By Roddy Boyd
Everyone wants to make good choices with their investment capital and there is plenty of natural appeal for a rebel who tries to shake up a buttoned-down culture like that on Wall Street. But as this report from Roddy Boyd, the founder of an investigative reporting nonprofit called The Southern Investigative Reporting Foundation, shows, when we lose sight of common sense principles, ample headaches and woe await.
Money manager Anthony Davian and his hedge fund seemed tailor made for an America that was sick of slick Wall Street promises.
The Cleveland-area native proudly bucked the tradition of hedge fund investments coming from pensions, endowments or super-affluent individuals, using YouTube videos, Facebook and Twitter to appeal directly to a new generation of hedge fund investors who want to invest in things they can understand and didn’t like paying a Wall Street broker’s an exorbitant fee to pick one for them.
For a little while at least, it all worked as planned. Davian’s fund, Davian Capital Advisors, grew into a $200 million fund and Davian himself built a brand as a high-profile presence on Twitter. In every way possible, the proud University of Akron graduate was the opposite of the “smidiots” (a mashup of “smart” and “idiot”) who managed billions of dollars in New York but who lacked, he would say, humility and common sense.
Until one day when Robert Ake, a longtime Davian Capital employee and the fund’s chief financial officer, decided to start asking some mighty tough questions of Anthony Davian. Ake wanted to know why, as the CFO, he wasn’t allowed to see Davian Capital’s bank balances, and why the cash component of their brokerage account was declining just as Anthony bought a new car, built a big house and renovated the firm’s offices. When Davian refused to address his questions, the staff quit and, in short order, the regulators were swarming over the fund.
There are some lessons here from the collapse of the fund, as timeless as they are painful for the fund’s battered investors:
There is no such thing as a secret sauce
Davian’s legion of Internet videos all have him generating consistently massive returns of 20%, 30%, even 40% annually. In one video, he even discusses taking time off in August of 2007 to “fish and golf” because he was so profitable. Let’s forget about bragging and just skip to the obvious conclusion: Anyone posting those returns for real--when most funds would have been overjoyed to make less than half of that--doesn’t need to be on YouTube and, needless to say, didn’t spend the early months of their trading career drinking beer at lunch at the 19th hole.
If you had visited Davian Capital Advisors for most of the period it was supposedly managing $200 million, you would have found it consisted of Anthony Davian, a 23-year old analyst and an accountant. Most funds, the ones Davian said were staffed by “smidiots,” would have another four or five support staff and analysts for that amount of assets. The takeaway is that money managing isn’t a hobby, something that's done with a couple of pals -- you want expert trained staff treating your money as if it were their own.
Transparency and accountability are rules, not preferences
Before you invest in a fund, you want to see a clear economic history of the fund laid out in documents like audits and partnership agreements, where the performance numbers and strategy check out.
Davian Capital Advisors had a spotty record there. Moreover, while everyone makes mistakes, the troubling financial history of Anthony Davian, including liens attached to his assets for relatively small amounts, should have scared off all investors. A man running a fund of $200 million shouldn’t be frequently dragged into court for unpaid bills.
Finally, faking your resume is bad
Davian claimed to have gone to the University of Akron, but never graduated. Not the biggest lie, but one that often bears some heavy consequences in the executive ranks of the powerful and well-paid.
To read the complete story, please visit www.sirf-online.org.