As people sift through the rubble left behind by Bernard Madoff’s Ponzi scheme, Harlan Platt, Ph.D., a business turnaround expert and finance professor at Northeastern University College of Business Administration, raises an interesting question (you can find a copy of Prof. Platt's bio here: http://cba.neu.edu/faculty/directory_detail.cfm?e=33):
“What people should be asking is how many other cases like Bernie Madoff's alleged fraud are out there waiting to be discovered. The answer to that question is probably too many,” Dr. Platt points out. “The problem is that as private vehicles, often owning illiquid and rarely traded securities, hedge funds are not subject to the same rigorous auditing as would be a mutual fund. Hedge funds often establish the value of their holding themselves or in conjunction with other hedge funds. The opportunity for self dealing and overestimation of values is overwhelming.”
“Trillions of dollars have been invested by ‘sophisticated’ investors in hedge funds. The requirements to be a hedge fund investor are high though I believe they were recently lowered,” Prof. Platt states. “The presumption is that intelligent investors will hold funds accountable. That is too much to ask.”
“Should the government come in and regulate the disclosure and accounting practices of these huge accumulations of capital. I don't necessarily think so,” Dr. Platt denotes. “What is necessary is that the government keep small investors away from the fire. Of course pension funds and others who invest for small investors may get caught in frauds and lose the small investors money. Pension managers generally run with the herd. In the ‘go-go’ years they fought to be allowed to invest. Now they will all run away. Maybe what the small investor needs is better pension managers?”
“What people should be asking is how many other cases like Bernie Madoff's alleged fraud are out there waiting to be discovered. The answer to that question is probably too many,” Dr. Platt points out. “The problem is that as private vehicles, often owning illiquid and rarely traded securities, hedge funds are not subject to the same rigorous auditing as would be a mutual fund. Hedge funds often establish the value of their holding themselves or in conjunction with other hedge funds. The opportunity for self dealing and overestimation of values is overwhelming.”
“Trillions of dollars have been invested by ‘sophisticated’ investors in hedge funds. The requirements to be a hedge fund investor are high though I believe they were recently lowered,” Prof. Platt states. “The presumption is that intelligent investors will hold funds accountable. That is too much to ask.”
“Should the government come in and regulate the disclosure and accounting practices of these huge accumulations of capital. I don't necessarily think so,” Dr. Platt denotes. “What is necessary is that the government keep small investors away from the fire. Of course pension funds and others who invest for small investors may get caught in frauds and lose the small investors money. Pension managers generally run with the herd. In the ‘go-go’ years they fought to be allowed to invest. Now they will all run away. Maybe what the small investor needs is better pension managers?”
Posts
0 comments:
Post a Comment