A group of hedge fund managers expressed concern at the GAIM 2011 conference in Monaco by saying that investors are increasingly seeking fund managers that are also risk managers in a bid for the search for more transparency.
When I first started in this business, there was no thing as institutional investors, but more about individuals, said Oscar Schafer, Managing Partner, O S S Capital Management. Also when these investors put money into hedge funds, it was comparable to buying dirty pictures in an alley. Since 2008 and the Madoff scandal institutions have been looking for risk managers rather than investment managers as they search for transparency but thats a bad dream to realise.
Schaffer founded O S S Capital Management in 2001 and prior to this was a member of Cumberland Associates, a private investment partnership with assets approximately at $1 billion from January 1982 until December 2000. He was once described by another prominent news outlet as one of the shrewdest money managers in New York.
Schaffer added that while he understands clients renewed need for transparency, the way he addresses their needs is about selective transparency.
We do a lot of shorting, said Schaffer. However, this is very fast moving and we do not like talking about it or revealing to companies about those stock movements but we will reveal this to the industry. With longer term strategies we are very willing to reveal all to the client.In relation to shorting, Schaffer said he does not believe shorting regulations will become permanent in the US.
I dont think shorting restrictions will happen in the US, says Schaffer. There will eventually be a backlash against rules and regulations, as the US saw the tightened regulations stopped companies from investing and lending and I truly believe the Administration will get smart and realise this; too much regulation is hurting the economic growth of the country.At Centaurus Capital, the Chairman Bernard Oppetit illustrated the push from investors for transparency.
The Madoff scandal changed the game completely, said Oppetit. What was clear was that investors didnt do any homework and now they are seeking more transparency and risk reports. We give total transparency through a confidentiality agreement, but this doesnt make it more helpful for investor sometimes, especially if they do not understand and second guess returns and how trading activities.
Oppetit said that risk management is tricky because managing risk is what investment manager does in a way and it is very hard to disassociate investing and risk management. We have to take risk and every risk is taken willingly and knowingly. There is a dedicated risk manager whose job is to check and measure various market variables and if express concern if something doesnt fit.
Meanwhile, Anthony Ward, Co-Founder of Armajaro said that while there is more pressure to be transparent, investor education is the pivotal factor for transparency.
investor education is the key, said Ward. Especially in soft commodities, investors may not understand the strategies or the market as much. Due diligence has gone up a lot and now it takes a lot more to explain what we do to the investor to get them on board. We are paid to take risks but institutional investors want to know we arent out of control.
And lastly, Malcolm Butler, partner & COO, Comac Capital said that his company has an independent risk monitoring outfit that regularly delivers reports, using traditional methods, including Value-At-Risk.
We have an independent risk function that deliver reports to me regularly, which in turn I deliver to the investors, said Butler. We wanted to create an echo chamber, where all our movements are reported to the client.
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