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New York (Hedgeco.net) – The Alternative Investment Management Association (AIMA) – the global hedge fund industry association – in conjunction with the Irish Funds Industry Association (IFIA) has published the revised edition of the AIMA Guide to Sound Practices for Hedge Fund Administrators.
The revised Sound Practices Guide deals with the main functions typically carried out by hedge fund administrators, and outlines how administrators contribute to the overall management and administration of a hedge fund. It provides guidance to hedge funds, investors and other service providers as to how sound practice has emerged in the field of hedge fund administration.
“>The AIMA Guide to Sound Practices for Hedge Fund Administrators, which was originally published in 2004, has been updated to reflect various industry developments in areas such as valuations, tax and anti-money laundering.
It covers a hedge fund’s start-up phase; how administrators interact with a fund’s investors; how the net asset value is calculated; the additional services that administrators offer; and the support functions they provide. It is not jurisdiction-specific but is relevant to practitioners around the world.
The section on valuation – one of the most heavily discussed subjects in the investment funds industry – includes key extracts from the recent AIMA Guide to Sound Practices for Hedge Fund Valuation. The recommendations outlined represent a significant step forward in providing a roadmap to industry professionals – and comfort to investors – in recommending governance, control and risk mitigation processes in this area.
The Guide to Sound Practices for Hedge Fund Administrators expands AIMA’s substantial, international body of work developed over the last 10 years including guidelines on Managers; Valuation; Administration; Governance; Business Continuity; Due Diligence for Managers and Service Providers; Anti-Money Laundering; and Funds of Hedge Funds.
Andrew Baker, Chief Executive Officer of AIMA, said: “AIMA is very pleased to offer the latest guidance in hedge fund administration sound practices to the global hedge fund industry and all interested parties. The guide also represents the latest contribution by AIMA to the continuous development of industry standards that will benefit the entire investment community.”
Gary Palmer, Chief Executive of the IFIA, added: “As the leading jurisdiction for the servicing of alternative investment funds, the Irish industry, once again, is very pleased to include the industry’s acknowledged expertise and experience in this valuable project whose objective is to contribute to the advancement of hedge fund industry practices.”
New York (HedgeCo.net) – Hedge fund manager, Trinity Fund Administration has opened an office in the Cayman Islands after receiving a full Fund Administrators license from the Cayman Islands Monetary Authority.
Brad Cowdroy has been appointed Head of the new Cayman office and will have overall responsibility for local service offerings and the principal management of all North American account business. Brad joins from Goldman Sachs, where he was a Vice President in Fund Administration Services. Prior to this, Brad held positions at CIBC and PricewaterhouseCoopers in the Cayman Islands, where both roles focused in the funds area.
John McCann, Managing Director of Trinity commented, “We are absolutely delighted to have someone of Brad’s calibre and experience heading up our new Cayman office and joining the Trinity group. Brad brings a wealth of experience in alternative fund servicing, as well as a broad knowledge of administrative and regulatory issues affecting our clients. We have no doubt he will make a significant contribution to the organisation’s growth moving forward”.
Trinity provides the full range of hedge fund administration services to investment groups based around the globe, which operate fund structures domiciled in a range of jurisdictions, including Ireland, Cyprus, Cayman Islands, Bahamas, Bermuda, BVI, Malta and the Channel Islands. A significant portion of its business comes from Cayman registered funds.
The firm’s expansion into Cayman comes in response to strong client demand, particularly from emerging managers, and will provide a local point for firms to access Trinity’s broad suite of services. Equally this befits a natural expansion of the business which will give Trinity better access to managers in North America.
John McCann added, “This is a major step forward in terms of Trinity’s expansion plans. We have always offered a complete suite of services to Cayman-domiciled funds and this brings us that much closer to this important component of our business”.
Trinity was also recently nominated for two awards from International Custody and Fund Administration and was voted number one in its class, within the recent prestigious annual Global Custodial Survey.
Editing by Alex Akesson
For HedgeCo.net alex@hedgeco.net HedgeCo.Net is a premier hedge fund database and community for qualified and accredited investors only. Membership on www.hedgeco.net is FREE and EASY. We also offer FREE LISTINGS for Hedge Funds!
HedgeCo.net (West Palm Beach) – A new research paper by Deloitte LLC: "How Hedge Funds Are Becoming the Ultimate Networked Enterprise," focuses on how hedge fund methods of interacting with prime brokers and third-party administrators needs to be rethought in order to remain profitable as the roles of prime brokers and third-party administrators evolve.
"As investors demand increased transparency and operational risk management, hedge funds are faced with redefining their relationships with prime brokers and third-party administrators," Cary Stier, Deloitte’s U.S. Asset Management Services leader explained.
"While attraction and retention of capital remains a top priority for fund managers, in today’s market performance isn’t the only bull’s-eye a fund has to hit to accomplish these goals. Investors want assurance that the fund’s operating model has taken into consideration the events of the last year and has adjusted accordingly. At the same time, prime brokers, administrators and custodians are looking for new ways to serve managers," said Adam Broun, Deloitte’s Asset Management Services Consulting leader.
The report outlines five areas of focus for both prime brokers and third-party administrators:
Build the Middle-Office that Fits your Operating Strategy
Hedge funds need to determine their optimal operating strategy and factor in roles various service providers will play in providing necessary capabilities. Although most large firms will build their own middle-office, service offerings from fund administrators and custody players will prove to be compelling from both a cost and capability standpoint. Managing the network of service providers will require additional capabilities that the hedge funds will need to build and staff in-house.
Add Horsepower to Your Collateral Management
The multiprime model will only increase the need for improved collateral management. Some hedge funds will benefit by outsourcing to enterprise collateral management service providers or implementing vendor solutions to efficiently manage their collateral across various parties. In addition to spreading collateral across parties, independent valuation of illiquid assets, zero over-collateralization and optimal collateral composition will be the key focus areas.
Plan Risk Management
Risk management will see a balance of focus between market risk for investment strategies and counterparty risk. In a multiprime model, a single broker’s risk report will show only a partial picture of the risk profile. Risk management will need to be a central function that aggregates positions across all providers. Take this opportunity to separate risk management from investment management.
Choose the Right Mix of Prime Brokers
The choice of prime brokers should be guided by aligning the fund manager’s needs to the prime
Third-party administrators can help hedge funds outsource several middle- and back-office functions. With the increased complexity of the middle- and back-office, hedge funds should at least understand the range of services available from their administrators.
Implications for Prime Brokers
Prime brokers are experiencing a major shift in their business model. Their focus on developing deep relationships with a few hedge fund clients is no longer working in a multiprime environment, where risk diversification and access to capital is taking center stage. As lending stays constrained, prime brokers will be required to improve capabilities to deal with new clients and existing capabilities may lose favor among the hedge funds adopting the multiprime model.
Implications for Third-Party Administrators
Third-party administrators are being challenged by handling increased product complexities, technology scalability and international growth. While hedge funds outsource middle-offices and evaluate ways to reduce costs, third-party administrators will need to cut costs and potentially look into moving their back offices to cost-effective locations. Some may offer prime broker-like services to improve profitability and further increase competition in the market or go global; others will more closely align with custodians or consolidate for scale.
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West Palm Beach (HedgeCo.net) – Leading alternative investment firms are adopting best practices for their funds with an eye to the Sarbanes-Oxley act*, hedge fund provider, TKS Solutions said in an announcement, also launching a new system specifically designed for hedge funds.
*The act was created in 2002 as a reaction to a number of major corporate and accounting scandals including those affecting Enron, Tyco International, Adelphia, Peregrine Systems and WorldCom. A new, quasi-public agency, the Public Company Accounting Oversight Board, or PCAOB, charged with overseeing, regulating, inspecting and disciplining accounting firms in their roles as auditors of public companies.
"New regulations are not the only issue funds have to deal with" says Ron Kashden, president of TKS Solutions. "With the tight capital market many investors are demanding more flexibility in their fee structure and liquidity terms. The days of complacent investors willing to lock in their capital for years at a time may be over. Funds that have always allowed for annual and even quarterly redemptions are finding that they have to offer monthly liquidity to attract new capital. While this makes sense from a business stand-point, it introduces accounting complexities that are wreaking havoc in the back office. Simple tasks, such as accruing management fees, can quickly become an arduous calculation when funds that charge quarterly allow redemptions on a monthly basis.
Adding to the complexity, TKS said, is that fund administrators are reporting new fee structures with innovative loss-recovery provisions. While this adds pressure for portfolio performance, it also provides the fund with a revenue source to live off of in bad times. Managing these intricacies necessitates accounting tools and practices that funds may not have required historically. Yesterday’s spreadsheets are giving way to sophisticated software packages specifically tailored for the back-office needs.
From an operational perspective, the hedge fund industry is finally growing up, TKS said. Their ad-hoc practices, more appropriate to a "mom and pop" shop than a sophisticated financial enterprise, are being replaced with a regulatory best practices framework and the expert systems used by their institutional counter parts.
TKS Solutions works with partners worldwide to serve its customer base of leading hedge funds, fund of funds, private equity firms, administrators and management companies, ranging from $50 million up to $20 billion under management.
Alex Akesson
Editor for HedgeCo.Net Email: alex@hedgeco.net
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West Palm Beach (HedgeCo.net) – Two new legislations were introduced in Bermuda January 1, requiring regulated financial institutions to comply with various obligations under the recently updated legislative framework, according to Cayman Islands law firm Conyers Dill & Pearman.
The firm said that the updated legislation defines ‘Financial Institutions’ as persons who, among other things, carry on the business of a ‘fund administrator’, or are ‘operators’ of investment funds.
The BMA expects Financial Institutions, under its supervision, to address their management of the relevant risks in a thoughtful and considered way, and to establish and maintain systems and procedures which are appropriate and proportionate to the risks identified.
Investment fund operators and fund administrators are required to appoint a Money Laundering Reporting Officer (“Reporting Officer”) to whom reports should be made and who shall have responsibility to make reports when suspicious circumstances require.
It is a requirement for “non-licensed persons” to register with the BMA by 30 June 2009 using the BMA’s prescribed form and paying the relevant fee. Failure to comply will result in their inability to carry on business activities, the firm said.
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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.
“We welcome the communiqué from the G20 Finance Ministers. AIMA, as the trade body for the global hedge fund industry, has already announced its support both for the authorisation and regulation of hedge fund managers worldwide with their national regulators, and for the disclosure of systemically significant information.
This is an endorsement of the industry leadership displayed by AIMA when we put out the new policy platform on 24th February that featured a series of major proposals to increase transparency. We are pleased that these proposals are reflected in this communiqué.
We are also glad that the G20 made reference in their Progress Report on the Washington Action Plan to the global initiative on the convergence of hedge fund industry standards by AIMA, the Managed Funds Association (MFA) and the members of the Asset Managers Committee established by the President’s Working Group on Financial Markets.
Our three groups, which represent the great majority of hedge fund managers globally, are working towards a common set of principles to take this process forward, which is a major step forward by the industry worldwide.”
Andrew Baker, Chief Executive of AIMA London, 16th March 2009
For media enquiries, please contact Christen Thomson, AIMA Director of Communications, on +44 (0)2078228380; email – cthomson@aima.org
About AIMA
As the only truly representative global hedge fund association, AIMA, the Alternative Investment Management Association, has more than 1,200 corporate members worldwide, based in 43 countries.
Members include leading hedge fund managers, fund of hedge funds managers, prime brokers, legal and accounting firms and fund administrators. They all benefit from AIMA’s active influence in policy development, its leadership in industry initiatives, including education and sound practice manuals and its excellent reputation with regulators worldwide.
AIMA is a dynamic organisation that reflects its members’ interests and provides them with a vibrant global network. AIMA is committed to developing industry skills and education standards and is a co-founder of the Chartered Alternative Investment Analyst designation (CAIA) – the industry’s first and only specialised educational standard for alternative investment specialists. For further information, please visit AIMA’s website, www.aima.org.
West Palm Beach (HedgeCo.net) – Mike Griffin of Spectrum Global Fund Administration has launched the a hedge fund website that he believes will improve hedge fund transparancy, HedgeACT.com.
“As a former hedge fund executive, I know first-hand how important transparency is during the capital allocation process,” said Michael Griffin, founder and CEO of HedgeACT and Chief Operating Officer of Fenchurch Capital Management from 1985 to 1998. “This is a difficult time for many hedge fund investors, and we think that giving them better information will make the entire analysis and allocation process much better for everyone involved.”
The “ACT” in HedgeACT.com refers to the site’s three key benefits for the hedge fund community, including Analytics, Capital Introduction and Transparency.
Providing investors with free access to hundreds of data points and analytics for over 7,500 hedge funds, HedgeAct’s data is licensed from Morningstar.
Additionally, hedge funds and hedge fund administrators will have the ability to augment this data with their own timely, vetted information on fund performance, track record and other important investor criteria.
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West Palm Beach (HedgeCo.net) – The recent wave of scandal related to hedge funds and funds of funds has made investors think twice about investing in self-administrated funds, see ‘Andrew Schneider on Nadel Funds’.
Dermot Butler, Chairman of alternative fund administrator, Custom House Group, said, “In today’s new investment environment, more than ever hedge funds and funds-of-funds must have independent outside administrators as a foundation to help rebuild investor confidence and attract new investment capital.”
Fund administrators, such as the $35 billion Custom House Group, provide a range of services to funds and fund-of-funds including (but not limited to), fund accounting, portfolio valuation, NAV calculation and shareholder services as well as anti-money laundering services and reconciliation services and record-keeping functions.
“In anything less than an independent fund administration relationship, there is at the very least a perception that a conflict of interest may exist that could prevent objective verification of a fund’s investment activities and even the existence of underlying assets in a given fund, let alone an objective and accurate valuation of the fund’s assets,” Butler said. “This perceived conflict may occur when an outside administrator is affiliated with a financial institution, with an investment manager, or when the administrator is associated with a hedge fund itself.”
“As stand-alone companies, independent administrators have no affiliations to any outside financial entities, et ergo, no such conflicts exist,” he concluded.
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