In 2005/6, I was CIO of a fund of hedge funds business based in London. Most of our investors were South Africans and had been made very aware of Bernie's "returns" by our competitors who did have exposure to his "funds". So, under considerable client pressure, I included a visit to Bernie on my next trip to New York. I was of course told that I could not meet Bernie himself ("the genius is too busy") but I was very warmly received by one of his henchmen dressed in a sharp suit (first red flag).

This henchman began by insinuating that the fund was closed, but special exceptions could sometimes be made, and it might be my lucky day (exactly one of the red flags you identified).

The problem was that before arriving in NY, I had attempted to reverse-engineer Bernie's returns, using index data from just about every category of hedge and long-only fund. Effectively, I was trying to give Bernie perfect foresight, spectacular timing ability and no trading costs. Even then, I could not come close to the purported returns. With due humility in case I had missed something, I showed the henchman my research. As you might imagine, the meeting immediately turned sour and was quickly terminated.

For several more months, I took more mild abuse from our investors for missing the greatest hedge fund ever. I now regard feverish client fervour as a red flag of its own. For starters, it's invariably backward looking.

Thanks for a tremendous article, Norb.