My FT column this week is on funds of funds in the wake of the Bernard Madoff scandal.

“For Monica and Walter Noel, their hilltop retreat on Mustique is all about the mix – of family, friends, great times and a sexy global design style,” declared Town & Country in 2005 about the founder of the hedge fund group, Fairfield Greenwich, his Swiss-Brazilian wife and their five photogenic daughters.

Three years earlier, the Noels were photographed for a Vanity Fair article called “Golden in Greenwich”. The piece marvelled at their lifestyle, with the “glamazon” daughters, having married globe-trotting financiers, living in London, New York, Rio de Janeiro and Lugano.

It was a fairy tale existence, in more ways than one.

The Noels’ millions, it turns out, were largely derived from Bernie Madoff’s alleged $50bn Ponzi scheme. The fees to investors on Fairfield’s biggest hedge fund, the Madoff- managed Fairfield Sentry, produced two-thirds of Fairfield’s $250m revenues, and $200m profits, in 2007.

Those figures, disclosed by The New York Times, illustrate just what a nice business the funds-of-funds industry had become. That profit of $200m was mostly distributed to Fairfield’s 21 partners, including four of Mr Noel’s sons-in-law.

The Noels did not know the family business was supported by fraud but that is not exactly a justification since Fairfield, like other funds of funds and European private banks that entrusted their investors’ money to Mr Madoff, were paid above all to keep it safe.

Now the funds-of-funds industry, which hardly existed two decades ago but today handles 45 per cent of all hedge fund assets, has moved from hilltop retreat to dog house.

You can read the rest here and comment below.

January 8, 2009 1:50am in Finance | Comment