Madoff debacle may pressure Fund of Funds concept part 3

Although three Canadian families may have lost sizable sums to the alleged Madoff ponzi scheme, there is at least one good story about the benefits of doing your own due diligence.

The investment team at one large Toronto institutional investor was asked if it would take a meeting regarding putting capital into the Madoff Fund. But before agreeing to set it up, they asked three simple questions:

1. Will we be able to do a site visit prior to investing?

2. Will we be able to send down a due diligence team for a day or two of scrubbing?

3. Will we be able to speak to Madoff’s auditors?

When the answers to all three questions were unsatisfactory, they declined to take the meeting. Wisely avoiding the chance to have their capital evaporate along with the hundreds of other funds and firms that are caught up in this US$50 billion “Don’t Ask, Don’t Tell” debacle.

Due diligence is usually seen to be the drudge part of any job in the financial services industry. Turns out it makes people into heros, as well. It isn’t always the investments you make that your investors will remember, it’s the problems that you avoid that can propel a career along as well.

MRM