Reader DanH was nice enough to forward us a recent copy of Galleon Groups performance going back to 1992.  It turns out that the fund was Madoff-like in its performance.  These guys just couldn’t lose.  Whether the market was up or down they cranked out 25% returns like they were printing money.  It makes you wonder just how long these guys were trading on insider information?

I have run the risk adjusted returns on hundreds if not thousands of portfolios throughout my career and I have never seen numbers like these.  NEVER.  There is virtually ZERO downside volatility in these figures.  Their largest one month drawdown was -6.19%!*  That is simply unheard of for a portfolio with such high returns.  Gauging from the returns I would be willing to bet the insider trading was going on for most of Galleon’s existence and was likely much more rampant than currently reported:


* Correction – Galleon’s worst month listed here was a -8.54% decline in October of 1997.   In other notes, it’s interesting to see that Galleon posted just 5 months of 4%+ declines in a total of 186 months listed.  Unbelievable.


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Cullen Roche

Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.

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  • SS

    This is so much more rampant than anyone thinks.

  • James

    People suggested yesterday’s drop was from Galleon’s forced liquidation of positions.

  • Henry

    It is possible…Now can we all look at Goldman’s return for the last couple quarters…We may find some insider trading there too :)

  • Drew Robertson

    We ran an analysis of Galleon’s 13fs. Here’s the link.
    Look at the precipitous decline in AuM (on the long equity side at least) since your chart peaked. I also looked at the performance over time of individual issues in Galleon’s portfolio. Most were breakeven or losses. Fine if you had a short portfolio losing a lot more. But that doesn’t seem likely as Galleon had a typical overly diversified tech heavy portfolio leaving little to short. In other words, either his returns on the short side were highly leveraged or he’s got some more explaining to do. Which I doubt is near the top of Raj’s Things to Explain list.

  • TPC

    Interesting. Most HF’s were suffering massive withdrawals last year so the decline in AUM’s isn’t shocking. I’ve glanced over the 13 f’s and his funds basically mirror large indices. I have no idea where the alpha comes from. It has to be coming from these missing trades or perhaps he was doing a lot of derivatives and short selling. I have no idea, but it is certainly all very suspicious.

  • James

    Henry it doesn’t count when it is the government that is giving the insider trading info. :)

  • TPC

    Yes, the guy walking around in cuffs should be Hank Paulson.

  • VM

    I dont know that it is possible to make any conclusions about a strategy based on its returns. Just because the returns are good it doesnt mean they are doing something illegal necessarily.

  • James Whelan

    Galleon has historically run with very low net exposure, -20% to +20%. The 13 fs only tell half the story. There is no requirement to fill short positions of any size. No question, the short positions were driven as much by inside info as the longs. The only way you generate positive performance in tech in 2001 & 2002 is getting a heads up on book to bill well in advance. Get ready for Pequot and MSFT trading next.