Hedge Fund Intelligence New standards in Investor Transparency

NEW STANDARDS IN INVESTOR TRANSPARENCY believe. Jeff Holland, managing director and cofounder of the London-based Liongate Capital Management, points to the case of the German hedge fund manager, Florian Homm, as one of the more colourful examples of an individual whose management strategy turned out to bear very little resemblance to what his investors had expected. Homm, founder and one-time chief investment officer of Absolute Capital Management Holdings, is alleged to have channelled his client’s funds into dubious penny stocks rather than liquid listed equities. That, along with a number of other allegations, led the SEC to charge Homm and others Jeff Holland, managing with “violations of several broker-dealer record- director and co-founder keeping provisions”. of Liongate Capital Fortunately, says Holland, cases of discovered or alleged fraud à la Madoff or Absolute Capital have Management been few and far between. “What is much more >> By and large, managers common,” he says, “is an element of window-dress- don’t have sinister reasons ing, where a long/short equity manager claiming to for not being transparent >> deal only in liquid equities is in reality over-exposed to smaller, less liquid names. Over the last few years, investors have become much more attuned to this sort of risk.” Holland says that in fairness to managers, many who continue to resist calls for more transparency have perfectly understandable reasons for doing so. “By and large, managers don’t have sinister reasons for not being transparent,” he says. “Many say that their ideas are proprietary and they want to protect their process.” The horrifying recognition that investors may have had very little idea of what was in their portfolios, let alone have the tools they needed to analyse those portfolios, had a notable impact on the relationship between hedge fund managers and their investors. “The Lehman crisis and the Madoff scandal really acted as a wake-up call for © HedgeFund Intelligence June 2014 Special Report 9

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