Posts Tagged ‘family office’
“They are the cancer of the institutional investment world.” – David Swensen
Would you consider forming a partnership with someone you don’t know, in which you would contribute the money and that someone would conduct a business that you don’t understand, and do the accounting as well?
Most business owners would respond with a resounding “No!” The reason is obvious: such an arrangement is the surest way to lose money.
Share this:
“Avoid conflicts of interest.” – David Swensen, Yale Endowment CIO.
Jose is the head of a ultra high-net-worth family. He has a number of accounts with Merrill Lynch (ML), the storied brokerage firm that paid their senior executives $4 billion in bonuses last year. Three of his accounts lost a great deal of money, not due to the market crash but to conflicts of interest.
Double dealing in Treasury
Jose has a Treasury account where his ML wealth manager![[picture of double dealing, enable image to view]](https://investmentscientist.files.wordpress.com/2009/02/financial-advisor.jpg?w=240&h=160)
purchases Treasury bills, notes and bonds for him. Last year was a great year for Treasury securities – the market turmoil caused investors to flock to them, driving prices up more than 10%. Jose’s account, however, lost 3%. How could this happen? Conflicts of interest. ML is a primary dealer in the Treasury market. They buy Treasury securities and resell them to their customers at a markup. It looks like the markup is so high it takes away all the customer profit.
Churning stocks
The Investment Scientist 