Continue reading James Simons: Legendary hedge fund pro calls it quits

James Simons: Legendary hedge fund pro calls it quits originally appeared on BloggingStocks on Fri, 09 Oct 2009 10:30:00 EST. Please see our terms for use of feeds.

This week a little story about a $50 billion investment fraud has metastasized. Madoff Securities, a brokerage firm that ran a secretive investment fund on the side, has closed down -- revealing that its steady 10% annual returns was a result of a Ponzi scheme. For some who trusted Madoff a week ago, they are today coming to grips with life without money. Is Madoff the only one out there? I doubt it. So you need to protect yourself.

How did Madoff accomplish this? That story has yet to be revealed. But founder Bernie Madoff revealed that he was using money from his most recent investors to pay off the earlier ones who requested their money. And a letter from hedge fund research and advisory firm, Aksia -- which steered its clients away from Madoff -- reveals five useful clues:

• Unknown accounting firm. Madoff used an accounting firm Friehling & Horowitz that employed three people -- one was a 78 year old living in Florida.
• Incomprehensible investment strategy too good to be true. Madoff employed a "split conversion strategy" which was never clearly defined and whose returns other traders could not duplicate.
• Deception about technology. Madoff claimed it was technologically sophisticated but a visitor to its offices found paper tickets sent through the mail.

Continue reading $50 billion investment fraud: Could you be next?

$50 billion investment fraud: Could you be next? originally appeared on BloggingStocks on Sat, 13 Dec 2008 08:41:00 EST. Please see our terms for use of feeds.

Tom Taulli is the author of various books, including The Complete M&A Handbook and The Edgar Online Guide to Decoding Financial Statements.

Hedge fund Renaissance Technologies - looking to sell out? originally appeared on BloggingStocks on Tue, 28 Aug 2007 15:45:00 EST. Please see our terms for use of feeds.

The most highly paid hedge fund manager made $1.7 billion in 2006, according to the New York Times. That's 28,333 times more than the roughly $60,000 that the median U.S. family made in 2006.

Hedge funds are a good business to be in if you can attract lots of capital and earn high returns from investing it. That's because hedge fund managers take 2% of the assets under management as an annual fee. And they earn 20% of the profits they make for their investors. James Simons, the 69-year-old former math professor, who pulled in $1.7 billion, uses complex computer-driven mathematical models to make bets on stocks, bonds and commodities at his fund Renaissance Technologies. Simons fee is 5% of assets under management and 44% of profits. But he beats the competition regularly. In 2006, the $6 billion Medallion fund posted gross returns of 84%; 44% after fees.

A doctor asked me why, if he was such as hot shot, these money people made so much more than he did. The answer is fairly simple. Doctors get paid on a per patient basis. No matter how many patients the doctors take on, there are only seven days a week and 24 hours in a day. And if a doctor takes some time off from work, that further limits the available hours. And the pay for many of the procedures doctors perform is limited by government regulations.

Ours is a society that rewards making money. And hedge fund and private equity managers make more of it for their investors than anyone else. As they love to say, if you pay peanuts, you get monkeys.

Peter Cohan is President of Peter S. Cohan & Associates, a management consulting and venture capital firm. He also teaches management at Babson College and edits The Cohan Letter.

Leading hedge fund manager makes 28,333 times the median family income originally appeared on BloggingStocks on Tue, 24 Apr 2007 11:25:00 EST. Please see our terms for use of feeds.