Where there is smoke...?

Where there is smoke... there may be fire... or not. The following is a note you never want to receive as an investor.

July 31, 1998

“As soon as the mispricing was identified, XYZ commenced an investigation concerning the portfolio valuations and has adopted revised internal pricing procedures…”

Again, this is dated from over 10 years ago and it is important that people recognize the need for process and policies at all investment firms however big or small. It remains one of the achilles heel of the hedge fund industry that managers "under-invest" in infrastructure and/or choose to "outsource" in order to maintain low costs.

The eventual result of the above investigation resulted in the firm being shut down with significant losses and several other sanctions for the manager.

Where there was smoke... in this one case... there was an actual fire.