Madoff Scandal Fallout: Do Investors Care?

This was a question posed by an editorial in a prominent financial news media publication recently. I have asked myself the same question.

For those of us whose primary objective is raising capital and attracting authentic, unique, and compelling opportunities for that capital, the Madoff scandal could not have come at a worst time.

Or could it?

The conventional wisdom holds that everyone is hoarding their capital right now – so skeptical about anything that they’d rather wait until after the election before they open folger’s can of cash sitting under their bed. Or was after the new year? Or was it after the inauguration? Or was it after winter? Or was it once ‘the economy comes back around’? (whatever that means and whenever that will be).

The fallout from the Madoff scandal is, of course, tremendous. I’m not trying to belittle it. After all, his ponzi scheme was so large that almost every major world financial institution was affected, including some of the wealthiest (and smartest?) investors in the world. Not to mention the unconscionable detriment of charities.

However, in the initial days after Madoff’s arrest, the same prominent financial news publication indicated that the Dow gained 3%, the S&P up 3.5% and the Nasdaq almost up 5% suggesting investors don’t care about the Madoff scandal so much. Of course, all three are down big-time as of this writing but that doesn’t have as much to do with the Madoff scandal as much it does with, in my opinion, years of unrealistic price to earnings ratios (and the volatility to the day traders getting in and out repeatedly).

So, do investors really care about the Madoff scandal?

Well, yes, of course they care. It’s another painful reminder that perception in the confidence of markets counts more than anything and homework is required on any investment and the promoter of that investment. Almost every investor I’ve presented our projects to since the Madoff scandal story was broken has brought it up (some know, or even have family members, who have lost money in one of Madoff’s investment schemes actually). And these are people we know, and that like us, have invested with us in the past, and are inclined to invest with us now. Imagine if they and we were complete strangers.

So, yes, it’s a major problem.

However, it’s also an opportunity to remember that capital raising needs to be seen as a relationship development exercise FIRST and that you must have an AUTHENTIC opportunity and that YOU remain authentic about yourself and the investment to your potential investors.

Do that and you’ll deserve the wealth that comes to you and your investors’ loyalty/good graces.

Got questions about this or other real estate topics? Ask on the BiggerPockets Forums.

Article Author: Matt Pitcher

Matt has written 7 articles for us.
Visit Matt's Website: http://www.liveoakcapitalgroup.com

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{ 1 comment… read it below or add one }

1 Jo Colonna January 10, 2009 at 1:29 pm: I believe investors have been scared for quite sometime, the events of 2008 didn’t exactly paint a welcoming picture for investments in any capacity. As a real estate investor, I have been watching many key indicators, consumer confidence being one of them, and the Madoff scandal certainly did not help the situation. I’m constantly working with investors in an effort to raise capital for my real estate aquisitions, and while most people are skittish about the current economy they are still eager to be part of something that will make them money. In the past investors sized up the deal itself. Now, before they even look at the deal, they are going to take a long hard look at those behind the deal.
Jo Colonna’s last blog post: Multifamily Looking Good in 2009