assets (a stab at FGG’s exposure coming into the year), this would mean a gain of about $700 million for the year.

FGG reportedly received fees of 1% of assets and 10% of gains on its Madoff money. If Madoff had, in fact, posted his usual numbers, this would have generated about $150 million in FGG fees this year. The asset fee, which is not dependent on performance, would already have been accrued, and it would have totaled about $60 milion through the first 10 months of the year.  (The performance fee, presumably, would not have been calculated and assessed until Dec. 31, but it was on track to be about $75 million.)

Given this, as a reader points out, it is possible that the only money FGG had invested with Bernie Madoff was its asset-based fee for services rendered so far this year. 

FGG, like other financial firms, presumably pays partner bonuses at the end of the year. As a result, the firm’s partners may not yet have received their share of these fees (which were presumably in a firm account). If so, the only thing that “We lost millions with Madoff, too” means is that FGG hadn’t immediately moved its asset-based fees to another manager. 

Contrary to their assertions, in other words, FGG’s individual partners may have had exactly zero invested with Bernie Madoff. Not exactly a vote of confidence.

See Also:
FGG Founder Walter Noel’s Wife: We’re Not Rich
Christmas With The Walter Noels