The Importance of GIPS® in the Hedge Fund World – For Both Managers and Investors
Debating Transparency and Valuation
Yesterday,
theglasshammer.com hosted its second Women on the Buy-Side networking breakfast and panel discussion. Nicki Gilmour, founder and CEO of theglasshammer.com, began the event by explaining that the purpose of the gathering was to draw together top women in the investment management industry to discuss the topic of risk and its implications on performance for 2010.Gilmour later explained that by getting top women together, we can continue to create a critical mass of female leaders in the industry and “change the perception of what a leader looks like.” For the women themselves, this was an event where “they are not the only woman in the room.”
Hedge Fund Transparency: The Long-Term Implications of Separate Account Management
Hedge fund managers and investors alike have embraced separate account management as a panacea to their operational risk concerns and a quick win in the quest for greater transparency. But they should think again. In their rush to solve one set of problems, investors may be introducing even greater risks to their portfolios and hedge fund managers may be setting the stage for significant business challenges over the long term.
Read our article in the current addition of the CFA Institute's Investment Performance Measurement Newsletter.
Critical Recordkeeping: Trade Tickets and Order Memoranda
It is remarkable the number of buy-side firms that have overlooked the importance of maintaining proper trade tickets and order memoranda in a timely fashion. Three weeks ago, the US Securities and Exchange Commission (SEC) charged New York-based Ark Asset Management Co., Inc. with fraudulent trade allocation as well as disclosure and books-and-records violations. This latter charge involved violations of Section 204 of the Advisers Act and Rule 204-2(a)(3) which requires registered investment advisers to make and keep true, accurate and current order memoranda for the purchase and sale of any security on behalf of a client.
Today many investment managers and hedge funds utilize electronic order management systems to track order creation, modification and deletion as well as trade execution details. These same systems typically will calculate order size, allocate block orders across multiple accounts and track trade execution details. Some more sophisticated systems will further perform pre- or post-trade compliance checks to ensure portfolios remain in compliance with client- or firm-imposed guidelines and restrictions, such as concentration limits or list restrictions (e.g., ‘no tobacco’).
Automated systems, however, can obfuscate for some just what is happening and the information required to ensure a firm remains in compliance with the recordkeeping requirement. Likewise, Rule 204-2(a)(3) is clear as mud for many. So we shall try to shed a little light on best practice for this aspect of maintaining books and records.
Survey of Buy-Side Industry Trends
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Leaders of the Pack
Video of The Glass Hammer Network's breakfast networking event on Sep 29 in New York City.
Read More...Where Does Performance Fit?
CFA Institute free podcast from the 2009 Annual GIPS Conference on Sep 23 in Boston.
Read More...Managing the Business of Asset Management
In the wake of plummeting revenue streams, particularly with client concerns over operational risk and managers’ needs to control costs, the lines between traditional investment managers and hedge funds have blurred and will continue to do so. Traditional investment managers and hedge funds alike need to focus on the business of managing money as well as the management of the assets. Though the industry’s historically high margins have allowed managers to pay scant attention to the decidedly unglamorous and hugely complex expense side of the business, they must do so now. The winners will be those who manage their firms as well as they manage their clients’ portfolios.
Forgotten Risk: Free Delivery of Securities
While most operational due diligence reviews focus significant attention on the procedures involving wire transfers, they often overlook those surrounding the free delivery of securities. Yet both activities involve the transfer of assets out of a fund or portfolio with nothing received in exchange.
Read More...Top 10 List for Mastering Operational Due Diligence
This is from a presentation at Financial Technologies Forum’s 2nd Annual Hedge Fund and Operations Conference on 21 April 2009. While it is just a list of bullets, it is included here for the convenience of our readers.
Read More...Migrating Toward Multi-Prime: Did Your Manager Decrease or Increase Operational Risk?
In the wake of the Bear Stearns and Lehman difficulties, many hedge fund managers have migrated toward a ‘multi-prime’ environment, in which more than one prime broker is utilized by the fund. On closer examination, a number of hedge funds have not only failed in their dual objectives of setting up a true multi-prime relationship and reducing their overall operational risk. Indeed, quite a few hedge fund firms have increased their operational risk without even realizing it. This article examines steps that hedge fund managers can take to achieve their objectives and enhance their operational risk profile.
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