Jesse Eisinger writes today about the intriguing/depressing fact that despite being enveloped in scandal, SAC Capital Advisors’ flagship hedge fund saw net inflows of $1.6 billion in 2010 and 2011. The reason, he says, is because big investors have skewed priorities:
The biggest, most sophisticated investors certainly put an enormous amount of pressure on hedge funds. But almost none of it is about ethics and clean culture. It�s about performance. A fund that runs a few ticks lower than its peers for several months running can get put out of business.
But investors seem to demonstrate little interest in whether the person is ethical and trustworthy. Shouldn�t their threshold be a wee bit higher? After all, these institutions are mainly investing other people�s money. Investing money isn�t quite a sacred trust, but it�s a trust nonetheless.
As Eisinger notes, putting good returns over good behavior isn’t a new phenomenon:
This is a long-standing Wall Street custom. Citigroup (C) and JPMorgan (JPM) played handmaiden to help Enron commit fraud, according to the Securities and Exchange Commission. The two banks didn�t admit or deny guilt in settling with the regulator.
There is a point where willful blindness turns to complicity. Investors profit from any added juice that SAC might gain, whatever its source.
And while the investors are profiting, there’s going to be a poor sap on the other side of a trade who’s getting unfairly burned — which is a problem for stocks, because it contributes to the idea that the market is riggedand that, arguably is one reason why retail investors are fleeing. As Eisinger notes, while it behooves SAC head honcho Steve Cohen to keep a clean house, it’s surely the responsibility of big investors to send a message to money managers that ethics and fairness are important.
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