Independent Fund Administration
Independent Fund Administration Firms
Tom Zita from Globe Op sent me an interesting article by Advanced Trading on independent fund administration and how fund of funds and investors will be requiring this more in 2009 than ever before. Globe op is a firm listed within our service provider directory listing category on Hedge Fund Administrators.Here are a few great quotes from this article:
"The failure of the funds of funds that invested with Madoff was simply that they didn't do the due diligence that they ought to have done," says Rich Koppel, managing director at youDevise Ltd., a supplier of hedge fund technology that has offices in London, New York and Hong Kong...
"From where I sit in the fund-of-funds side, I've looked at [Madoff's] return stream several times and rejected it [based] on my gut," Vale adds. "It's checks and balances -- you have to check all the boxes." ...
Infinity Capital's Vale speculates that the feeder funds "depended on the numbers that [Madoff's] underlying funds provided." Even though some of the underlying funds had third-party fund administrators, even the third-party administrators appear to have accepted Madoff's numbers. "Madoff was providing those numbers. Nobody dug a little bit deeper to see that those numbers were just coming from in-house," Vale claims.
"There was no third-party firm at all looking at the numbers to verify even if they were real or correct," Vale continues. "That's a deal killer for us."...
"The major red flags were to do with predominantly back-office issues," adds James Freeman, senior relationship manager at Key Asset Management, a London-based fund of funds manager with $2 billion in assets invested in 90 underlying hedge funds. "A bad investment process can lose you lots of money, but a [bad] back-office business structure can lose you all of it," he warns. ..
"All the major classic frauds -- Beacon Hill Asset Management and the Manhattan Fund -- use that tactic, [in which] the broker is the sole source of the quote [aka, net asset value] and it's not being reconciled by a third-party administrator, to send out false information because there is no record of it and you have no independent validation if the information is correct," says Freeman...read the full article
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