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Money managers under the microscope

Service providers flag hedge fund health

June 23, 2010

Fund service providers were back in force at the GAIM hedge funds conference in Monaco this year, a small sign that the industry, while not exactly brimming with confidence, has at least crawled out of the doldrums of 2009.

The service providers including fund auditors, custodians and prime brokers, have drawn in their horns since the early years of the millennium when they were often the main sponsors of cocktails and dinners at large hedge fund events.

They were conspicuous by their near absence at GAIM 2009, as were the free-for-all champagne receptions, gala dinners and so on, as money drained from the industry after hedge funds suffered their worst ever losses in the crisis year of 2008.

One of the big four auditors, for example, brought 22 staff in 2008, but just four in 2009.

But service providers were back in force this year, although they kept a far lower profile than before the crisis. For example, this year they preferred to sponsor low key dinners and talk business with clients real and prospective, rather than lavishing expensive freebies on all and sundry as in years past.

And at the cocktail receptions that were on offer, drinks tended to run out after an hour or two (this was not the fault of the correspondent).

It was a far cry form the fondly-remembered Bear Stearns Monaco beachfront party of 2007, a Lucullan bash worthy of the last days of Pompeii.

That was Bear’s last GAIM before the tottering bank was forced into a shotgun wedding with JPMorgan in 2008 in a last ditch effort to save it from bankruptcy. Bear not only ran hedge funds of its own — its two subprime debt funds went down the tubes in spectacular fashion in early 2008 — but it was also one of the biggest industry’s biggest prime brokerages, which provide trade execution for funds.

It seems other service providers don’t want to tempt fate for fear of meeting the same end.

The industry has been less flamboyant since then, and while the expense of a champagne cocktail reception for five hundred conference-goers would be but a small drop in the marketing budget for most service providers, they prefer to project a more sober image these days.

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