The Bernard Madoff fraud arrest is going to take even more investor confidence out of the market. I was speaking to a colleague yesterday about the hedge fund industry after I returned from the IMN Super Bowl of Indexing Conference. In my opinion I thought that the hedge fund industry’s best days were in the past and that the beneficiaries would be mutual funds, ETFs and separately managed accounts. The secrecy and leverage which is a characteristic of the hedge fund industry is simply going to have to be regulated or legislated away. The fund of fund concept is no longer economically feasible as well as it has all of those problems but to a second order.

As to Madoff, one has to wonder – where were the firm’s independent accountants and brokers? Did they just sit idly by? One thing we know about fraud is that it usually takes more than one person to keep the scheme perpetuated. I would expect more arrests to be forthcoming.

We are going to move toward a transparent and regulated environment. My business is set up in just that way. I can’t touch client funds. Period. All that LakeView Asset Management, LLC can do is buy and sell securities. Our brokers independently report client account information to our clients. Clients can also get real time account information online. While it will take some time (perhaps years) for the cash and money parked in money market funds and Treasuries to be re-circulated back into the market, there is no doubt that it will flow toward transparent and registered investment advisor structures. Unfortunately for now, the honest hard working investment advisor is going to suffer because of the acts of a Bernard Madoff.

Posted By Scott Rothbort at December 12, 2008

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It's Over.... This is the last fraud. The age of hedge funds is over. No one is going to pay 2 and 20 for anything. The idea that there is some 'guru' out there who can consistently generate positive returns is past a joke. News flash....Marathon Asset Management...there is no cash for redemptions... welcome to the special liquidating trust. No one knows what is next, but it will not include hedge funds.

Posted By blow me at December 13, 2008

Backyard Views Ethical and moral behaviour is established well before Govt legislators and regulators arrive. For example, at a University teaching lawyers and finance wannabes. Let's look at Seton Hall... Until recently, for a large number of years, Seton Hall was proud to graduate students while teaching them in buildings named for 3 convicted felons (Walsh, Koslowski, Brennan). Shame on Seton Hall. Brennan's name last a very long time after he was convicted. Incredibly so, since there was no contrition there, in fact, defiance. He continued to dodge the Government, hiding his ill gotten gains, while in prison. Yes, Seton Hall had excuses to keep the names on the buildings. They were all nonsense and set the tone of teaching students ethical and moral behaviour. We all know contracts have good citizen behaviour clauses. Those names should have been taken off the buildings immediately if ethics and morals was to be valued higher than money. It didn't just teach those lawyers what was acceptable to reach for the money, it gave them a peer example. Our schools have to take blame and change. You're teaching there. I am hoping you will not pass the buck, calling for new legislation and new regulation, when the unwanted behaviour starts in places like Seton Hall. Harvey

Posted By H Canu at December 12, 2008

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