Publication Type
Magazine Article
Version
Publisher’s Version
Publication Date
9-2009
Abstract
We examine two of the most fascinating fraud cases that rocked the hedge fund industry: Bernard L. Madoff Investment Securities and Bayou Management. From academic research and news reports, we distill important lessons for the hedge fund investor. Our key conclusions are (i) conflicts of interests are often symptomatic of more serious problems at hedge funds, (ii) auditing statements from obscure accounting firms should provide little assurance to investors, (iii) a comparison between the actual fund risk exposures based on realized returns with the theoretical risk exposures from the trading strategy serves as a useful cross-check for investors, and (iv) for funds with a master-feeder structure, it is important to conduct due diligence on both the master and the feeder fund.
Keywords
Hedge funds, frauds, Madoff, lessons, conflict of interests, risk exposures, due diligence
Discipline
Finance and Financial Management
Research Areas
Finance
Publication
Hedge Fund Insights: Newsletter of the BNP Paribus Hedge Fund Centre at SMU
First Page
2
Last Page
6
Publisher
BNP Paribus Hedge Fund Centre, Singapore Management University
City or Country
Singapore
Citation
Teo, Melvyn. 2009 September. Lessons from Hedge Fund Fraud. Hedge Fund Insights: Newsletter of the BNP Paribus Hedge Fund Centre at SMU, 2-6.
Copyright Owner and License
BNP Paribus Hedge Fund Centre, Singapore Management University
Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.