It is a red flag said Christophe Chouard

Since the revelation of the Madoff case, Friday, the issue of the "hedge funds" regulation arise in different terms. And for good reason: the broker company, domiciled in the United States, was the subject of regular checks on the part of the Securities and Exchange Commission (SEC, read above). Which had to fool more than an investor. Even among the most prestigious. Throughout the weekend, institutions have unveiled their exhibitions on this investment. And others do so in the days and weeks ahead, so the risk is distributed among others through structured products.

However, institutional investors, private banks of management, the multigérants are supposed to not to place their capital lightly. They need to "due diligence" in the "hedge funds". To carry out these missions that can last up to a month, most companies hedge have teams of analysts specialize by management styles. They pass the sieve of a grid of criteria, company and Fund. To invest, it is better that the LEDs are green, or very little red flags ("red flags") to be lifted. Because of this expertise, "our institutional clients invest in funds of"hedge funds"to which they delegate so the selection of managers, describes Frédéric Pétiniot, Director General of the consultant Amadeis.".

Sources of profit

"The basic rule is to understand what the Manager and to know the sources of advantage of its market," says Cyril Juillard, President of Eraam, specialized in the hedge. In March 2003, this rule would have helped Lyxor Asset Management, which operates a platform for managed accounts of "hedge funds", do not select BMIS (Bernard l. Madoff Investment Securities). According to our information, the subsidiary of Société Générale did not understand how the Fund had such results of recurrently. Indeed, it has been only five negative months on 156. Such regularity raises questions. "The performance were not sensitive to shocks in the market," said Christophe Chouard, Director-General delegate of HDF Finance, who was hampered also by proximity between the broker and Manager. The historic expertise of Bernard Madoff in the negotiation of the orders was seen by some as of value added. This cumulation of trades would have been another reason for the abandonment of Lyxor. "We look at the independence of the trades between the one who manages, the depositary and the upgrader, insists Cyril Juillard.". In Europe, it is essential. In the US, this is not prohibited.

The world of alternative management is small. "All managers know, noted the Eraam pattern." Failure to regularly visit management teams, it is useful to have a qualitative information network of the first order. "Thus, the information flows. Christophe Chouard insist on this informal aspect: "In our selection, we call in General others who attended the Manager." The reputation and integrity are essential criteria that we assess. Then, we will see teams on the spot.

Other issues arise, particularly in the choice of the listener. In the case of Madoff, he has focused on Friehling & Horowitz, a small firm. "It is a red flag," said Christophe Chouard. Given its size, the Manager could choose one of the great listeners. "Despite these safeguards, investors have been abused. The US regulator, also.