Best Practices

When Underfunded Pension Funds Take Up Social Responsibility Investing

Aug 24th, 2015 | Filed under: Best Practices, Corporate governance, Institutional Investing, Legislation/Court rulings, Socially responsible investing, Today's Post

In November 2014, Scott Stringer, New York City's Comptroller, launched a campaign he called the Boardroom Accountability Project. Bernard Sharfman makes a case that this BAP is a good example of much that is wrong with institutional/activist investing today.


The Skorina Report: Risky Business–Chief Investment Officers and Public Pension Plans

Aug 16th, 2015 | Filed under: Alpha Hunters, Alpha Seekers, Alpha Strategies, Best Practices, Guest Posts, Institutional Investing, Risk management, The Skorina Report, Today's Post

Guest columnist Charles Skorina with a cautionary tale of greed and deceit and less-than-best practices at a large public pension plan.


5 SNAFUs to Avoid With Investors

Aug 13th, 2015 | Filed under: Best Practices, Family Offices, High-net-worth investors, Today's Post

Guest columnist Diane Harrison discusses the art communicating with investors.


SEC’s Daniel Gallagher: Friend of the Beleaguered CCO

Aug 10th, 2015 | Filed under: Best Practices, Hedge Fund Regulation, Regulatory, Risk management, Today's Post

Commissioner Gallagher contends that some recent enforcement actions "have unfairly contorted the rule to treat the compliance function as a new business line," thus giving compliance officers the unwelcome role of business heads. In this and other respects, Gallagher says the agency is setting up a perverse system of incentives for those who ought to be its allies, the CCOs of IAs.


A New Look at Last Year’s Conference Board White Paper on Governance

Jul 27th, 2015 | Filed under: Best Practices, CAPM / Alpha Theory, Conference report, Corporate governance, Today's Post

Last year the Conference Board asked itself several questions germane to corporate governance. They were good questions. The odd thing about the report was the way the greybeards involved simply threw up their hands rather than trying to answer any of them.


Enterprise Software Marketers Confirm: Seven is a Sacred Number

Jul 21st, 2015 | Filed under: Best Practices, Regulatory, Technology, Today's Post

God rested on the seventh day of the week of creation. Ever since, the number seven has stood for the completion of an epoch, or of a perfect set. Thus, a German enterprise concern has now listed the "seven pillars" for improved market surveillance through software.


SBA of Florida Looks into Truth & Consequences of Activist Investing

Jul 16th, 2015 | Filed under: Best Practices, Corporate governance, Institutional Investing, Risk management, Today's Post

Florida's State Board of Administration deserves some credit for undertaking a recent corporate governance study. Even trying to look at the consequences of its proxy-contest votes over a period of up to five years after they are cast seems to have shattered a glass ceiling separating actual institutional behavior from common sense.


PwC Looks Ahead to 2020: Offers a Roadmap for Alternative Investment Managers

Jul 5th, 2015 | Filed under: Best Practices, Emerging markets, Hedge Fund Industry Trends, Hedge Fund Strategies, Infrastructure, Technology, Today's Post

PwC offers a glimpse of a 'day in the life' of a typical compliance analyst in 2015 and again in 2020. As these authors tell it, the day is filled with data, darkness, and drudgery at present, but it will be airy, alliterative, and analytical in another five years.


Dead Hand Proxy Puts: A Case Study

Jun 29th, 2015 | Filed under: Best Practices, Insolvency, Legislation/Court rulings, Today's Post

The creation of a so-called Dead Hand Proxy Put in the Healthways matter was especially egregious because it took place immediately after the board had agreed, under considerable shareholder pressure, that it would de-stagger its elections. The appearance then was that after giving up one defensive moat, the incumbents with the help of lenders immediately created for themselves another.


A Close Look at the Deutsche Bank Findings

Jun 10th, 2015 | Filed under: Asset pricing, Best Practices, Derivatives, Risk management, Today's Post

Judy Collins might suggest looking at risk from ‘both sides now.’ But it appears that according to DB at a critical moment in global financial history, risk existed only to the extent that it worked to enhance the value of DB positions: it didn’t exist in any sense that might have required a haircut.


Northern Trust on Hedge Funds, Big Data and Transparency

May 20th, 2015 | Filed under: Alpha Hunters, Best Practices, Institutional Investing, Technology, Today's Post

The integration of data isn't fully on the hedge fund industry radar yet. Yet it may be critical to rebuilding manager-investor relations via whiz-bang 21st century technology.


Corporate Governance: Sunday in the Park With George

May 19th, 2015 | Filed under: Academic Research, Best Practices, Emerging markets, Regulatory, Today's Post

The controversy over corporate governance, and whether the changes favored by reformers show up as superior corporate performance (as measured, for example, by Tobin's q) strikes Faille as dangerously abstract. The only way to get to the pointillist painting is by starting with particular data points.


Tavakoli on Death, an Industry’s Culture, and Decisions

Apr 29th, 2015 | Filed under: Best Practices, Book review, Derivatives, Risk management, Today's Post

Bill Broeksmit, with whom Tavakoli worked closely at the interest-rate swaps desk at Merrill Lynch in the late 1980s, killed himself in January 2014. The manner of this death, and the circumstances surrounding it, give this book even more gravitas than would a global financial crisis or two.


Most Investors Sanguine About Central Clearing Mandates

Mar 22nd, 2015 | Filed under: Best Practices, Derivatives, Hedge Fund Industry Trends, Regulatory, Today's Post

The international push to mandate central clearing has expanded the clearinghouses "well beyond levels the market has ever seen," Greenwich Associates reminds us in a new report. This is an experiment, and there remains some grounds for uncertainty about the outcome.


AIMA Reports: Activist Hedge Funds are the Good Guys

Mar 3rd, 2015 | Filed under: Best Practices, Hedge Fund Strategies, Private Equity, Regulatory, Today's Post

Activist investors usually aren't trying to take control of a company. And when they are, managers have strong existing tools to foil them. What activist investors can do is increase share value, over sustained periods.


Basel Committee’s Latest Progress Report: Buy IT

Feb 4th, 2015 | Filed under: Best Practices, Regulatory, Today's Post

Out of the 31 banks surveyed by the Basel Committee for its latest progress report on risk data aggregation, 45% reported that they will not be in compliance with the Basel demands by the deadline, a year from now. But surely there is a profit opportunity in here for someone.


Stifling Debate on Classified Boards: Je Suis Charlie!

Feb 2nd, 2015 | Filed under: Best Practices, Hedge Fund Strategies, Regulatory, Today's Post

Unfortunately, Gallagher and Grundfest aren't simply contributing to the on-going debate over shareholder activism, classified boards, etc. They're trying to stifle it by suggesting a litigation campaign against the side they oppose. Shame on them.


Money Markets: The Cure to What Ails the Sukuk Space

Dec 22nd, 2014 | Filed under: Behavioral finance, Best Practices, Emerging markets, Today's Post

Two World Bank economists review the impediments that face the growth of the sukuk market, impediments often inherent in the theological precepts that gave rise to it. Part of the solution: well-functioning money markets as a context for sukuk issuance.


Aligning Interests: Side Pockets, Side Letters, and Central Issues

Dec 9th, 2014 | Filed under: Asset pricing, Best Practices, Hedge Fund Industry Trends, Investment Management Fees, Today's Post

A proposed new set of principles, designed to encourage investors in the alt-investment industry in their discussions with their managements, encourages skepticism both about side-pocketed assets and about other investors' sweetheart deals (i.e. "side letters.")


The Growing Problem of Calculating Performance Fees

Dec 2nd, 2014 | Filed under: Alpha Strategies, Best Practices, Performance, Analytics & Metrics, Today's Post

A new white paper produced jointly by FundCalcs and Global Perspectives looks at the growing complexity of calculating performance fees.


Asset Managers Need to Ride the Tides

Oct 16th, 2014 | Filed under: Best Practices, Today's Post

Guest columnist Diane Harrison looks at the ebb and flow of money and what it means to portfolio construction.


Hong Kong Shariah-Compliant Launch Sells

Sep 22nd, 2014 | Filed under: Behavioral finance, Best Practices, Emerging markets, Today's Post

If I should declare that I will never eat duck, and then I simply re-name certain ducks “chickens” and eat them, then people who genuinely as a matter of principle refuse to eat duck may consider me a false friend. And those who have no objection to the eating of duck may think me a silly goose.


Judge Drain: Make That ‘Make Whole” Clause Explicit and Clear

Sep 7th, 2014 | Filed under: Alpha Strategies, Best Practices, Insolvency, Today's Post

Judge Drain didn't actually accept the Momentive plan, but it now seems likely he will accept some very similar plan in due course. What is key is that the objections that he found had unconvincing represented until then the conventional wisdom among much of the bar devoted to the service of event-driven litigators.


Regulatory reporting – key considerations for fund managers and service providers

Jul 15th, 2014 | Filed under: Best Practices, Hedge Fund Operations and Risk Management, Regulatory, Today's Post

Keeping track of the AIFMDs, FATCAs without drowning in the alphabet soup is hard work. A new paper from Grant Thornton offers some ideas on how to wade through the soup while you're looking for alpha.


Time for the Alternative Investment Industry to Grow Up

Jul 10th, 2014 | Filed under: Alpha Strategies, Best Practices, Today's Post

Guest columnist Bob Swarup, CAIA, looks at good governance and best practices and what the alternative investment industry needs to do to "grow up."


In-house [Im]Prop[er] Trading: Proceed with Caution

May 29th, 2014 | Filed under: Best Practices, Today's Post

Guest columnist Ginger Szala looks at the conflicts of interest in trading.


Index Provider Transparency: End Users Unimpressed

May 19th, 2014 | Filed under: Academic Research, Best Practices, Indexes, Today's Post

Europe's index providers, by their own account, already have strong incentives to offer optimal transparency and, in their self-interest, they do so. A survey and report from EDHEC examines this claim.


Hedge Funds: The Transparent, the Opaque and the Tiered

May 18th, 2014 | Filed under: Best Practices, Performance, Analytics & Metrics, Today's Post

Seventy-one percent of private equity/real estate investors, and 89% of hedge fund investors, say they have decided against investing in at least one new fund due to their concern over its lack of transparency.


The Yin and Yang of Executive Compensation

Apr 1st, 2014 | Filed under: Alpha Strategies, Best Practices, Regulatory, Today's Post

The lesson for investors in the new Wachtell Lipton document may simply be that a corporation that is careless about compensation at the highest level, that cannot carefully document the reasons for payouts, is asking for trouble and that one must consider whether the market has fully discounted the trouble.


Mutual Fund Whistle Blower Case Will Proceed

Mar 9th, 2014 | Filed under: Best Practices, Regulatory, Today's Post

Lawson, the whistle blowing employee of an investment advisor, is protected by SOX. Six Justices agreed on that, although they disagreed on exactly why, or on how far the implications might take future courts.


Increased Tax Rates and the Net Investment Income Tax – A Galactic Collision of Forces

Feb 17th, 2014 | Filed under: Best Practices, Partner accounting, Today's Post

Maury Cartine, CPA, JD, Partner in Charge of Alternative Investment Group Tax, Marcum, LLP, looks at the tax changes and what this means for managers and investors.


IOSCO Cautions About Fragmentation

Dec 17th, 2013 | Filed under: Best Practices, Regulatory, Today's Post

The IOSCO has recommendations for market authorities as to trade execution services. These recommendations are driven by a general sense that technology has brought about increased fragmentation and that this, unless carefully monitored, is a dangerous thing.


Celent: Back Office to the Front Burner

Dec 10th, 2013 | Filed under: Best Practices, Infrastructure, Today's Post

A new report, which concerns specifically the post-trade operations of equities and fixed income instruments, says that since the crisis of 2008 the management of costs has become "an utmost priority." Cost management, though, isn't the same as downsizing.


AIMA: Valuation Sound Practices Updated

Oct 17th, 2013 | Filed under: Asset pricing, Best Practices, Today's Post

Challenges brought about by the 2007-08 crises and their long wake have interacted in the U.S. with what was then a new fair-value hierarchy, the three levels of valuation as established by the FASB.


On Two Quantitative and Objective Execution Benchmarks

Oct 1st, 2013 | Filed under: Best Practices, Performance, Analytics & Metrics, Today's Post

As a matter of fiduciary responsibility and best business practice, Woodbine says, firms need to conceive of a trading strategy that will optimize their trade execution against objective and quantitative benchmarks, and connect with counterparties who will advance this goal.


Principles as Abstractions: The AIMA Offers a Canvas

Sep 9th, 2013 | Filed under: Best Practices, Regulatory, Today's Post

On the too-big-to-fail front, for example, AIMA observes that risks associated with the failure of any particular entity "should be adequately addressed...." That is quite unobjectionable. All problems should be adequately addressed.


Building a Successful Fund Firm From the Start

Aug 21st, 2013 | Filed under: Best Practices, Commodities, CTA, Hedge Fund Industry Trends, Hedge Fund Operations and Risk Management, Performance, Analytics & Metrics

Grant Jaffarian, AlphaTerra LLC, discussed the importance of messaging


A Shotgun Apartment for Wealth Managers

Jul 29th, 2013 | Filed under: Best Practices, Hedge Fund Industry Trends, Today's Post

Celent reports that for many wealth managers the nature of market conditions, and in particular the ever more strenuous compliance demands, have pressed them to make more effective use of the technology portion of their budget, from the front office to the back. We give some thought to the implicit imagery.


Marketing Closer or Poseur? How to Identify the First and Avoid the Second

Jun 13th, 2013 | Filed under: Alpha Seekers, Alpha Strategies, Best Practices, Hedge Fund Industry Trends, Today's Post

Guest columnist Diane Harrison takes a hard look at asset raising and the people who do it.


Supreme Court Accepts Fidelity Whistle-Blower Appeal

May 30th, 2013 | Filed under: Best Practices, Regulatory, Today's Post

One case now before the U.S. Supreme Court poses the issue of the proper interpretation of the whistle-blower protection offered by Sarbanes-Oxley. The underlying problem is that when Congress wrote that statute it had in mind operational companies like Enron, or WorldCom, or Tyco International. The very different world of investment advisers and their funds, [where the public entities are the funds proper which employ no one], wasn't on its collective mind.


Abstraction, Patents, and the Latest Alice Ruling: A Scorecard

May 16th, 2013 | Filed under: Best Practices, Regulatory, Today's Post

The Federal Circuit's effort to address en banc the district court's rejection of the applicability of patent law to a fairly commonplace hedge against settlement risk seems to have broken down in confusion. This may have profound implications for both the traditional and the alternative asset management industry.


Intellectual Property Rights in Software: Go Ask Alice

Feb 13th, 2013 | Filed under: Best Practices, Regulatory, Timely Research, Today's Post

Lawyers argued an intellectual property issue of great significance to our readers before the Federal Circuit Court of Appeals en banc, on Friday, February 8, 2013. They were disputing a patent claim that, if upheld, will make life a lot more complicated than it already is for those attempting to provide the infrastructure of the alternative-investment industry.


Risk Management versus Risk Mitigation & Absolute Return versus Hedge Funds

Jan 31st, 2013 | Filed under: Alpha Strategies, Best Practices, Editorial, Hedge Fund Industry Trends, Today's Post

Rene Levesque looks at risk management and absolute return from an industry practitioner's point of view.


DRC: Finding Red Flags in the ADVs

Jan 24th, 2013 | Filed under: Best Practices, due diligence, Today's Post

Fifty-eight percent of the pension investment consultants included in a recent report have one or another sort of red flag in their present or their past: many of them because they run their business in a way that generates conflicts that ought to be of concern to pension plan sponsors.


Delaware Struggles with Corporate-Auction Questions: Don’t Ask

Jan 14th, 2013 | Filed under: Best Practices, Regulatory, Today's Post

The directors of a corporation selling itself have a duty to their shareholders to familiarize themselves with all the material facts, and they are to be discouraged from stuffing wax in their ears in order to avoid hearing anything inconvenient.


You’ve made finals! Now, how do you get an edge?

Sep 27th, 2012 | Filed under: Alpha Hunters, Best Practices, Institutional Investing, Today's Post

Charles J. French, CAIA, discusses the intricacies of negotiating finals with Christopher Van Dyke, CAIA, CFA, Advisor, Arnerich Massena, Inc. (CVD); Kweku Obed, CAIA, CFA, Principal, Mercer Investment Consulting, Inc. (KO); and Thomas H. Dodd, CAIA, CFA, FSA, President, Stratford Advisory Group (TD).


Disclosures and Paperwork Burdens Under Fair Value Rules

Sep 19th, 2012 | Filed under: Best Practices, Regulatory, Today's Post

As a McGladrey white paper issued this spring makes clear, reporting entities now must disclose quantitative information about the unobservable inputs used in Level 3 Fair Value measurements. These may include: prepayment rates; credit risk adjustments; default rates; control premiums; loss severities.


The Rise and Rise of Operational Due Diligence

Aug 6th, 2012 | Filed under: Best Practices, Today's Post

Shane Brett takes a look at operational due diligence and recommends letting the sun shine in.


The Libor Scandal Is Becoming a Central Bankers’ Scandal

Jul 17th, 2012 | Filed under: Best Practices, Timely Research, Today's Post

After an October 29, 2008 discussion with Tucker, Diamond wrote a note for the file saying that the Bank of England official had said that "it does not always need to be the case that we appeared as high as we have recently" in connection Barclays' Libor submissions. What are we to make of this?


PwC: Open Books Will Rebuild Trust for Hedge Funds

Jun 26th, 2012 | Filed under: Best Practices, Hedge Fund Industry Trends, Institutional Investing, Today's Post

The return of assets to the realm of hedge funds comes with enhanced scrutiny. As Todd Groome, chairman of AIMA, says: “Following 2008, a much greater investor focus on liquidity, portfolio transparency, control and fund governance was clearly evident.” In common with legislative/regulatory changes, this requires transformation.