The list of the victims of Bernie Madoff is huge but it’s hardly a comprehensive cross section of the financial universe. While there were funds of funds pouring outside investor money into the Madoff Scheme, many large institutional investors who invest their own funds were absent. How did they stay out of the mess?
They were just too smart.
Fortune interviews the man with just about the most awesome name for a hedge fund wealth advisor– “James Hedges IV”–about the funds that stayed away from Madoff.
As the number of victims of Bernard Madoff, the criminally charged founder of the investment firm that bears his name, seems to multiply with the speed and force of a hurricane, certain types of investors seem to be absent — so far, anyway — from the casualty list.
That’s no accident, argues James Hedges IV of LJH Global Investments, a boutique firm that invests in hedge funds and private equity for high-net-worth families. In other words, score one for the big institutions that stick to standard rules rather than allowing their managers to invest on personal connections or hunches.
“There’s no Duke Endowment [among the list of Madoff investors],” Hedges says. “There’s no Harvard management, there’s no Yale, there’s no Penn, there’s no Weyerhauser, no State of Texas or Virginia Retirement system.”
The reason is simple, in Hedges’ view. Letting Madoff manage your money “wouldn’t pass an institutional-quality due diligence process,” he says. “Because when you get to page two of your 30-page due diligence questionnaire, you’ve already tripped eight alarms and said ‘I’m out of here.’ “