What Value Do You Add?

About two weeks ago I read this article about a hedge fund guy who was alleged to have made improper trades and had made an agreement with the SEC to be disbarred from the securities industry for one year, with a re-application opportunity after one year. Five years later he is still disbarred while the SEC commission says they did not see how his re-entry would be in the public interest. When I read this article and learned that his improper trades amounted to less than $2,300, I thought that the punishment was rather severe.

But then I read this article where a millennial asked Warren Buffett what value he added as an investor. Warren Buffett had a great answer: he provides management a wall and a breathing space from the wall street crowd so that they could do what they do best. Warren Buffett is known for allowing management to do their business.

Now, I re-read the article about the SEC and the hedge fund manager and start to think that maybe what the SEC is asking is: what value will that hedge fund manager provide? The SEC is not getting a sense that the fund manager has assessed his role or how he could better serve the public interest. In re-reading the article, I learn that he made an investment in a tech firm and when the board ignored a lucrative buyout offer, he set out to wage a battle against the firm. Instead of thinking what would be best for the firm and maybe the employees and society in general, he threatened to take the firm private. This is a typical hedge fund/investment fund behavior where the calculus is what is best for the shareholder (or more likely, themselves) and not what is best for the company and the greater good. Maybe what the SEC is looking for is more enlightened behavior.

Maybe the SEC should send the guy the article about Warren Buffett.