With “We’re out $x billion we had with Bernie” stories likely breaking in waves around the world this week, adding up the totals is likely to produce a highly misleading result. Take Nicola Horlick — puhleez — “Super-Mum” of London tabloid fame, who seems to have spent most of the weekend bawling uncontrollably about the disappearance of roughly 10 percent of her Bramdean Alternative Ltd’s £200-some million in assets.
Bramdean, a closed end fund listed on the London Stock Exchange in both USD and GBP share classes, had two positions with Madoff:
- In its ‘strategic hedge funds’ portfolio, 4.3 percent of Bramdean’s assets at Sep. 30 was invested in the $342 million Rye Select Broad Market XL Portfolio Ltd, a three-times levered Madoff vehicle provided by Tremont, the Rye, NY, based hedge fund unit of Oppenheimer Funds. According to Bramdean, which characterized the holding as a derivative arbitrage position:
The manager operates a split-strike conversion strategy, which consists of the purchase of a basket of equities, the purchase of a put option and the sale of a call option. The strategy has provided relatively consistent performance for the reported period. During the months that the manager felt there were no sufficient investments to take advantage of, it invested in Treasury Bills, which protected the Fund...The strategy employed by the manager has worked well over the period.
- At the same date, its aptly-named ‘Transitional’ portfolio had another 4.9 percent aboard the less aptly-named Defender Ltd as a “relative value” holding. At pixel-time, NakedShorts had not been able to establish Defender Ltd’s lineage. Again, over to Bramdean:
The majority of Defender's assets are traded by Bernard L. Madoff Securities LLC, based on a trading authorisation agreement with the Fund.
Madoff Securities is a leading international market maker in all of the S&P 500 stocks. Madoff Securities implements a strategy that consists of a long position in a basket of S&P 100 shares and an index option strategy against these shares (bull spread). Madoff Securities will only enter into this trade if it believes that it can profit. Otherwise, the money is invested in U.S. Treasury Bills. The Fund is providing solid, steady returns.
When the final scorecard shows up, and that won’t be any time soon, Bramdean’s holdings will not appear separately. Run that scenario a few dozen, or hundred, times, and...well, Good Luck to those charged with sorting out the mess.
In the meantime, having nothing better to do, the UK’s Financial Services Authority might well spend a few minutes inquiring of Ms. Horlick why her company chose to describe two substantially identical investments in such different terms. Obviously, misleading investors as to the concentration of its holdings had nothing to do with it.
by Iain Dey and Dominic Rushe
The Sunday Times Dec. 14 2008
by Philip Sherwell and Louise Armitstead
The Sunday Telegraph Dec. 14 2008
Unaudited Interim Report (6 mos to Sep. 30 2008)
Nov. 24 2008
