I can't argue with the logic (which is usually the case when it comes to Janet ;-))
When performing due diligence, investors consider capacity, capital, and character. Investors will develop a subjective opinion of character informed by their own standards and those of the society in which they live.
Oh, the three "Cs"? I thought that was dead and buried in the 2000s Janet? You mean it still matters?
Some hedge fund managers feel they are above appearances, if not the law. Some investors believe prostitution isn’t a big deal, too. But there’s a large cohort of investors that won’t go near a hedge fund manager with a reputation for using prostitutes.
What else could go wrong? If a prostitute is in a hedge fund manager’s apartment when he’s not home, what is she doing? Who else is she letting in? Does she have friends who are good at hacking computers? What if the hedge fund manager gets caught up in a legal sting? That could distract him from fund management for a while. Investors have a tough enough job performing due diligence without these potential problems.
After all, at least in most parts of the United States prostitution (for both the seller and buyer) is illegal. So is insider trading, incidentally, along with a whole host of other things.
And we don't know of any hedge funds that have gotten caught doing any of those other things lately, do we? Oh wait....
See, this is the problem -- you can personally disagree with the law barring prostitution. I can make a very cogent argument that the law is wrong -- that it actually causes harm, because it drives the behavior underground, provides fuel for the "pimping" of women (which can and often does amount to slavery rather than consensual contractual behavior) and in addition tends to provide "extra vig" that is then exploited by various criminal elements that are all about violence and coercion instead of contracts for service.
But the fact remains that if you're willing to break one law you might be willing to break other laws -- including laws that screw people in a non-sexual way.
Is this a fair evaluation?
You bet it is.
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