Money managers under the microscope
Funds of hedge funds have had a tough time recently.
Losses of 21.37 percent last year helped persuade clients to withdraw a net $50 bln in the fourth quarter and a further $85 billion in the first quarter of this year, according to HFR.
Funds of funds weren’t helped either by the speed with which private clients — who often hold these portfolios rather than the underlying fund – pulled out of the asset class.
But perhaps the hammer blow was Madoff — ironically not a hedge fund but nevertheless not spotted by some of the big funds of hedge fund firms, including RMF and UBP.
Rating agency Moody’s has updated its hedge fund ratings process in the wake of the Madoff fraud and the collapse of Lehman Brothers.
After draft laws from the European Commission, which have been attacked by almost the entire UK hedge fund industry, IOSCO‘s proposals — including registration of managers, disclosure of systemically-important information to regulators, registration and supervision of prime brokers — must seem like a walk in the park.
Hedge funds wishing to demonstrate their honesty to a sceptical world can now pay for a risk assessment to show they have a low risk of fraud.
For $15,000-$20,000 Protean Fraud Risk Appraisal will use its database of every such financial crime since 1997 to see if a fund shows any suspicious characteristics.
A year ago in its final results Man Group – the world’s biggest listed hedge fund firm — was able to report assets under management of $78.5 billion and a 60 percent rise in profits.
The firm’s shares took a pounding this morning, although have since made up some ground, after the firm revealed assets are now down to $44 billion, while profits almost halved.
Fraud is booming as financial pressures rise during the recession, according to PricewaterhouseCoopers, which last night hosted a meeting of its ‘Fraud Academy’, which aims to help companies share tips on spotting those up to no good.
It would appear that where to live is the hot topic for hedge fund managers at the moment.
Star manager Crispin Odey of Odey Asset Management is “seriously considering leaving” the UK over higher taxes, the Sunday Times reported, while Krom River moved to Zug from London for lower tax and a better lifestyle, the Financial Times reported last year.
The fund of hedge funds concept took a serious knock last year with Bernard Madoff’s $65 billion fraud, leading high net worth investors to pull out money over concerns that the due diligence hadn’t been quite as diligent as one would hope.
Even managers who weren’t exposed to Madoff had to calm client fears. This has prompted the bigger, more institutional groups to seek ways of gaining more control over assets that the underlying managers are running.