Fund Linked to Tiger 21 Invested in Madoff

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Fund Linked to Tiger 21 Invested in Madoff
One of the more surprising investors on the Madoff list is the Muus Independence Fund. Muus Independence is a fund-of-funds linked to Tiger 21, the New York forum for wealthy investors.

tiger21.com
Tiger 21, as “Richistan” readers know, is a wealth peering group where people worth $10 million or more can meet regularly to give each other advice on everything from investments to family (mainly investments). The idea is to create a haven from the conflicts of Wall Street firms and banks, offering straight talk from other rich people rather than product pushing from other bankers.

Yet the Independence Fund appears to have blurred a line of independence at Tiger. Michael Sonnenfeldt, Tiger’s founder, was also the principal owner of Muus. His fund included a number of Tiger members as investors, though Mr. Sonnenfeldt wouldn’t say how many.

Mr. Sonnenfeldt says the fund was “totally independent of Tiger 21″ and that he created a Chinese wall between the two. Tiger members weren’t required to invest with Muus. While the Independence Fund collected a fee, he says the fees were waved for Tiger members to avoid an economic conflict.

“Muus didn’t derive any economic benefit from Tiger members,” he says. He added that there was no overlap between the management of the fund and the management of Tiger.

The big question though is why get involved in selling financial products to members in the first place? Especially since Tiger prides itself on a lack of financial conflicts?

Mr. Sonnenfeldt said his hope for the fund was to leverage the buying power of Tiger members. But he said he decided to shut the fund down last year since it wasn’t worth the time and trouble–in part because it couldn’t generate fees from Tiger members.

As for investing with Mr. Madoff, Mr. Sonnenfeldt says he and the Muus team did as much due diligence as they could, analyzing monthly statements and examining its strategy. He said the Madoff investment represented only 7% of the fund’s total; he declined to give a dollar figure.

“With the benefit of hindsight, after any fraud is uncovered it always seems too good to be true,” he said. “But this was such an unusual set of circumstances and he had built up such a high level of credibility with so many experienced investors vouching for him.”

In the end, Mr. Sonnenfeldt says he is proud of the fact that none of the Tiger 21 members who had invested on their own with Madoff were wiped out by the fraud. The reason: Tiger’s so-called “portfolio review”–where members closely scrutinize each other’s holdings–discourages members from putting too much of their money in one investment.