COMMENT&OPINION
CHANGING THE FOCUS FoHFs and investment banks P14
gradually conquering their image problem
If the public thinks hedge funds are risky and returns often overstated, then institutions – which handle the public’s money – will be less keen to invest in them
W
hen the hedge fund sector was a little cottage industry with a dozen or so players, it was largely insulated from the press and the public by the simple fact that even the most conscientious financial journalists hadn’t the faintest idea what managers did. One presumes that it was during this period that the industry’s unique attitude to communications was formed. It was an industry that came to believe it had
”
no need to tell the public or the press anything at all about what it did. Far too many managers preferred to operate in secrecy, letting only their investors in on what they were up to. The obvious drawback of this strategy is that it let other people tell the hedge fund story. What the public knows about hedge funds at present is filtered through the biases and misperceptions of the consumer press and a group of self-serving politicians. This has happened
because many hedge fund managers simply decline to engage with the media or the public, so what the public reads about is fund implosions, systemic risk and vastly overpaid managers. This may not be fair, but it’s what the public believes because it’s what the public reads. Not all hedge funds adopt this head-in-thesand strategy. We’re a financial PR agency and most of our clients are hedge funds. They, at least, are trying to tell their stories in their own words. But as Paul Marshall of Marshall Wace (not a client, I should add) said a few weeks ago, hedge funds can no longer afford to believe “that public engagement of any kind goes against the grain of the maverick entrepreneurialism that is at the heart of the industry’s success”. He and others warned that hedge funds had to make themselves better understood. Not enough did. So it perhaps comes as no surprise that when the banking sector imploded and the alphabetsoup of derivatives that had been created by bankers turned into ‘toxic assets’, it was the hedge fund sector that was blamed. The public’s grasp of the differences between investment banks and hedge funds is hazy at best, and though hedge funds were not at the centre of the financial storm, there were enough linkages to make them a convenient scapegoat.
Now the sector is facing the prospect of new EU legislation – conceived in haste, illconsidered and probably ultimately irrelevant. The question now isn’t whether there will be new regulations to hamper the industry – there almost certainly will be – but just how repressive they will be. Did it have to come to this? Image matters and the hedge fund industry didn’t play the image game. If the public believes hedge funds are a financial disaster waiting to happen, elected officials will pay attention, pushing legislation that will lead to unnecessary regulatory controls on the industry, If the public thinks hedge funds are risky and returns often overstated, then institutions – which handle the public’s money – will be less keen to invest in them. And if hedge fund managers are universally caricatured as grossly overcompensated financial spivs, pressure will grow to claw back some of those riches in the form of taxation. But there are now signs that things may be changing – that the hedge fund industry as a whole is beginning to recognise the importance of engaging with the public and the press. On a purely anecdotal level, we’ve had more enquiries from hedge funds about PR in the past two months than we had in the previous two
THE WEEK IN QUOTES MY LIFE IN HEDGE FUNDS
SHANKAR IYER, president and CEO of Viteos Fund Services HOW LONG HAVE YOU WORKED IN THE HEDGE FUND INDUSTRY? I began in technology and finance as president and CEO of Silverline Technologies. I took that company public on the NYSE and the BSE. We established Viteos because we believed that a combination of bespoke customer service with advanced technological delivery could bring efficiencies to the middle office. From that base we expanded into fund administration. HOW IS THE INDUSTRY CHANGING? Clients are much more aware of the delivery of services against the cost expended. There is a flight to quality. There is great concern in hedge funds that fund administrators can be fast, accurate and reliable. Their institutional investors are becoming more involved in the processes of the funds and how those decisions are made. In fund administration, brand name alone may no longer be enough. Administrators increasingly need to show what lies behind a name: what technology, what certifications, what history, and what people. This is especially true in light of the financial crisis and the scandals of the past year. 12 hfmweek.com
DO YOU BELIEVE THE INDUSTRY WILL WEATHER THE CURRENT RECESSION? Yes. We published a series of papers in 2008 on precisely that topic, and we recommended specific action steps that fund firms could take to both survive the current maelstrom and thrive moving forward. DOES THE CRISIS OFFER ANY OPPORTUNITIES? It will to those firms that view themselves as ongoing enterprises rather than simply as trading operations. As firms seek alpha, there needs to be a focus on costs, on delivery platforms, and operational diversity. There is an emerging trend to provide clients with different ways to invest. WHAT WILL CHANGE ABOUT YOUR AREA OF BUSINESS IN 2009? We believe our model is sound and that greater marketplace scrutiny of fund administrators will be of benefit to bespoke approaches like ours. There may well be a resurgence in funds if market participants move out of cash and back into securities. We are also prepared for any movements on the regulatory front, and can address those should they develop. ■
“I think a lot of investors didn’t realise what their rights were or what they would have to do to make changes”Cayman’s courts are still paying
host to a wave of disgruntled investors, according to lawyer Rosalyn Breedy
““We are a few weeks away from starting this [managed accounts] initiative, but it will be a major programme that will be able to provide us with twice-monthly liquidity”
UBP is turning to managed accounts, according to the bank’s managing director Christophe Bernard
“Many early-stage ventures want to keep up-front expense to a minimum and are considering some of the quality subleases that are on the market” Real estate agent, Evan Margolin, believes new hedge funds are forsaking the luxury offices of the past in favour of cheap sub-lets
23-29 July 2009
years. There seems to be no particular reason for this, except perhaps a dawning realisation that secrecy is not the best PR policy. On a wider level, the Alternative Investment Management Association (Aima), under its new leadership of non-executive chairman Todd Groome and chief executive Andrew Baker, is becoming more aggressive in representing the hedge fund sector’s interests. One of its recent initiatives is the Industry Communications Group, an assembly of financial public relations firms that will advise and assist Aima in communicating the benefits of the hedge fund industry to the press and public (we are members of the group). Though formed in the wake of the new regulatory proposals from the EU, the Industry Communications Group will do more than simply oppose the initiative. The group has the potential to become a real voice for the sector – telling the hedge fund story in the words of industry participants, unfiltered by outsiders. It is probably something that the industry should have done two years ago, but better late than never. ■ Anthony Payne is the founding partner of Peregrine Communications
EDITOR’SVIEW
g.roberts@hfmweek.com
W
hat is it about managed accounts? Once regarded as slightly too much trouble by many managers, the torrential storm of the past 12 months have turned them into life rafts. With many managers consumed by the torrent, those left floating are inevitably offering managed accounts as part of a wider revised menu of lower fees, greater transparency and increased liquidity. Post-Madoff, HFMWeek has kept a close eye on these developments. From Marathon’s huge inflow of managed account business back in February, to this week’s UBP cover story, the surge in interest has been covered from every possible angle. If those still suspicious of the form – stand up, Brevan Howard – wanted tangible evidence of this, they could try squeezing into this month’s HFMWeek Subscribers’ Club briefing. Be warned though, it could be a tight fit. Massively oversubscribed, the event, due to take place on Thursday at London’s Haymarket Hotel, will give a comprehensive overview of the intricacies and usefulness of the form. All of our reader events have garnered attention, but 23-29 July 2009
this one has surprised us all by its popularity. So much so, that we feel it necessary to inject some perspective. In among the promise of transparency and liquidity, those contemplating setting up managed accounts should think carefully. The extra resources expected from managers – who may have to integrate with a new service provider – can be expensive, managed accounts will not fit all trading strategies and they certainly aren’t a panacea for previous mistakes. Crucially, if you’re an investor, they could end up costing you an extra 50-100bps. Still, – as UBP can testify – they remain useful, and relying on the expertise of existing platforms – rather than setting up your own – is a smart move. Managed accounts may not be quite enough to keep struggling businesses afloat, but they will add some extra buoyancy as the murky flood waters slowly recede.
Gwyn Roberts, editor
HFMWEEK HEDGEFUNDMANAGER
ANTHONY PAYNE on how hedge funds are
Published by Pageant Media Ltd London 14a St Cross Street, London EC1N 8XA T+44 (0)20 7269 7575 F +44 (0)20 7269 7570 New York 1375 Broadway, 11th Floor, NY 10018 T+1 (646) 278-9961 Dubai 502 La Riviera Tower, Dubai Marina, Dubai, UAE T +971 (55) 6959773 EDITORIAL Editor Gwyn Roberts +44 (0)20 7269 7573 g.roberts@hfmweek.com News editor Zaki Abushal +44 (0)20 7269 6401 z.abushal@hfmweek.com Senior reporter Elana Margulies +1 646 278 9960 e.margulies@hfmweek.com Investment correspondent Kapila Gohel +1 646 278 9964 k.gohel@hfmweek.com Reporter Tony Griffiths +44 (0)20 7269 7591 t.griffiths@hfmweek.com MENA correspondent Antony Ireland +971 (55) 695 9773 a.ireland@pageantmedia.com Data manager Indira Peters-DiDio +1 (646) 278 9961 i.peters@hfmweek.com Design/Sub-editor Matt McLean +44 (0)20 7269 6402 m.mclean@hfmweek.com Production editor Melanie Rockett +44 (0)20 7269 7594 m.rockett@hfmweek.com BUSINESS Managing director Charlie Kerr Operations director Sebastian Timpson ADVERTISING Commercial Manager James Blanche +44 (0) 20 7269 7596 j.blanche@hfmweek.com Senior publishing executive Lucy Guest +44 (0) 20 7269 6404 l.guest@hfmweek.com Senior publishing executive Sally Boyle +44 (0) 20 7269 6411 s.boyle@hfmweek.com Circulation manager Fay Muddle +44 (0) 20 7269 7590 f.muddle@pageantmedia.com UK subscriptions Nick Bartlett +44 (0)20 7269 7577 n.bartlett@hfmweek.com Events Beth Gill +44 (0) 20 7269 6410 b.gill@pageantmedia.com ISSN 1748-5894 Printed by Wyndeham Grange, West Sussex. © 2009 all rights reserved. No part of this publication may be reproduced without written permission of the publishers. No statement in this magazine is to be construed as an invitation to invest in hedge funds.
hfmweek.com 13
COMMENT&OPINION
CHANGING THE FOCUS FoHFs and investment banks P14
gradually conquering their image problem
If the public thinks hedge funds are risky and returns often overstated, then institutions – which handle the public’s money – will be less keen to invest in them
W
hen the hedge fund sector was a little cottage industry with a dozen or so players, it was largely insulated from the press and the public by the simple fact that even the most conscientious financial journalists hadn’t the faintest idea what managers did. One presumes that it was during this period that the industry’s unique attitude to communications was formed. It was an industry that came to believe it had
”
no need to tell the public or the press anything at all about what it did. Far too many managers preferred to operate in secrecy, letting only their investors in on what they were up to. The obvious drawback of this strategy is that it let other people tell the hedge fund story. What the public knows about hedge funds at present is filtered through the biases and misperceptions of the consumer press and a group of self-serving politicians. This has happened
because many hedge fund managers simply decline to engage with the media or the public, so what the public reads about is fund implosions, systemic risk and vastly overpaid managers. This may not be fair, but it’s what the public believes because it’s what the public reads. Not all hedge funds adopt this head-in-thesand strategy. We’re a financial PR agency and most of our clients are hedge funds. They, at least, are trying to tell their stories in their own words. But as Paul Marshall of Marshall Wace (not a client, I should add) said a few weeks ago, hedge funds can no longer afford to believe “that public engagement of any kind goes against the grain of the maverick entrepreneurialism that is at the heart of the industry’s success”. He and others warned that hedge funds had to make themselves better understood. Not enough did. So it perhaps comes as no surprise that when the banking sector imploded and the alphabetsoup of derivatives that had been created by bankers turned into ‘toxic assets’, it was the hedge fund sector that was blamed. The public’s grasp of the differences between investment banks and hedge funds is hazy at best, and though hedge funds were not at the centre of the financial storm, there were enough linkages to make them a convenient scapegoat.
Now the sector is facing the prospect of new EU legislation – conceived in haste, illconsidered and probably ultimately irrelevant. The question now isn’t whether there will be new regulations to hamper the industry – there almost certainly will be – but just how repressive they will be. Did it have to come to this? Image matters and the hedge fund industry didn’t play the image game. If the public believes hedge funds are a financial disaster waiting to happen, elected officials will pay attention, pushing legislation that will lead to unnecessary regulatory controls on the industry, If the public thinks hedge funds are risky and returns often overstated, then institutions – which handle the public’s money – will be less keen to invest in them. And if hedge fund managers are universally caricatured as grossly overcompensated financial spivs, pressure will grow to claw back some of those riches in the form of taxation. But there are now signs that things may be changing – that the hedge fund industry as a whole is beginning to recognise the importance of engaging with the public and the press. On a purely anecdotal level, we’ve had more enquiries from hedge funds about PR in the past two months than we had in the previous two
THE WEEK IN QUOTES MY LIFE IN HEDGE FUNDS
SHANKAR IYER, president and CEO of Viteos Fund Services HOW LONG HAVE YOU WORKED IN THE HEDGE FUND INDUSTRY? I began in technology and finance as president and CEO of Silverline Technologies. I took that company public on the NYSE and the BSE. We established Viteos because we believed that a combination of bespoke customer service with advanced technological delivery could bring efficiencies to the middle office. From that base we expanded into fund administration. HOW IS THE INDUSTRY CHANGING? Clients are much more aware of the delivery of services against the cost expended. There is a flight to quality. There is great concern in hedge funds that fund administrators can be fast, accurate and reliable. Their institutional investors are becoming more involved in the processes of the funds and how those decisions are made. In fund administration, brand name alone may no longer be enough. Administrators increasingly need to show what lies behind a name: what technology, what certifications, what history, and what people. This is especially true in light of the financial crisis and the scandals of the past year. 12 hfmweek.com
DO YOU BELIEVE THE INDUSTRY WILL WEATHER THE CURRENT RECESSION? Yes. We published a series of papers in 2008 on precisely that topic, and we recommended specific action steps that fund firms could take to both survive the current maelstrom and thrive moving forward. DOES THE CRISIS OFFER ANY OPPORTUNITIES? It will to those firms that view themselves as ongoing enterprises rather than simply as trading operations. As firms seek alpha, there needs to be a focus on costs, on delivery platforms, and operational diversity. There is an emerging trend to provide clients with different ways to invest. WHAT WILL CHANGE ABOUT YOUR AREA OF BUSINESS IN 2009? We believe our model is sound and that greater marketplace scrutiny of fund administrators will be of benefit to bespoke approaches like ours. There may well be a resurgence in funds if market participants move out of cash and back into securities. We are also prepared for any movements on the regulatory front, and can address those should they develop. ■
“I think a lot of investors didn’t realise what their rights were or what they would have to do to make changes”Cayman’s courts are still paying
host to a wave of disgruntled investors, according to lawyer Rosalyn Breedy
““We are a few weeks away from starting this [managed accounts] initiative, but it will be a major programme that will be able to provide us with twice-monthly liquidity”
UBP is turning to managed accounts, according to the bank’s managing director Christophe Bernard
“Many early-stage ventures want to keep up-front expense to a minimum and are considering some of the quality subleases that are on the market” Real estate agent, Evan Margolin, believes new hedge funds are forsaking the luxury offices of the past in favour of cheap sub-lets
23-29 July 2009
years. There seems to be no particular reason for this, except perhaps a dawning realisation that secrecy is not the best PR policy. On a wider level, the Alternative Investment Management Association (Aima), under its new leadership of non-executive chairman Todd Groome and chief executive Andrew Baker, is becoming more aggressive in representing the hedge fund sector’s interests. One of its recent initiatives is the Industry Communications Group, an assembly of financial public relations firms that will advise and assist Aima in communicating the benefits of the hedge fund industry to the press and public (we are members of the group). Though formed in the wake of the new regulatory proposals from the EU, the Industry Communications Group will do more than simply oppose the initiative. The group has the potential to become a real voice for the sector – telling the hedge fund story in the words of industry participants, unfiltered by outsiders. It is probably something that the industry should have done two years ago, but better late than never. ■ Anthony Payne is the founding partner of Peregrine Communications
EDITOR’SVIEW
g.roberts@hfmweek.com
W
hat is it about managed accounts? Once regarded as slightly too much trouble by many managers, the torrential storm of the past 12 months have turned them into life rafts. With many managers consumed by the torrent, those left floating are inevitably offering managed accounts as part of a wider revised menu of lower fees, greater transparency and increased liquidity. Post-Madoff, HFMWeek has kept a close eye on these developments. From Marathon’s huge inflow of managed account business back in February, to this week’s UBP cover story, the surge in interest has been covered from every possible angle. If those still suspicious of the form – stand up, Brevan Howard – wanted tangible evidence of this, they could try squeezing into this month’s HFMWeek Subscribers’ Club briefing. Be warned though, it could be a tight fit. Massively oversubscribed, the event, due to take place on Thursday at London’s Haymarket Hotel, will give a comprehensive overview of the intricacies and usefulness of the form. All of our reader events have garnered attention, but 23-29 July 2009
this one has surprised us all by its popularity. So much so, that we feel it necessary to inject some perspective. In among the promise of transparency and liquidity, those contemplating setting up managed accounts should think carefully. The extra resources expected from managers – who may have to integrate with a new service provider – can be expensive, managed accounts will not fit all trading strategies and they certainly aren’t a panacea for previous mistakes. Crucially, if you’re an investor, they could end up costing you an extra 50-100bps. Still, – as UBP can testify – they remain useful, and relying on the expertise of existing platforms – rather than setting up your own – is a smart move. Managed accounts may not be quite enough to keep struggling businesses afloat, but they will add some extra buoyancy as the murky flood waters slowly recede.
Gwyn Roberts, editor
HFMWEEK HEDGEFUNDMANAGER
ANTHONY PAYNE on how hedge funds are
Published by Pageant Media Ltd London 14a St Cross Street, London EC1N 8XA T+44 (0)20 7269 7575 F +44 (0)20 7269 7570 New York 1375 Broadway, 11th Floor, NY 10018 T+1 (646) 278-9961 Dubai 502 La Riviera Tower, Dubai Marina, Dubai, UAE T +971 (55) 6959773 EDITORIAL Editor Gwyn Roberts +44 (0)20 7269 7573 g.roberts@hfmweek.com News editor Zaki Abushal +44 (0)20 7269 6401 z.abushal@hfmweek.com Senior reporter Elana Margulies +1 646 278 9960 e.margulies@hfmweek.com Investment correspondent Kapila Gohel +1 646 278 9964 k.gohel@hfmweek.com Reporter Tony Griffiths +44 (0)20 7269 7591 t.griffiths@hfmweek.com MENA correspondent Antony Ireland +971 (55) 695 9773 a.ireland@pageantmedia.com Data manager Indira Peters-DiDio +1 (646) 278 9961 i.peters@hfmweek.com Design/Sub-editor Matt McLean +44 (0)20 7269 6402 m.mclean@hfmweek.com Production editor Melanie Rockett +44 (0)20 7269 7594 m.rockett@hfmweek.com BUSINESS Managing director Charlie Kerr Operations director Sebastian Timpson ADVERTISING Commercial Manager James Blanche +44 (0) 20 7269 7596 j.blanche@hfmweek.com Senior publishing executive Lucy Guest +44 (0) 20 7269 6404 l.guest@hfmweek.com Senior publishing executive Sally Boyle +44 (0) 20 7269 6411 s.boyle@hfmweek.com Circulation manager Fay Muddle +44 (0) 20 7269 7590 f.muddle@pageantmedia.com UK subscriptions Nick Bartlett +44 (0)20 7269 7577 n.bartlett@hfmweek.com Events Beth Gill +44 (0) 20 7269 6410 b.gill@pageantmedia.com ISSN 1748-5894 Printed by Wyndeham Grange, West Sussex. © 2009 all rights reserved. No part of this publication may be reproduced without written permission of the publishers. No statement in this magazine is to be construed as an invitation to invest in hedge funds.
hfmweek.com 13