Because they thought they were getting 10% to 12% per year. He attracted 50 billion in investment cash by obtaining a consistent 10% to 12% return, or so it was believed. What does that tell you about the performance of the rest of the fund 'managers?' Their performance must be pretty weak and spotty, huh? Yeah, I'd bet most don't even consistently return a net profit after fees, etc. are deducted, and that the name of the game for 97% of the managers is to lose less than the next guy, as it's all relative. If you've managed to return more than 6% in your own trading account, consistently, year after year, for any period of 4 years or more, you should be running your own fund. But most of you are too busy taking 12,000 to 1.7 million by year end.
When you've hit that manic-depressive cycle, because you're up 200% one month, and down 400% the next, how does it feel? Is the high or the low more intense?
riskless reward is what got bernies billions. 10% -11% with no drawdowns; or so they thought. Then you had the funds of funds raising money and handing billions over for a fee, they just like bernie should also be inside a jail cell. They obviously looked the other way while getting a nice bird-dog
You don't have to make 200%/yr to attract investors. Used to be that if you could guarantee investors 10%/yr return, you'd get buried in money.... that might be 6% today. Madoff's "returns" were so steady, naive investors came to think of his deal as "guaranteed" [well, almost].
Cubano and Scat - you guys are right. My point, though, is that with the kinds of clients Madoff was attracting - uber wealthy (more wealthy than the newsworthy celebs spoken of, like Kevin Bacon, Spielberg, Katzman, etc.) - these people get solicited by the best performers and can choose from the cream of the crop as to who handles their money. Obviously, Madoff's 10% to 12% consistent returns were better than they thought they could achieve with anyone else, balancing the risks. There are a ton of funds that return 35% one year, only to lose 46% the next.
Investors like volatility ONLY when it's on the upside. Steady returns (especially avoiding significant drawdowns) even if lower, are what attract big money.
Madoff also had credentials and name in the industry being a former Chairman of NASDAQ (i think). To add to that consistent 10% a year, the name gets around. Also his investors were made to believe that Madoff knew some inside tricks of making riskless trades on the exchanges and thus his returns were as good as those from the bank CDs. Madoff really pulled it off in the big and long way. Crook!
If any of the investors had read their statements closely and understood options they should have figured it out: Dec. 19 (Bloomberg) -- The options trading strategy Bernard Madoff said he used to help produce profits for 17 straight years would have required at least 10 times the contracts that trade on U.S. exchanges.
Look at it the other way. A former Nasdaq chairman, with all his connections, still can't get an edge to get 10% per year. That tells you the playing field is quite even too. So, that is a good thing.