Forensic Financial Management

Michael Giberson

David Warsh, in a round-up of items at Economic Principals, draws attention to a working paper by Ross Miller with the unlikely title of Stansky’s Monster: A Critical Examination of Fidelity Magellan’s “Frankenfund”. Warsh calls it “a good financial mystery story” and a “lucid and amusing (and important) detective story” with a “thumping good ending.” It is also a fascinating hybrid of academic number-crunching, forensic financial management, and high-level financial journalism.

How much can one learn from publicly-available information about the inner workings of mutual funds, and, possibly the more important question, where did the money go?

Warsh says:

The bulk of [the] loss, which is four times greater than the worst comparable hedge fund, cannot be accounted for by any combination of Magellan’s stated expenses, portfolio turnover, investment style, industry selections, or stock picks. So where did those billions go?

You can wait for The Wall Street Journal to bring you up to date on “factor-model arbitrage” and discover who may have picked the unwitting Magellan’s pockets. Or you can read Ross Miller’s lucid and amusing (and important) detective story for yourself.