Money managers under the microscope
Dealing with stress
Hedge funds’ awful performance figures have been splashed all over the media for some time, but the effect this is having on the funds themselves could potentially be of deeper concern to investors.
According to a report by Moody’s, entitled “Market turmoil increases stress on hedge fund operations”, there are a multitude of potential dangers to watch out for as fund performance deteriorates and cost pressures grow.
For example — some hedge funds keen to save the pennies have combined previously independent jobs such as fund manager and portfolio valuer, affecting the quality of its operations, says the report.
The higher likelihood of legal action by investors disappointed by poor returns, meanwhile, could take management’s eye off the ball and affect a fund’s operations.
Meanwhile, cutting middle or back office staff could potentially affect the way the fund calculates the key net asset value measure or records its trades, while budget cuts could leave a fund’s IT system behind the times and affect the information it produces.
However, most worrying perhaps is the report’s conclusion that a breakdown in procedures or systems could “result in inappropriate/unauthorized cash transfers”.
The $50 billion question is — does market stress mean more frauds?