The current financial crisis has demonstrated that the market excesses that develop in a period of intense leveraging are rapidly exposed when deleveraging sets in. Bernard Madoff's Ponzi scheme -- said to have involved up to $50 billion -- demonstrates that deleveraging reveals not only legal excesses, but also illegal activities that remained sub rosa in a speculative market. The Madoff event, where astute investors, including a number of private foundations (mainly donor-controlled), placed funds in a vehicle that no one understood and whose returns could not be explained, underscores the enduring value of the rule against investing in something that one does not understand. This scandal also reveals the disturbing extent to which even some foundations failed to undertake the due diligence that is essential before hiring any external manager or advisor....
-- John E. Craig, Jr., Executive Vice President/COO, Commonwealth Fund ("New Financial Realities: The Repsonse of Private Foundations")
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