Madoff's marvellous returns: We explore the investment returns behind the world's largest ever ponzi scheme
Bernie Madoff, disgraced financier and architect of one of the most elaborate frauds in corporate history, has died in prison this week aged 82.
Mr. Madoff's marvellous returns
Thanks to an in-depth academic study of Fairfield Sentry, one of Madoff's investment vehicles, we've been able to dig out the monthly investment returns for Madoff from 1990 to 2008, with 215 months of returns data. The numbers show a remarkable (fake) track record. According to the data, Madoff's worst month out of all 215 was a -0.64% return, with 198 months reporting a positive return for investors.
From this data we estimate that a $100 investment with Bernie in the Fairfield Sentry fund in 1990 would have turned into almost $600 by 2008 — a nice return that would have been seemingly achieved with an incredible amount of consistency and very little volatility.
In hindsight it's easy to say that Madoff's returns looked "too good to be true", >90% of months in the green does sound a bit absurd, but at the time it wasn't easy to spot. Madoff made bold claims about his, now infamous, split-strike conversion strategy which consists of "a long equity position plus a long put and a short call". If that confuses you, don't worry it is supposed to, and it explains why so many people — including celebrities and some sophisticated investors — had no idea they were investing in the world's largest ponzi scheme.
