The conflict between the SEC and third-party marketers has been snowballing over the past year, specifically on their role and ability to link investors with managers without needing to adhere to more stringent regulations that would protect from corruption.
The proposed rule, released this past summer from the SEC, would, “…prohibit an investment adviser from providing advisory services for compensation to a government client for two years after the adviser or certain of its executives or employees make a contribution to certain elected officials or candidates.”
An organization that obviously had problem with the SECs crackdown is 3PM, the third party marketers association. In a letter sent to the SEC, they outlined their role in the investment process, stating that the proposed rule is, "an unreasonable and unjustified response that
affects an entire industry segment as a result of the improper and illegal misconduct of a few"
At present, it appears that the SEC will compromise on their position by allowing third party marketers to resume their role with public pension funds, with some enhanced and expanded registering regulations with Financial Industry Regulatory Authority, something that third party marketers working with hedgefunds already have to do.
Additional transparency is seemingly the best solution, and in fact, some like Agecroft Partners executive Donald Steinbrugge suggest taking it a step further. However, with the financial services industry still on fragile ground in regards to trust and risk issues, it will take an organization with a long-standing, consistent level of success to properly communicate how this process can work.
Wednesday, February 17, 2010
Tuesday, February 9, 2010
The Volker Rules
“Too big to fail” might be the phrase of the decade thus far, but the question remains, “what is being done to prevent this phrase from remaining part of our vernacular?”
Treasury Secretary Timothy Geithner has said the best approach to address the ‘too big to fail’ concern is requiring banks to hold more capital in reserve to cover losses. While alternate, more aggressive ideas exist, it was the secretary’s belief that banning specific activity would eliminate some legitimate activity unnecessarily.
For many months, this policy stance was seen as having the backing of the administration. However, last month, President Obama stood at a podium to discuss the banking community, and next to him stood not Secretary Geithner, but Former Fed Chairman Paul Volcker.
Volcker had spent many of the previous months sharing his own belief that banks should no longer be permitted to own, invest in or sponsor hedge funds, private equity funds or proprietary trading operations for their own profit unrelated to serving their customers. The position was titled “The Volcker Rule.”
President Obama agrees with the position. "We simply cannot accept a system in which hedge funds or private equity firms inside banks can place huge, risky bets that are subsidized by taxpayers and that could pose a conflict of interest. And we cannot accept a system in which shareholders make money on these operations if the bank wins, but taxpayers foot the bill if the bank loses."
Presently, there are several obstacles to implementing “The Volcker Rule.” However, the mere insinuation seems to be having an effect on the finance industry.
Treasury Secretary Timothy Geithner has said the best approach to address the ‘too big to fail’ concern is requiring banks to hold more capital in reserve to cover losses. While alternate, more aggressive ideas exist, it was the secretary’s belief that banning specific activity would eliminate some legitimate activity unnecessarily.
For many months, this policy stance was seen as having the backing of the administration. However, last month, President Obama stood at a podium to discuss the banking community, and next to him stood not Secretary Geithner, but Former Fed Chairman Paul Volcker.
Volcker had spent many of the previous months sharing his own belief that banks should no longer be permitted to own, invest in or sponsor hedge funds, private equity funds or proprietary trading operations for their own profit unrelated to serving their customers. The position was titled “The Volcker Rule.”
President Obama agrees with the position. "We simply cannot accept a system in which hedge funds or private equity firms inside banks can place huge, risky bets that are subsidized by taxpayers and that could pose a conflict of interest. And we cannot accept a system in which shareholders make money on these operations if the bank wins, but taxpayers foot the bill if the bank loses."
Presently, there are several obstacles to implementing “The Volcker Rule.” However, the mere insinuation seems to be having an effect on the finance industry.
Tuesday, February 2, 2010
No More Hedging on Hedge Funds?
The world of hedge funds may be returning, according to a survey by data provider Prequin. However, are the reasons behind its increase in popularity based on an evolution in economic expertise or a reapplication of the same principles that created the atmosphere of distrust that we currently live in?
While the average individual with a 401k or a 60 month CD would consider a start-up hedge fund the financial equivalent of Russian roulette, 71% of professional investors are considering investing in emerging managers, up from 61% just 12 months ago. The primary reason? Most likely, the rebound of the hedge fund market in 2009.
Don’t worry, though. Investors aren’t jumping back in completely blind. There are certain qualifications.
“What investors are looking for in a startup hedge fund is continuity, with a strong team, a long track record and attractive risk-adjusted returns in essentially the same strategy that a manager is running now. They don’t want to take business risk,” said Edgar Senior, head of global capital services at Credit Suisse.
The return of the high risk investment tool was inevitable, and any expert will tell you the time to make money is in a recession. However, if the next generation of hedge fund start-ups are going to be the barometer as to how the financial community considers perilous investments, they need to be careful. Just because many are willing to take the risk, hedgefund managers should not take this as a sign that the status quo will be acceptable. There is an underlying responsibility to increase (or at least improve) the methods of communication, specifically the appearance that all is being done to inform and examine the intricacies of any controversial components. The SEC has already put the industry on notice.
While the average individual with a 401k or a 60 month CD would consider a start-up hedge fund the financial equivalent of Russian roulette, 71% of professional investors are considering investing in emerging managers, up from 61% just 12 months ago. The primary reason? Most likely, the rebound of the hedge fund market in 2009.
Don’t worry, though. Investors aren’t jumping back in completely blind. There are certain qualifications.
“What investors are looking for in a startup hedge fund is continuity, with a strong team, a long track record and attractive risk-adjusted returns in essentially the same strategy that a manager is running now. They don’t want to take business risk,” said Edgar Senior, head of global capital services at Credit Suisse.
The return of the high risk investment tool was inevitable, and any expert will tell you the time to make money is in a recession. However, if the next generation of hedge fund start-ups are going to be the barometer as to how the financial community considers perilous investments, they need to be careful. Just because many are willing to take the risk, hedgefund managers should not take this as a sign that the status quo will be acceptable. There is an underlying responsibility to increase (or at least improve) the methods of communication, specifically the appearance that all is being done to inform and examine the intricacies of any controversial components. The SEC has already put the industry on notice.
Subscribe to:
Posts (Atom)