May 2011 -
Asset management firms either grow or decline
With all the investment in software and technology, the critical ingredient of a world-class asset management firm is its sales professionals, senior management must recruit the very, very best people. Today they won’t come unless they can see strong support from management for their skills and a path for their own professional development. With the overcrowded managers all trying to grow assets most clients want personal interface with their managers. Availability of key people clearly is critical along with chemistry. Not spending enough time with the client often suggests you’ve grown too much to service the client or they are not the people you want to work with. Clients expect loyalty to guiding them with your firm’s management style, especially in this global environment of vitality and uncharted waters. Your firm’s relationship with the clients and consultants is a key factor in manager retention and the ability to cross market new product offerings.
Due diligence: ignorance is no excuse
Officials of pension funds, endowments and foundations are responsible for not just selecting managers, but monitoring their on-going performance. So too are consultants. Ignoring warnings where the investor’s funds are at risk or pleading to events which could impact allocations is seen as negligence and will be severely dealt with by the government or beneficiaries. Turing a blind eye or neither rejecting complaints nor supported by the facts is also an abuse of trust and fiduciary responsibility. Those who profit in order to protect their own interest can expect harsh treatment from the courts. It’s just not the Madoff fallout, its abuses in securities lending programs, excessive cost relating to foreign securities trading pocketing of floats in retirement payouts. These management discretions can only bring into question why institutional investors should blindly trust those firms who seem to rise to a greater power-greed. However, it is more than greed when there is denial of risky and or actions which seem to ignore who’s funds are being treated in a cavalier fashion. In the months ahead Wall Street will feel the institutional spotlight get hotter. Lets hope they can defend themselves.
Hedge funds will soon to be registered with SEC
It won’t be long before investors will be able to have more trust in hedge fund managers. The Dodd-Frank regulations which require hedge funds by July to register with the SEC should put more pressure on these managers to be transparent. And what’s wrong with that? Nothing. Nor are the requirements as registered investment advisers? Hedge funds will need to appoint a chief compliance officer as well as adopt a code of ethics. Perhaps though, the most significant requirements are the record-keeping rules. They appear to go far beyond many investment advisers are accustomed to. They will need to keep records of any relevant document. While not all hedge funds will be required to register the go bell has been rung. The SEC wants more information on hedge fund operations as for exempt funds, these new rules apply to those with over $100 million. As for foreign hedge funds the rules require registration for those who have 1.5 or more U.S. clients with a total of $25 million under management. Lobbying efforts are under way however to persuade the SEC to reconsider the rules for foreign hedge funds. Their success might be difficult as the SEC wants information to investors.
Adapting to the changing investor landscape
Are managers nimble enough to compete in this changing environment? Certainly mangers are skillful in risk management but are their products ideally suited for investors who wish to preserve and even grow their assets? These are some of the challenges which managers are being asked to overcome. Even in the wealthy family arena which managers are increasing focusing their attention? The challenges are daunting. Children tend to not remain with their parents advisors while widows tend to dump their spouses managers. Why the lack of trust? While the name over the managers’ doors are the same, the turnover of management is significant leaving little personnel continuity. This hasn’t been lost on investors (families and institutions) who often want personalized asset allocation and client servicing for those managers who offer these skills it should ensure a long-term commitment from clients.
Upcoming IMI Events:
Endowments & Foundations Summer Forum, July 24-27, Equinox Hotel, Manchester VT
Fall Consultants Retreat, Sept 26-28, OceanCliff Hotel, Newport RI
Questions, comments, sponsorship opportunities:
Please contact Linda Gunneson, Senior Managing Director, IMI
LGunneson@imi-ct.com 203 622 5851 x19
