Portfolio managers know Boston-based Northfield Information Services, founded in 1985 by Dan diBartolomeo, as a leading provider of risk management models and other analytical tools. But the firms 53-year-old president, a frequent lecturer and writer on quantitative finance and a keen observer of how the financial industry fell into crisis and is fighting its way out, recently gained renown as something of a sleuth.
In 1999 Harry Markopolos, then a portfolio manager with Rampart Investment Management in Boston, a Northfield client, handed diBartolomeo data on a firm he labeled Manager B, which had been reporting suspiciously outsize returns. DiBartolomeo recalls concluding, almost at a glance, that something was very, very wrong. Criminal, it turned out: Manager B was Bernard L. Madoff Investment Securities, and Markopolos took off from there on his crusade as the whistle-blower who tried in vain to get regulators to shut down its Ponzi scheme.
Says diBartolomeo, A minimal effort to use simple, textbook quantitative methods in the due diligence process should have convinced any investment manager with a minimum of common sense not to invest in the Madoff fund. DiBartolomeos 1999 evaluation was low-tech, but, he notes, all the analysis we did could be totally automated, and norms set up, and regulators could zero in on outliers. The fact that nobody paid attention was the greatest area of concern.
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