Each business day HedgeCo.Net keeps you informed with the top hedge fund industry news, opinion and insight from around the globe. From the latest hedge fund launches, to the impact of regulation, competition, and investor activism - we track the topics and people that make a difference to you.
West Palm Beach (HedgeCo.net) – The Cayman Islands Monetary Authority (CIMA) was formally admitted as the 189th member of the International Organization of Securities Commissions (IOSCO) at the meeting of the Presidents’ Committee at IOSCO’s 34th Annual Conference in Tel Aviv, Israel.
With the admittance, CIMA also officially becomes a party to the IOSCO Multilateral Memorandum of Understanding Concerning Consultation, Cooperation and the Exchange of Information. CIMA signed the MMOU, which is the benchmark for international cooperation among securities regulators, on 24 March 2009.
"Some countries either do not allow investment vehicles from non-IOSCO member countries to be sold in their jurisdictions or will require greatly enhanced due diligence which makes it more difficult to do business with those jurisdictions." CIMA’s Deputy Managing Director, Mr. Langston Sibblies said, "IOSCO membership will remove these impediments and open up these markets for Cayman-domiciled securities providers. This is a development our private sector has looked forward to for a long time. It will be welcomed by the private sector."
IOSCO is the principal global standard setting body for the regulation of securities markets. Its objectives encompass cooperation and information exchange, standard setting and surveillance, and mutual assistance.
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West Palm Beach (HedgeCo.net) – Global hedge fund association AIMA (The Alternative Investment Management Association), has published the world’s first global Guide to Sound Practices for Funds of Hedge Funds Managers.
The guide was developed by some of the world’s leading funds of hedge funds practitioners. It focuses on areas including risk management, due diligence, disclosure to investors, valuation, management of conflicts of interest and other operational issues. The group consisted of Unigestion, Financial Risk Management; Man Investments; Fauchier Partners; Pacific Alternative Asset Management; Ivy Asset Management; HDF Finance; Penjing Asset Management and Simmons & Simmons.
“AIMA has produced a huge body of work on sound practices and this was the ‘missing book in the library’." Andrew Baker, CEO of AIMA, and a member of the steering group, commented, "It is particularly important given recent events that there should be dedicated guidelines for funds of hedge funds managers. Funds of funds are a critical sector in the industry, are of particular interest to institutional investors, and it is right that AIMA has taken the lead in documenting sound practices. We hope that these guidelines that have been drawn up by such a distinguished and experienced group will be widely observed within the industry.”
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Los Angeles Times – When a well-known investment advisor gave the Securities and Exchange Commission some unsolicited advice this week about protecting investors in hedge funds, he had already been talking to the agency about his own behavior.
About half an hour before Charles J. Gradante issued a public call Wednesday for the SEC to "reduce fraud and systemic risk" in the hedge fund industry, the SEC charged him with failure to perform due diligence on the Bayou hedge funds — one of the industry’s biggest scams in recent years.
Caymen Net News – Hedge fund managers from across the world are expected to convene in the Cayman Islands for GAIM Ops, a forum that will be held 26-29 April at the Ritz Carlton Resort. GAIM Ops Cayman is the largest hedge fund operational due diligence, compliance, and risk management forum internationally. Industry professionals including Operational Due diligence, COOs, CFOs, CCOs, and general counsel for hedge funds will come to discuss issues affecting the industry.
More than 500 senior delegates are expected to attend the conference, reportedly to tackle issues such as risks that may still be prevalent in the market, and the possible positive outcomes for practioners of operational due diligence.
West Palm Beach – (HedgeCo.net) – Hedge fund assets will bottom out at roughly $1 trillion in 2009, after which capital appreciation and $800 billion in net inflows over the next four years will push global levels to $2.6 trillion by 2013, according to a new study of institutional investors, investment consultants and hedge funds released today by The Bank of New York Mellon BK and Casey, Quirk & Associates.
The study, entitled "The Hedge Fund of Tomorrow: Building an Enduring Firm," found that institutions remain firmly committed to hedge fund investing. Institutional investors comprised less than 20% of hedge fund redemptions in 2008-2009, and North American pension plans will represent the single largest source of new capital between 2010 and 2013, followed by British and Northern European institutions. Global high net worth investors could account for as much as 60% of new net flows between 2010 and 2013, although their return to hedge fund strategies will rely on capital market conditions and hedge fund performance.
Funds of hedge funds will solidify their role as the primary hedge fund distribution channel, capturing almost 60% of net inflows between 2010 and 2013 by continuing to offer services most investors will find difficult to replicate on their own, such as manager-sourcing and ongoing due diligence.
According to the report, the hedge fund industry is facing a "transformational crisis" and must address key shortcomings in its business and operating models. As a result, hedge funds will rely more on third parties for a growing range of administrative support. Fund administrators will play a greater role in hedge funds’ operations, which will require stronger integration of hedge fund servicing activity with traditional custody and cash platforms.
"The events of 2008 have changed the old dynamic. Investor and regulatory demands for new levels of transparency mean the legacy operating model no longer works," said Brian Ruane, executive vice president of Alternative Investment Services at The Bank of New York Mellon. "Hedge funds increasingly will turn to independent third parties for middle- and back-office functions such as portfolio accounting and reconciliation, custody of non-collateral assets, pricing and valuation, cash management, and counter-party risk-mitigation. Allowing third parties to play a bigger role in their business will be a sign the hedge fund industry is maturing."
"Enduring hedge fund management firms will more closely align their business models with investor needs for transparency and liquidity. This means new fee models and longer-term incentive structures," said Kevin Quirk, a partner with Casey Quirk. "By striking better-designed balances, they will come to define the central value proposition of active asset management."
While the single-strategy boutique remains a viable model, better-designed and more durable investment management businesses will capture a majority of new hedge fund assets. Four models likely to thrive in the coming years include:
Single-Strategy Boutique: ‘Classic’ hedge fund, dominated by a typical direct investment capability using hedge fund techniques
Multi-Capability Platform: Common brand, distribution and business infrastructure support multiple distinct alternative investment capabilities
Merchant Bank Alternative Manager: Diversified financial intermediation business with core capabilities in investment management
Converged Traditional-Alternative Manager: Investment firm that has successfully integrated alternative and traditional long-only capabilities
Results from this year’s study, the third in an ongoing series jointly created by the Bank of New York Mellon and Casey Quirk, relied on interviews with more than 150 institutional investors, investment consultants, hedge funds, funds of hedge funds, and industry experts around the world.
West Palm Beach (HedgeCo.net) – Hedge fund manager Meridian Global Fund Services Group has launched a hedge fund consulting affiliate team with Joyce E. Heinzerling as head.
The affiliate, Meridian Fund Advisers LLC, will provide hedge fund regulatory and corporate governance best practices advice to hedge funds both within and outside of the Meridian Global client base. In this capacity, Heinzerling will work side by side with her extensive network of leaders in the hedge fund legal and accounting fields.
“As President of Meridian Fund Advisers, Ms. Heinzerling will lead the development and delivery of our new hedge fund consulting affiliate, and help bring us to a position of distinction in the hedge fund administration industry in terms of a value add for our clients," said Randy Troy, President of Meridian Fund Services (USA) LLC.
"Meridian Fund Advisers essentially has been established to broaden and strengthen our dedication to clients in an effort to provide the highest level of client service in light of the increasingly complex issues that now arise in the hedge fund industry resulting from the heightened regulatory environment and exposure to litigation," Mr. Troy added.
Heinzerling joins Meridian Fund Advisers after serving nine years as General Counsel, CCO and Head of Operational Due Diligence at Archery Capital LLC, an investment adviser to emerging manager funds of funds. Prior to joining Archery Capital, Ms Heinzerling spent fourteen years in private practice advising hedge funds, venture capital funds, private equity funds, and mutual funds.
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Business24-7 – Stability, and not necessarily an upward move by economies, would be enough to attract investors back to alternative investments such as hedge funds, says Dr Frank Gerhard of Barclays Capital.
The crisis has made investors focus more on due diligence and, at the same time, turned attention back to fundamentals and to issues such as the integrity of managers. "Those managers are going to benefit going forward if they address structural issues of leverage, transparency and uncertainty around liquidity," said Gerhard, the company’s Director and Head of Product Strategy for Fund-Linked Derivatives.
Times Online – Fairfield Greenwich, the hedge fund manager founded by socialite Walter Noel, became the first fund that invested with disgraced fund manager Bernard Madoff to be charged with fraud.
William Galvin, Massachusett’s Secretary of State, today accused the Connecticut-based fund of lying to investors about it due diligence it did on Madoff’s fund management business.
Fairfield Greenwich was one of the biggest feeder funds to Madoff, enabling the 70-year-old convicted swindler to rip off thousands of people in a $65 billion Ponzi scheme running for at least 20 years.
New York (HedgeCo.Net) – Connecticut has long been a haven for the hedge fund industry; where light regulation and a dense population of ultra wealthy investors lure the most talented of hedge fund managers. But if some state lawmakers have their way, hedge funds will have to jump through a lot more hoops than they are used to, according to the Hartford Business Journal.
Under current law, hedge funds only allow accredited investors who have a net worth of $1 million or higher to participate. The proposed legislation would bump that minimum requirement up to $2.5 million, with institutions needing at least $5 million in assets.
The new legislation would also require hedge funds to provide greater transparency by disclosing their fees and other information about management or investment strategy. Hedge funds would also be required to obtain a state license as well as have an independent annual financial audit performed.
Many fear that by imposing these guidelines, Connecticut would have less of a draw, and many hedge fund managers could simply pack up and move to nearby metropolises like New York or Boston.
The pull for stricter oversight on hedge funds is by no means limited to the state level. Many members of Congress have been pushing for greater transparency after hedge funds got blasted for having a hand in the financial crisis thanks to controversial practices like short selling.
Others push for heightened regulation due to the recent outbreak of Ponzi schemes from so-called “trustworthy” individuals, like Arthur Nadel of Sarasota or the obvious case of Bernard Madoff where hundreds of investors were swindled out of their retirement. However, many who oppose the oversight based on increased fraud argue that investors are ultimately responsible for where their money goes and should perform greater due diligence themselves before trusting anyone with large sums of capital.
Republican State Representative John Stripp told the Hartford Business Journal that it’s not about a “vendetta against hedge funds,” just that “there is a need to have some kind of regulation in place.”
Even European finance ministers agreed this past weekend to the direct regulation of hedge funds overseas, leading most to believe that the era where hedge funds could get away with anything, is coming to an abrupt end.
Julie Scuderi Senior Editor for HedgeCo.Net Email: julie@hedgeco.net
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West Palm Beach (HedgeCo.net) – In response to the recent need to restore confidence and liquidity in the mortgage market, Integrated Asset Services, LLC (IAS), a default management and residential collateral valuation company, is introducing iCDA Credit Due Diligence Analytics.
Expecting clients from hedge funds, mutual funds, private investors, government agencies, ratings agencies, and mortgage originators, IAS calls their system a “surgically precise” review of borrower credit worthiness, collateral valuation, and compliance for loan buyers.
“iCDA is designed to expose both the risk and merit of an asset beyond the historic origination and compliance guidelines," John Coughlin, VP of Capital Markets for IAS said, "Using our suite of analytic tools to forecast performance, we can identify exit strategies and recommend loan modifications and repayment plans for your assets.”
“We’ve combined IAS’s expert default professional services with innovative new technology and a few key alliances to provide a robust, single-source solution,” says Robert Vanderbilt, First Vice President for Integrated Asset Services. "We have to think the integrity of our approach and the fullness of our product will go a long way toward getting the mortgage market moving again,” said Vanderbilt.
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West Palm Beach (HedgeCo.net) – Alternative investment consultant and director, Bob Torkelund has announced the launch of a Cayman regulated fund, the Arkanar Global Macro SP. The fund is being monitored and the due diligence work done by the Cayman regulator before the launch took place.
The initial offering period runs throughout February 2009, with a minimum investment of $10.000.
Torkelund said, “The fund is easy dealing and settlement: we have organised electronic clearing via Clearstream/Euroclear ‘payment against delivery’ which makes the fund available to most European and international banks in line with other international securities.”
The fund has a 20% high water mark performance fee and 0.5% per quarter as management fee and an expected annual return of 15–20%.
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Forbes – In December, Forbes was a media partner to Markets Media, host of the Global Markets Summit inNew York City. Forbes Intelligent Investing Editor Michael Maiello moderated a hedge fund industry panel that included activist investors Clay Lifflander of Millcap Advisors and Stephen Roseman of Thesis Capital, along with Samuel Hocking, global head of sales for the prime brokerage at BNP Paribas and Kenneth Springer of Corporate Resolutions.
During the discussion, Hocking predicted a 30% failure rate for hedge funds in 2009, rising operating costs and higher margin requirements. Lifflander and Roseman discussed strategies for low-margin investing and the implication of hedge fund failures on shareholder activist strategies. Springer, a former FBI investigator and due diligence expert, revealed the increased scrutiny that hedge fund managers will have to bear.
