Hedge Fund Intelligence New standards in Investor Transparency | Page 15

NEW STANDARDS IN INVESTOR TRANSPARENCY

THE COSTS AND THE BENEFITS
Regulators and hedge fund investors acknowledge that the more onerous demands being made of managers are inevitably burdensome. Transparency, as the
SEC’s Mary Jo White said in her address to the MFA in October, “means being
subject to an occasional visit by a team of our professional compliance examiners
– who will review your records and sit with you to evaluate whether your firm is
being run in compliance with… business conduct rules and other requirements.”
Sounds comfy. But a visit from the securities industry’s cop on the corner is
unlikely to be like a cosy fireside chat. “This may not be the most welcome aspect of the new age of transparency for hedge fund advisers,” White conceded.
Visits from funds of funds’ operational due diligence teams can be equally rigorous. “If we want to meet people, we expect to be able to meet them,” says Barlow
at PAAMCO. “If we want them to walk us through certain processes we expect
them to show us the processes and documents. That is an absolute requirement.”
Administrators, too, are being subjected to a level of unprecedented oversight. “Today, we have more organisations coming in to do due diligence on us
than ever before,” says Cherecwich at Northern Trust. “More and more, investors are demanding demos to see our controls in action. They also want to
meet the individuals who service their accounts.”
But regulators and investors insist that the long-term quid pro quo of these
rigorous governance standards will be increased operational efficiencies and
even improved performance, which in turn should support rising levels of assets under management. Quantifying the performance benefits of better due
diligence and en hanced transparency is inevitably more of an art than a science.
Barlow, however, insists that PAAMCO’s exacting transparency standards
contribute to performance. “Structure and position-level transparency don’t
hinder performance,” he says. “These are some of the things that help make us
successful investors. That may sound counter-intuitive because not all managers are prepared to conform to our standards. But our manager selection has
helped us to outperform, and we seek to outperform our managers’ co-mingled funds by having lower fees and customising our funds.”
At Northern Trust, Sanchez says that the cost savings associated with transparency should not just be measured by the relative performance of a fund.
“There is a correlation between firm-wide transparency around controls and
© HedgeFund Intelligence

June 2014 Special Report 15