Hookers that still cost too much – some comments on the IMF and Latvia

This blog was early on giving a public cry on the Latvian economy.  I have the Latvian crisis to thank for a lot of my readership – it was about 50 per day until I wrote a post about the looming economic crisis in the Baltics – and illustrated the lack of competitiveness of the Baltic economy by talking about the price of prostitutes.  That single post raised my readership by over 1000 percent - and it has risen - albeit more slowly - ever since.  The post even warranted my first mention in the mainstream media – in the Estonian business press.

I guess it was subject matter.  With some cynicism I suggested that sex tourism was the main Latvian export – and if you wanted to know about the domestic competitiveness then you should look at the price of prostitutes.  The technocratic economists want to talk about “real effective exchange rates” and I just want to talk about the cost of getting laid.  Will the insanely clever PhD students out there (Claus you know I am talking about you) try to model that.  

Anyway if you really are interested in this I suggest you read the original post here…  It is (my opinion) one of the best posts on this blog – so I hope you will not think I am wasting your time.  

That said – the situation was that the Scandinavian banks – most notably Swedbank – had been funding the Latvian (and other Baltic) current account.  This was a fixed exchange rate but in an uncompetitive economy that was not accompanied by the monetary crunch that the theory would suggest because the Scandy banks (especially Swedbank) were acting as the Latvian central bank and borrowing in Euro and lending in Lats.  Locals told me that much of the lending was in Euro not Lats but the effect was the same.  The Latvian current account deficit was sustainable as long as Swedbank was guaranteeing it – and Swedbank kept its credibility.

Unfortunately in a financial crisis – and with management as inept as Swedbank – it is rather tricky to maintain credibility.  When trust in Swedbank eroded either (a) the Lat was about to get devalued massively – smashing up Swedbank either on currency risk or by making it impossible for Latvians to repay their Euro debt or (b) monetary policy – being a fixed exchange rate and an uncompetitive economy was about to re-assert itself and cause a great-depression level event in Latvia.  When Swedbank could not sterlise the current account deficit the Latvian central bank would be forced to do it causing a monetary crunch of massive proportions.

I argued that the other Baltic states were more sustainable than Latvia – Estonia being bad and Lithuania being about as unsustainable as the United States.

Well – if you haven’t been following events – they are playing out rather like my blog post.  Latvia has required an IMF bailout.  Estonia is in a rather nasty recession.  Lithuania is muddling on.  The order predicted in my original post.  

But – not in the scenario of the original post – the IMF has not required a devaluation of the Lat.  Apparently the pressure from the Scandinavian banks was large – and the Scandy governments (presumably political play-things of their banks) are large contributors to the bailout.  They have chosen a bailout with huge domestic contraction but a fixed peg.  The last time the IMF tried that was Argentina and it was eventually a disaster with the peso peg being abandoned anyway.  

There are plenty of raised eyebrows about the decision to keep the peg (see Krugman for instance) but the political economy is obvious…

First – abandonment of the peg is the most rapid way of showing the insolvency of the Scandy banks – and the Scandinavian governments are big contributors to the bailouts and – seemingly – political pawns of their banks.  

The second reason for not abandoning the peg in Latvia is that it would take about 15 seconds to decide the peg is doomed in Estonia as well – and maybe – because a trilogy is three tragedies performed in quick succession – in Lithuania as well.  

Anyway several people I admire (most notably a Fistful of Euros, Alpha Sources and also Krugman) have pointed out the obvious – that the monetary contraction that will happen will result in much lost production and loan failures anyway.  The monetary contraction however comes from the loss of credibility of the real Latvian Central Bank – Swedbank.  Once a real central bank has to give out its foreign exchange it will cause a crunch of gargantuan proportions.  

So – score this for Bronte Capital.  I admit my failures on this blog – and it is Christmas so I should indulge my successes.

As for how the bailout will work – I am with Edward Hugh of Fistful of Euros.  It is Argentina mark 2.  

And do I need evidence?  Well I have spent 15 minutes searching around on the web – and the prostitutes still cost too much (though their price seems to be declining).  If someone with first-hand experience wants to correct me then pop something (anonymously if you wish) in the comments.  

John Hempton

I have resisted pouring more scorn on the totally inept Swedbank – but I should remind people that they purchased a bank in the Ukraine early last year for USD735 million.  The bank had only 10 million of earnings – and most the 735 million was debt assumed.

They did this just in time for economic output to fall as much in the Ukraine as it did in the Great Depression in the US.  

Next time Swedbank management wants to blow half a billion I have a bridge to sell them in Sydney.  Their title will be just as good as their claim on the Ukraine!

This wouldn’t matter – but Swedbank was funding the Ukrainian current account deficit as well as the Latvian one – and when they stop the crash will be rather nasty. 

Santander also caught in the due diligence lie

The numbers are larger than at Bramdean – the lie is the same:

Intensive due diligence is vital to ensuring the integrity and sustainability of the investment process . . . Each investment undergoes lengthy and detailed scrutiny according to clearly defined manager selection criteria.

The website on which this lie was printed has been pulled.

As the FT points out it was impossible to do due diligence on your Madoff investments because Bernie did not allow it. But Santander claimed they did it as did certain other fund-of-fund businesses.

There is however much bigger consequences to Santander being caught in a lie. Santander – as do almost all English speaking banks – needs to raise money in wholesale markets.

Raising money depends on trust and as Jim Grant has just pointed out (and as this blog has pointed out several times) there is currently a “bear market in trust”.

If the trust in Santander fails then Santander fails. And that would be a very big piece of Bernie Madoff collateral damage.

J

Bramdean Alternative’s solvency problems

In my last post on Bramdean Asset Management (Nicola Horlick’s business) I suggested to Ms Horlick that she should make a statement to the stock exchange about how Bramdean Alternatives (what the website describes as the “flagship fund”) intends on funding capital calls by the private equity funds that they have invested in.

The problem of course includes that part of the money intended for capital calls was invested in Madoff Securities (via Defender – a Madoff feeder fund).  

No statement from Bradean Alternatives as how they plan to meet capital calls has been made.  In most jurisdictions a listed company has an obligation to keep the market fully informed.  However, failing a statement from Bramdean I thought I might spell the issues out.  

Almost all of this comes from the half yearly management accounts.

First the company has very substantial capital calls.  The half yearly statements detail them:

The Company was 88.8% invested at the end of the second quarter 2008. It has made commitments to sixteen underlying private equity funds and underlying specialty funds amounting to approximately US$224 million and the total amount that has been drawn-down on the commitments made is approximately US$59 million.

This is a very real problem.  The company has obligations to pay capital calls on funds it has already invested in of US165 million.  That is not chump change.

Moreover the most liquid parts of the portfolio – Madoff investments – are suddenly seriously illiquid.  Defender (a Madoff feeder) was specifically earmarked as part of a transitional portfolio – transitional because it was a place-holder for funds intended to meet capital calls.  (Fortunately however - and to give Bramdean some credit - they have raised some cash this year to meet capital calls.) 

Bramdean Asset Management thought that it was perfectly reasonable to overcommit Bramdean Alternatives: 

At 30 June 2008, the Company’s commitments to private equity and specialty funds accounted for 85.3%of its assets, representing an over-commitment of 1.22X, based on the Company’s commitments as a share of total net assets.  Any over-commitment may be managed through the Company’s cash holdings, through redemptions from the Transitional portfolio and through the use of gearing. The Company may gear by up to 25%of its net asset value, but has not employed this facility and had no debt at 30 June 2008.

In particular they thought that they could manage this by selling their “transitional portfolio” (that is Madoff), from cash holding and through the use of gearing.

Now the portfolio is down a lot since June 30.  At June 30 it was 263 million.  By October is was 220 million – and the private equity commitments were thus proportionately larger.  

Moreover they have not done spectacularly well in November and December will have wiped out the Madoff moneys (about 20 million more).  NAV is likely to be below US200 million – and the commitments to illiquid private equity type funds are over 220 million the majority of which has not been called.  Cash was about $50 million.  It will be very difficult to meet calls.

Oh, but in the June report they thought they could borrow the money to meet the capital calls.  That is what it says.  Now Nicola’s much vaunted due diligence process has been exposed as vacuous by Bernie Madoff – and the credit markets have tightened considerably – it is highly unlikely that anyone is going to lend Bramdean Alternatives money secured by the equity interest in a whole lot of 2007 private equity portfolios.  

Nicola Horlick lambasts her critics as sexist – and I admit I did call her a silly silly girl.  But capital calls are not gender specific and the cash drain and resulting insolvency is independent of Nicola’s gender.

I am sorry to say it – but Ms Horlick’s flagship fund looks like toast.  Maybe there is sufficient secondary market in the private equity funds for the fund to survive – but I doubt it.  

Maybe the capital calls will not come.  But I also doubt it.  It is however very hard to tell from the published accounts as the due date for the capital calls is not outlined.  

Moreover if they start testing the market for secondary pieces of funds applied for twelve months ago they will (at best) have to take very considerable write-downs.  The asset value of Bramdean Alternatives hardly reflects current market values on private equity investments made 12 months ago…

I consider this case more than just another piece of Bernie Madoff collateral damage.  It’s a real live case – and resolution is necessary for the restoration of trust to British Capital Markets.

What happens when this finally hits the wall?

It is not enough for the FSA to write off the looming insolvency of Bramdean Alternatives as just another credit crisis meltdown.  Bramdean made some very strong statements about how they do due diligence.  They made them in a prospectus and in annuals.  Here is the statement from the annual.  

The investment process is systematic and disciplined.  Due diligence is at its heart and around 3-4 months are typically spent analysing a potential manager, a process which includes a number of on-site visits with that manager. The process culminates in the provision of a detailed report that is then presented to and discussed at Bramdean’s Investment Committee, where a selection decision will be made on all private equity funds, specialty funds, and transitional investments. That Committee has to approve an investment unanimously before it can proceed. Where required, Bramdean will also conduct legal diligence.

Ongoing monitoring is similarly robust and includes regular reviews of market conditions and their potential effect on the underlying funds and any direct private equity investments. In response to the conclusions drawn from this process, the Investment Committee will decide whether or not to retain an investment.

There is little evidence that the statements are true (though I will take Nicola’s word for it).  Bernie Madoff famously did not let people do due diligence on him, but almost certainly Nicola – with her feminine charms was the exception.  Anyway if the due diligence was not done in the manner advertised – and moneys were raised on that basis then this is not just an unfortunate credit crisis bust but the raising of money on what look like false pretences.  But of course Nicola did the due diligence on Madoff, including several on-site visits and analysis over 3-4 months.

John Hempton

PS.  Nicola said her critics were sexist.  

Nicola wrapped the noose around her neck when she invested with Madoff.  The hangman has now pulled the lever.

It doesn’t matter one iota that the body is a woman and it is delusional to think otherwise.

PPS.  Why did I chose to pick on Nicola?  After all the last time Nicola crossed my consciousness was when she accepted a job at Australians Mutual Provident (AMP) and then did not come.  I am an Australian and Nicola Horlick is hardly a celebrity here.   A distant relative of mine is the chairman of the AMP - so I guess he offered her the job...

I genuinely wasn’t going to post anything.  I wrote the post with no intention of putting it up.  But then she accused her critics of being sexist – and blamed the SEC for the apparent failure to do her own homework.  That invited a response. 

And I wouldn’t have made a second post if she hadn’t changed her website.  

But as I dug I found more and more that is in the public interest.  The financial crisis in Bronte’s view will end when people learn to trust other people in financial markets – and here we had someone who had large – and potentially devastating capital calls trivialising her problems.  

This deserved a little exploration.

New World Capital Managment - a follow up...

I know my post on New World Capital Managment has nothing compared to recent frauds. But the failure to prosecute reaffirms my doubt in the integrity of financial markets. I am writing this down because restoring trust to financial markets is the key to stopping the second great depression.

The fund was run by Greg Duran under the rubric of “New World Capital Management”. There were other staff such as Tau Ngo, Jill Ballantyne, Kyung Britt and several others – but as far as I can tell these additional people were fictional. (Well one or two of them might be real...)  

Greg Duran is a real person and his career had largely been in the honourable profession of mortgage broking...  I can still find the odd phone number which he answers.

The fund had a fantastic record – with barely a down month and some months up to 66 percent returns.

At one point it was even Barclay’s top rated hedge fund globally – which, given that it was a fraud, says as much about Barclays as it does about New World.

Anyway as explained in the original post I rang their purported auditor. Spicer Jeffries confirmed that New World was a client (perhaps only a prospective client) and indicated that the claimed returns were not audited. To this day I do not understand why Spicer Jeffries did not call the police. The statement “audited by us” is the entire product of an audit firm – and failure to protect that phrase is – at best – sloppy work.

I also emailed the CEO of the purported prime broker and he reported my concerns to Gregory Duran. At best this shows shocking judgement, but my timeline indicates that it is possible that Ikon tipped off Mr Duran that he was being chased – and that Mr Duran took that opportunity to steal the rest of the funds under management. Certainly if I were filing a civil action to recover the money Ikon is a logical defendant. If a class action lawyer wishes to help out – then I will provide the emails and their date stamps.

In my original post I indicated that Gregory Duran had sucked in one New York based fund of funds. The whole rationale for a fund of funds is that they can do thorough due diligence. A fund of funds taken in by a single fraud this blatant should probably not exist. Several funds of funds will of course cease to exist post Madoff...  a fund of funds business in Madoff also should cease to exist.

I did not name the fund of funds that was sucked in as I had no desire to destroy their business. However Holding Capital Group named themselves – suing Gregory Duran to recover their own seed investment (but surprisingly not suing Gregory Duran on behalf of their clients who they also put in the fund).  [Funds of funds businesses in Madoff haven't all come out - but ashen faced silence is probably the best course of action...]

About six weeks after my first post on New World I was contacted by Neville S Hedley – and enforcement attorney at the CFTC. I thought great – the wheels of justice are slow – but at least they are turning. I spent about an hour on the phone with Mr Hedley – and Mr Hedley was familiar with many aspects of the “alleged fraud”. He left his guard down at some point – and just started referring to it as “the fraud”. When questioned on that he just said “well that is pretty indisputable” – possibly the finest judgement I have seen by anyone with any authority on this matter.

I was happy – but not for long. The problem turned out to be that whilst Gregory Duran claimed to trade futures (especially currency futures) to get these returns – there is no evidence that he ever traded anything. Because he did not actually trade Mr Hedley decided that the CFTC had no jurisdiction. Having no jurisdiction he couldn’t actually do anything and dropped the case. 

Mr Hedley said he was going to try and interest the state prosecutors (New Mexico) in the case – and he did so – but state prosecutors it seems couldn’t be bothered. I understand why prosecutors are reluctant to investigate live fraud cases – but this one is dead and the prosecution is an easy scalp.

This is just another appeal to restore integrity to US financial markets. The markets don’t work for lack of trust – and the reasons for that lack of trust are obvious to anyone who looks – this being another example.

John Hempton

Gentle understatement

The Dreier law firm closed down awful fast.  Its website is still up and there is no news on it about the firm’s liquidation.  If you ring 212-328-6111 you get the following beautifully understated message:

You have reached the office of Marc Drier.  At the present time he is not available to take your call.  If you require immediate assistance please dial zero for the operator and ask for Catherine…

The motto of the new era: live fast, die young, leave a pretty website. 

Weather and subprime mortgages

Maybe I am a little harsh on people... strange things happen.  Normal distributions are not normal.  

Paul Kedrosky has a wonderful post on river flows in San Diego.  

http://paul.kedrosky.com/archives/2008/12/17/weather_geekery.html

The weather flows are even more abnormal than mortgage pools with 30% default rates.  

The world is strange...

John Hempton

Robust and thorough due diligence is back

Bramdean Asset Management (Nicola Horlick’s business) used to have this line on its website:

Robust and thorough due diligence is at the heart of our firm's investment process. Our detailed manager monitoring programme ensures that our clients' investments are subject to on-going and effective governance.

I pointed out the incongruity between that line and the substantial investment in Bernie Madoff’s fund. 

Within hours “robust and thorough due diligence” was unfashionable – having being dropped from Bramdean’s site.  Nicola Horlick was – consistent with her BBC appearances – insisting that the due diligence failures were the fault of the SEC.  [As anyone with long experience knows the SEC is useless – but Nicola Horlick discovered that only last week.]

Anyway – it appears that “robust and thorough due diligence” is back in fashion.  Bramdean’s site now contains the following paragraphs which are consistent with both the prospectus of Bramdean alternatives and statements made to the stock exchange.  

Robust and thorough due diligence is at the heart of our firm's investment process. Our detailed manager monitoring programme ensures that our clients' investments are subject to on-going and effective governance. Our investment process includes a number of meetings with managers, carrying out on-site visits, as well as off-site analysis. Research reports are prepared for proposed investments and these are presented to the firm's investment committee. That committee has to approve all investments.

We report transparently and regularly to our clients and investors. In regard to Bramdean Alternatives Limited we produce a monthly Factsheet in addition to our regulatory reports which are prepared at the half-year and full-year end. We provide details about the portfolio, the asset allocation and the geographical allocation on www.bramdeanalternatives.com, which is updated every month following the release of the month-end net asset value.

Anyway lets examine what that due diligence entailed.  There were two holdings in the Bramdean Alternatives accounts that were described completely differently.  These were Rye Select and Defender.

Here is how the last Bramdean Alternatives annual report described Rye:

Rye Select Broad Market XL portfolio Ltd

Strategy Derivative Arbitrage

Fund size US$330 million

Portfolio Weighting 3.49%

The Fund was launched in September 2006, although the manager has many decades of experience in executing the underlying strategy. The Fund is a relative value fund which specialises in derivative arbitrage and index trades.

The Rye Select portfolio is a three-times leveraged version of a very conservative split-strike strategy – which consists of the purchase of a basket of equities, the purchase of a put option and the sale of a call option. The strategy has provided steady incremental profits for the portfolio over the period. During the months that the manager felt there were no sufficient investments to take advantage of, it remained in cash.  The cost of leverage normally outweighed the interest from the capital during these months.

And here is how Bramdean Alternatives described Defender Ltd

Defender Ltd.

Strategy Relative Value

Fund size US$382 million

Portfolio Weighting 4.18%

This Fund was established in May 2007 and the manager, Reliance Management BVI Ltd., currently employs, via its subsidiaries and affiliates, 17 employees with two key principals: Linda Wayman and David Whitehead.

The majority of the Fund’s assets are traded by Bernard L. Madoff Securities LLC, based on a trading authorisation agreement with the Fund. Madoff Securities is a leading international market-maker in all of the S&P 500 stocks. Madoff Securities is also a leader in the U.S. ‘third market’ which trades U.S. listed equities away from the exchange floor.  Based on the trading authorisation with the Fund, Madoff Securities implements a strategy that consists of a long position in a basket of S&P 100 shares and an index option strategy against these shares (bull spread). Madoff Securities will only enter into this trade if it believes that it can profit.  Otherwise, the money is invested in U.S. Treasury-bills.

The Company invests in this low-risk, high-liquidity fund as a vehicle to provide short-term liquidity to fund private equity capital calls. The Fund is continuing to contribute steady monthly returns for the portfolio as intended.

Now it turns out that both of these funds were Madoff feeder funds and had their capital almost exclusively with Madoff.  In other words they were essentially identical – though Rye may have been levered to Madoff.  

The descriptions given by Bramdean/Horlick are wildly different.  Did Nicola Horlick and her much vaunted investment committee know that these two funds were identical?  Or did they fail even that part of the due diligence?  There should be reports on both funds.  Nicola has told the stock exchange that the process is “systematic and disciplined” and that reports are prepared on all managers.  

If those reports did not identify that the manager was the same then Nicola’s organisation is grotesquely incompetent.  And if the reports were not prepared then Nicola has committed criminal fraud by telling the stock exchange that they were prepared and raising money based on her vaunted due diligence process.

I can’t see an alternative to incompetence or fraud – and when faced with that choice I usually pick incompetence – but hey – this is superwoman.  And who would have though that she was incompetent?

Liquidity needs of the private investments

There is a second problem here – which is the annual report clearly states:

The Company invests in this low-risk, high-liquidity fund [Defender] as a vehicle to provide short-term liquidity to fund private equity capital calls. 

The Defender moneys are now gone down the Madoff Ponzi.  It is incumbent on Bramdean Alternatives to inform the market as to how they now intend to fund private equity capital calls. 

They may have other resources – indeed they hold cash.  But a disclosure to the stock exchange is required.  

Did Nicola Horlick’s due diligence allow Bramdean Alternatives to get fleeced on a day-to-day basis by Madoff feeders?

One thing about the Rye reporting puzzles me.  Madoff never reported a down period.  A levered Madoff fund always made money until the ponzi was exposed.  But Bramdean Alternatives reports that there were periods where the fund did not cover its cost of leverage.  

This is strange… did Nicola Horlick allow her clients to be fleeced on the monthly returns by Rye or some other intermediary?  If so what does that say about her due diligence?  She could of course do due diligence on Rye…

Bronte’s view

Every day that Bramdean remains licensed (FSA register number: 410624) is a day that brings discredit to the British Capital Markets.  Removing Nicola’s licence is in my view a no-brainer.  Either fraud or incompetence is demonstrated here.

Further the reports into Rye and Defender – both of which were prepared after “systematic and disciplined” due diligence should be made public.

Failure to make those reports public brings further discredit to the British capital markets because it makes it appear as if Nicola Horlick has been able to raise money based on fraudulent statements about the nature of her due diligence processes.

If the reports do not exist then Nicola Horlick should be charged with fraud.

John Hempton

One correction...

The Rye Select Broadmarket XL fund is a three times levered version of the Rye Select fund.  Here are the stated returns of the Rye Select fund:

A three times levered version of that would produce negative returns in some months - for instance in October when the stated "return" was 0.05 percent.  

I also have a copy of the offering document for the three times levered fund.  It never mentions the name Madoff.  Perhaps - and I am speculating here - that is why Bramdean never mentioned Madoff.  

J

Criminal charges for Nicola Horlick now?

Note:  I have edited this post.  I put a question mark in the title.  Nicola almost certainly has the reports into Madoff that her due diligence process claims she has.  In which case the due diligene was grotesquely sloppy - but at least done - and she has therefore not misled the market as to the nature of her due diligence process.

I think - for the removal of any doubt - she should release them publicly.  

If she does not have them she leaves herself vulnerable to a fraud charge.  It should be a simple thing to release them.  I urge release of these reports.  

Nicola Horlick has decided that due diligence is passé.  The website of Bramdean Asset Management used to contain the following paragraph.

Robust and thorough due diligence is at the heart of our firm's investment process. Our detailed manager monitoring programme ensures that our clients' investments are subject to on-going and effective governance.

That paragraph has now been removed as detailed here – and on Naked Shorts.

But is worse.  Bramdean Alternatives is a listed company – and its annual reports are statements to the stock exchange.

Bramdean Alternatives annual report contains the following statement about how investments are chosen.

The investment process is systematic and disciplined.  Due diligence is at its heart and around 3-4 months are typically spent analysing a potential manager, a process which includes a number of on-site visits with that manager. The process culminates in the provision of a detailed report that is then presented to and discussed at Bramdean’s Investment Committee, where a selection decision will be made on all private equity funds, specialty funds, and transitional investments. That Committee has to approve an investment unanimously before it can proceed. Where required, Bramdean will also conduct legal diligence.

Ongoing monitoring is similarly robust and includes regular reviews of market conditions and their potential effect on the underlying funds and any direct private equity investments. In response to the conclusions drawn from this process, the Investment Committee will decide whether or not to retain an investment.

Ok – it is time for Nicola to come clean.  According to Nicola 3-4 months was spent analysing the Madoff investment and a number of on-site visits were made.  There was a detailed report presented at the Investment Committee.  

Release that report now.  Go on.

Otherwise we have to conclude that such a report does not exist and Nicola is the CEO of a company making false statements.

If the UK regulators are as diligent as Nicola demands US regulators be, and that report does not exist, then it is prison time for Nicola.

But Nicola is an honourable girl.  Go on - release the report.

Nicola Horlick is a silly silly girl

One of the things about the web is that it has a level of permanence.  You put stuff out and you have to live with it.  

Only a few hours ago – and preserved for posterity here the website of Bramdean Asset Management said this:

Robust and thorough due diligence is at the heart of our firm's investment process. Our detailed manager monitoring programme ensures that our clients' investments are subject to on-going and effective governance.

I pointed out the incongruity between this statement and losses in Bernie Madoff’s ponzi scheme only a few hours ago – and the offending paragraph has rapidly been removed from Nicola Horlick’s site.

Google however saves the day.  Here is a picture of Google’s cache of the site.  Note the offending paragraph.

And here is how the site as it currently appears with the paragraph removed.

So now Nicola we know your organisation was incompetent in its due diligence.  This should be the death knell for a fund of funds business.

You are now proven to be deceitful hiding website content when it is inconvenient.  Publicly exposed deceit should also be the death knell of any financial business.

And you are incompetent as you try to cover your tracks.

Lawyers note this.  Any sensible jury would see this behaviour as an admission of guilt.  

Nicola – you were never worth the trust people put in you.  You have now proven it.

If your business is not dead before this deceit it most certainly is after.

John Hempton

My delayed Nicola Horlick post

Oh dear

I deliberately did not post on Nicola Horlick and her investment in Bernie Madoff’s giant ponzi scheme because I thought I might be transgressing on some gender issues.  I wrote the post – and I never put it up.  

But this blatant piece of garbage self defence has spurred me to action.  She thinks that we are being sexist singling her out.  

I will just put up the original post.  You decide...

Your chance to see Superwoman naked

Warren Buffett famously said that when the tide goes out you can see who is swimming naked. As a surf lifesaver I can tell you that Buffett’s pithy remark is not literally true. And nor is the title of this post – so the perverted can stop reading now.

Ok, so you are still with me. I didn’t think too many of my readers would admit their perversion…

Anyway Nicola Horlick is London’s famous superwoman – an attractive articulate woman who has juggled several high profile jobs, five children and a messy divorce all in the glare of London’s insatiable gossip press. When I was younger I looked at my career and wondered how she did it.  I also wondered how she generated all those headlines.

Ms Horlick has now started her own business – a fund-of-funds known as Bramdean Asset Management. Bramdean and Nicola of course know their job – as their website says:

Robust and thorough due diligence is at the heart of our firm's investment process. Our detailed manager monitoring programme ensures that our clients' investments are subject to on-going and effective governance.

Good – we got that. And it is not boilerplate. Due diligence is actually not that hard a lot of the time. And if you don’t do it you will wind up with a Greg Duran or a Bernie Madoff.

Pregnant pause…

What… Nicola did get a Bernie Madoff – and for almost 10 percent of her funds under management. 

This can’t be happening. She is superwoman after all. After all there were warning bells and Jim Vos nailed it.

Now here is the question: does a fund-of-funds which correctly lists due diligence as the core function deserve to exist if it invested with Bernie Madoff?

I think not.

Superwoman is metaphorically naked.

I think Nicola would have preferred run literally naked through Piccadilly Circus than have this happen to her and her clients. It would have helped News Corp sell papers too.

As for her business. It is over.   She tied the rope around her neck when she invested with Madoff. And the hangman has pulled the lever. For the junior staff – it is time to pack up shop and find a real career.

The Bramdean website says that it is uncertain as to what the value of Madoff funds are. Who are they kidding – Naked Shorts has that answer.

As for the value of a fund-of-funds business with Madoff in the portfolio? Well that is fast approaching the same answer.

John Hempton

One correction - the loss to Bernie Madoff was in the alternatives portfolio only.  In otherwords almost 10% of the money allowed to be invested in hedge funds was invested with Madoff.