18 September 2010

Can an ETF collapse?

The ETF concept is spreading fast so it is useful to pause for a moment and consider possible risks that are not mentioned by the marketing men selling these products. When a headline such as this one catches our eye we therefore pay attention. It demonstrates that all investments carry some risk and investors are well advised to do their own due diligence rather than rely on marketing patter or recommendations by 'friends'

16 September 2010

Still no end to conflicts of interest

One of the areas where PBA helps clients to navigate the investment scene is the prevention of possible conflicts of interest among the client's money managers. Recent trends in the regulation of financial service firms also tend to strengthen this aim. So it is with curiosity and surprise that we learn that a major player in the private banking industry has just taken a stake in a large hedge fund business (Credit Suisse pays $425 million for a 30 per cent stake in York Capital Management). The deal may well work out for CS - it certainly will for York's management. But Private Banking Advisory has reservations about a bank's investment advisers recommending in-house funds. While CS only owns a stake in the profits this creates a possible conflict of interest. And does a bank like Credit Suisse really need to buy access to a fund? If performance at York weakens what will the bank then do? Will the advisers still give preference to York's funds? and if there is no preference - as it should be - to begin with, why buy a stake?

11 September 2010

SEC to examine Investment Advisors for conflicts of interest

Fund allocators in Private Banking and so-called Hedge Fund of Funds have traditionally been a major source of investment money that found its way into the Hedge Fund sector. Both sources are widely spread internationally and have been subject to little or no supervision and regulation until now. There is also scant disclosure of the terms they exact from the funds they allocate money too and many investors - especially private individuals - did not know to ask the right questions and were also kept in the dark. So we welcome the decision by the SEC to examine whether firms that collect fees for funneling investors into hedge funds are properly overseeing client money and dealing with potential conflicts of interest (Wall Street Journal, 10 Sept 2010).

Fraud: Keneth Starr stole $50 million

Not a day passes without a headline about another investment scam.

9 September 2010

Fraud: another Mini-Madoff gets unmasked

Not even law enforcement personnel is safe from the attentions of investment fraudsters.  Wayne Macleod's ponzi harvested US$ 43 million from duped investors.

4 September 2010

Dangers of Performance Pay

News that a highly risky mortgage bond has found ready buyers illustrates the danger of paying financial advisers or money managers a performance bonus. This type of compensation encourages fund managers to take undue risks. As it is not their own money that is at stake they find it that much easier to take risky investment decisions. Should things turn out well they are in line to earn a performance bonus. On the other hand, should the investment under perform or even turn sour they have still been paid their regular salary for the duration. With a bit of luck and the gift of the gab they may well find an excuse for the poor result by pointing to difficult markets. At worst they are losing the mandate or their job.

3 September 2010

Los Angeles Jewish-Iranian Community hit by suspected $500 Million fraud

The roll-call of investment scams and frauds gets longer by the day. This story illustrates that it is not enough to follow recommendations by friends and acquaintances or to be overly impressed by appearances.