A track record is how the numbers were made

Graduate · enrolled learners

This lesson opens with The Galleon Group and Raj Rajaratnam, 2009.

What happened

Raj Rajaratnam ran the Galleon Group, a multi-billion-dollar hedge fund whose track record had attracted serious institutional money, and on the surface the returns were the evidence of a skilled manager. But it emerged that a meaningful part of Galleon's edge came from illegal insider information, tips about companies fed to Rajaratnam before the news was public, not from analysis or skill that could be shown and repeated. He was arrested in October 2009; within days investors asked for 1.3 billion dollars back and he announced the orderly wind-down of Galleon's funds, which then managed about 3.7 billion dollars. In May 2011 a jury convicted him on all 14 counts of conspiracy and securities fraud, for trading from 2003 to March 2009 on tips from insiders at companies including Goldman Sachs, Intel, IBM and McKinsey, and in October 2011 he was sentenced to eleven years in prison, then the longest sentence ever imposed for insider trading; the court found he had earned well over 50 million dollars from the illegal trading, and he was ordered to forfeit 53.8 million dollars and pay a 10 million dollar fine. The numbers on the track record were real in the sense that the trades made money, but the process that produced them could not survive scrutiny and could not be legally repeated, so the record was evidence of a crime rather than of an investable skill. What looked like a manager worth allocating to was a manager whose edge destroyed the fund the moment it was examined.

The decision point

A track record is not just a series of returns; it is a claim about a repeatable process that produced them, so its real value lies in how the numbers were made, and a record whose returns came from something that cannot be disclosed, defended, or legally repeated is not evidence of skill but a liability waiting to be discovered. Galleon is the case: an impressive multi-billion-dollar record that, once examined, rested significantly on illegal insider information, so the fund wound down and its founder went to prison, because the edge behind the numbers was a crime, not a skill. This is the foundation of building a track record that survives due diligence: the numbers are the surface, and the process behind them, the actual source of the returns, is what a serious allocator, and the law, will eventually examine. An edge that only works while it is hidden, insider information, undisclosed risk, a practice that would not survive being explained, is not a durable skill; it is a countdown, because the same thing that makes the returns will, when found, end them and the career. So the discipline for a professional trader building a record is to ensure the returns come from a process that is legal, repeatable, and defensible under scrutiny, because a track record is a promise that you can do it again in the open, and Galleon is what a record worth billions becomes when the honest answer to how the numbers were made cannot be given: worthless, and worse than worthless, evidence against you.

Orientation and Year One are open: anyone can read them without an account. From Year Two onward the lessons are for enrolled learners, because progress through the later years only means anything if it is tracked against a record.

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