Hedge Funds: The Road Back

Last November, fund-of-hedge-funds manager Sandra Manzke of Maxam Capital Management sent out a Jerry Maguire-esque letter to her investors in which she stated that she was "appalled and disgusted" by the behavior of hedge fund managers today.

They no longer acted with investors' interests in mind, she said, as they did 25 years ago when she founded Tremont Capital. Managers today followed questionable practices like "gating, side pocketing, suspension of redemptions ... attempting to get their money out ahead of investors, [and] eliminate[ing] high water marks".

At first, Manzke was portrayed as a whistle-blower trying to get the rest of her greedy industry in line. Then, Bernie Madoff happened. In the fallout, it came to light that both Tremont and Maxam were heavy Madoff investors. Earlier this month, both firms separately announced they would have to shut down as a result of Madoff-related losses. Ironically, the firms (like many Madoff investors) did little to no meaningful due diligence and were content to play middlemen for a performing product and collect their fees. The would-be reformer should have started her efforts in her own backyard. ...