I was fortunate to be a fly on the wall at the Absolute Return Symposium held on November 3+4, 2009. It is one of my favorite events based on the high quality speakers and participants.
Overheard at the event.
On the changing dynamic between hedge funds and investors.
“Managers need to prove their investor friendliness, this is part of the institutionalization of the industry. Investors are asking for greater transparency, risk management, liquidity and increased focus on core competencies.”
“More than anything managers need to have financial interests aligned with investors. We are facing universal checklists and alignment does not translate into a universal report card.”
“We have to prove that we are not another Madoff – we have two audits, independet administrator, have type 1 SAS 70, engaged a risk management firm. When banks put value on positions – ok. when hedge funds put value on position – have to confirm ownership and then confirm valuation.”
In order to prove alignment of interests need two things – 1) how well are the fund’s interests aligned with investors and 2) how much net worth is in the fund?”
On investor communications:
” Most of the letters are something to the extent that ‘we did this and the S&P did that. But what you need is to show what happens with present portfolio if another LTCM happens, ’87 or 9/11 have to produce more comfort with the strategy.”
On hedge fund lessons learned to be remembered from one of the largest alternative investors, Blackrock.
“There are four key lessons learned from 2008 – communications, liquidity, operational controls, leverage/counterparty risk.”
On understanding hedge fund investors liquidity concerns
“Talk to your clients – you need to understand their liabilities – do they have cash for this week, this month, this year? You don’t want weak holders.”
Three core messages on Investor Communications:
- Defining products and clear disclosure language
- Mutual expectations of performance and volatility
- Ongoing dialogue regarding liquidity – ask the questions, partnership allows for the avoidance of conflicts and negative outcomes
Next Big Investor Concern:
“We have appeared to have won the war on external administration. Corporate governance is the big investor battle”