1/7/09 Warren Buffet Warned Against Using Funds Like Walter"Feeder Fund" Noel's Greenwich Fairfield

Buffett's little helpers
Business Spectator, Australia

“For Monica and Walter Noel, their hilltop retreat on Mustique is all about the mix – of family, friends, great times and a sexy global design style,” declared Town & Country about the founder of the hedge fund group, Fairfield Greenwich, his Swiss-Brazilian wife and their five photogenic daughters

Three years earlier, the Noels were photographed for a Vanity Fair article called “Golden in Greenwich”. The piece marvelled at their lifestyle, with the “glamazon” daughters, having married globe-trotting financiers, living in London, New York, Rio de Janeiro and Lugano.

It was a fairy tale existence, in more ways than one. The Noels’ millions, it turns out, were largely derived from Bernie Madoff’s alleged $US50 billion Ponzi scheme. The fees to investors on Fairfield’s biggest hedge fund, the Madoff-managed Fairfield Sentry, produced two-thirds of Fairfield’s $250 million revenues, and $200 million profits, in 2007.

Those figures, disclosed by The New York Times, illustrate just what a nice business the funds-of-funds industry had become. That profit of $200 million was mostly distributed to Fairfield’s 21 partners, including four of Mr Noel’s sons-in-law.....

....Madoff-linked groups such as Fairfield Greenwich, Tremont Capital and Union Bancaire Privée clearly failed to perform their lucrative jobs well enough. That rounds off a bad year for funds of funds, which have performed even worse than hedge funds and now look ridiculous.

Warren Buffett always thought they did.

The Sage of Omaha has a thing against “helpers”, such as hedge funds, that take investors’ money in fees while performing not much better than a low-cost index fund.

That applies especially to funds of funds, which exist to carry out due diligence for investors who do not have the time or resources to do it themselves, and put their money in a selection of hedge funds. For that, they charge 1 per cent plus 10 per cent of any investment profits.....

.....Mr Noel was a whizz at marketing both his family and Mr Madoff’s supposed expertise. As the hedge fund industry has expanded rapidly in the past couple of decades, other funds of funds have also been able to make a fine living mainly by offering the promise of access

The nitty-gritty stuff turns out to be more important. Doing worse than the S&P 500 is one thing; losing all your money is another. They were great, sexy times for funds of funds but that was in another country and besides, the illusion is dead.

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