Gotta Risk it For The Biscuit
Is it possible to have investment success without risk?
For almost twenty years it seemed like it was possible, if you had access to the right investment manager.
Below is a factsheet from Zurich-based NPB Neue Privat Bank for a leveraged version of the Fairfield Sentry Fund, the largest feeder fund into Bernie Madoff’s Ponzi scheme. This was issued by Nomura Bank International — showing 18 consecutive years of positive returns.
Other banks such as Banco Santander, Banif, and Swedish Bank Nordea. and Banque Benedict Hentsch & Cie also had feeder programs into the fund.
At a moment in time, the largest and smartest investors were invested in this fund that promised returns that seemed risk-free — amongst them, one of the world’s largest sovereign wealth funds, the Abu Dhabi Investment Authority and the largest bank in America, JPMorgan Chase.
More than 7 billion dollars in the fund had been chasing what seemed to be a free investment return before it all came crashing down to 0.
Market-beating performance, smooth returns and no yearly losses for almost 2 decades —That statement should set off alarm bells.
No down year from 1990 to 2008.
10.6% annualised returns vs S&P 500 8.5% annualised returns.
A max drawdown of -0.6% vs S&P 500 -44.7%.
If there were no risk to investing, there would be no risk premium, hence no compensation for your investment.
A “risk-free” investment should correspondingly give you “risk-free” returns, such as government T-Bills or saving bonds — roughly 1 to 3% based on recent years.
Any product or scheme that claims it can achieve returns beyond these standard figures, free of risk, should instantly set off alarm bells in your mind.
There is a better way to invest
Experience the difference today with a wealth manager that is aligned with your interests.
GYC applies the best ideas from financial science to develop a financial plan that is built upon a rigorously tested investment philosophy.