Tomorrow will mark two years since Bernie Madoff was arrested for what is now known as the biggest Ponzi scheme in history; with the US Trustee marking the occasion with a $19 Billion civil lawsuit today (read here).

But what has changed since then?

It doesn’t seem like a whole lot has changed….. Hedge funds didn’t cease to exist as some extremists predicted. Individually managed accounts didn’t become the new norm as we had hoped (although they have increased in popularity – see here).  The SEC has made a splash with some high profile insider trading cases, but there haven’t been structural changes in how people invest in hedge funds or how regulators regulate them in order to protect against another Madoff.

The best protection remains, in our opinion, individually managed accounts.  This is because no matter the amount of due diligence which has been completed and amount of trust you have in a fund structure – as soon as you write a check to that fund…. it becomes an asset of the fund, which they can invest as they told you they would, or if things go bad – pay for their vacation home with.

By contrast, investing in an individually managed account keeps the investor in control of the assets, with the manager unable to withdraw funds form the account, transfer funds, or really do anything in the account except initiate trades.  It’s like the old joke about the man going to the doctor and saying his arm hurts when he moves it like ‘this’, and the doctor says… then don’t move it like that.  For investors fearful of being fraud victims in a fund, the simple answer is – don’t do a fund.