Here is an article from yesterday's Wall Street Journal. It details the people and organizations that acted as marketing arms for Bernie Madoff. Some of the guys were just salesmen that sold Madoff's false returns. One firm, Tremont, a sponsor of funds-of-funds had $3.3 billion with Madoff. My guess is that it will be hard for Tremont to survive this as it touted its due diligence and diversification while limiting information on the managers it used. Assets will flee Tremont over the next months and quarters.
The one guy in the article that stood out to me was a Los Angeles financial advisor that formed various partnerships that in turn invested all their assets with Madoff. Here is the outtake:
Mr. Chais charged substantial fees, according to the statement from the Marloma partnership -- 4.5% of clients' assets.I don't know if this is an upfront fee or annual fee, but if it's an annual fee, the clients in this advisor's partnerships were paying an outrageous level of fees. This advisor raised capital through his partnerships, invested all the capital with Madoff, and then did nothing but collect fees. The ultimate something for nothing - and nothing is what he and his clients have now.
The Madoff scandal is exposing ugly fee arrangements - and who said rich people hated paying fees. Many Madoff investors were paying multiple levels of fees, with both annual fees and performance percentages, for a strategy, if executed without fraud, that by design limits returns. I will explain the basics of how I understand Madoff's strategy in a later post.