Tag Archives: hedge fund conference

SALT Conference 2013

Today the SALT conference starts in Las Vegas.  Continuing through the end of the week, the hedge fund industry will be descending upon the Bellagio for scheduled speakers, general information sessions and, of course, networking.  This year featured speakers include Nicolas Sarkozy, John Paulson and Coach K; other speakers include major players in the industry including my friend and law school classmate Omeed Malik who is head of the Emerging Manager Program at Bank of America Merrill Lynch.

For more information on the conference, see their website here.

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Cole-Frieman & Mallon LLP provides legal services to the investment management industry.  Bart Mallon can be reached directly at 415-868-5345.

Bart Mallon Speaking at Financial Services Conference

Moss Adams Event on September 26, 2011

On September 26, 2011 Bart Mallon, co-managing partner of Cole-Frieman & Mallon LLP, is scheduled to speak on a panel with respect to recent regulatory issues affecting asset managers. The panel is entitled “Dodd-Frank and the Impact on the Asset Management Business” and also features David E. Tang, a partner at Sidley Austin LLP, and will be moderated by Bryan Cartwright of Moss Adams.

While we do not yet know the exact topics for the panel, there has been a number big picture issues which will affect fund managers over the next several months. Some of these issues include:

After the event we will

provide a review of the major items discussed during the panel.  An overview of the conference is reprinted below and more information can be found here.

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09/26/2011
9:00 a.m. – 5:00 p.m. PT
Hilton Hotel
San Francisco, CA

What’s happening in the investment community now, and where are asset management companies headed?

Join Moss Adams LLP, Arizona State University emeritus professor Dr. Stephen Happel, and US Bancorp former chief economist John Mitchell for an economic update. We’ll also discuss a range of issues and developments affecting broker-dealers, RIAs, hedge funds, and asset managers. Topics will include:

  • Impact of the Dodd-Frank Act
  • Retention and succession
  • Producing superior AUM growth
  • Transaction and advisory activity
  • Accounting and auditing roundup

Alongside our annual Community Banking Conference, this event will provide you an opportunity to network with banking professionals during lunch and at our joint reception.

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Cole-Frieman & Mallon LLP is a hedge fund law firm which provides comprehensive formation and SEC/CFTC regulatory support to start-up and established hedge fund managers.  Please contact us if you have any questions.

Bart Mallon

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San Francisco Hedge Fund Industry Event

BAHR Panel Discussion on Global Investing Trends
By Bart Mallon of Cole-Frieman & Mallon LLP

The Bay Area Hedge Fund Roundtable convened again today at the Sens Restaurant in San Francisco to discuss the global investing trends and how those trends are affecting the hedge fund industry. The presentation was moderated by Ron Resnick (ConselWorks LLC) and included the following panel participants:

John Burbank (Passport Capital LLC)
John Shearman (Albourne America, LLC)
Matt Kratter (Kratter Capital LLC)
Patrick Wolff (Clarium Capital Management, LLC)

Overall the panel discussion was very interesting and I think that Ron did a very good job of moderating in a kind of “Meet the Press” type of way. The speakers all had interesting viewpoints and were able to keep the audience interested in the topics. Below I will give a very high level run-down of the major topics discussed – if anything does not make sense, it is likely a mistake in my hearing so please do not hold that against any of the speakers.

Additional note: this is not in any way an advertisement for any hedge fund and is not an offering of any interests in a hedge fund. I have never talked to any of the named speakers and everything I am writing below is on my own volition.*

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John Burbank

The discussion was started when Ron asked John was his fund was investing in. John said that he is now investing in the United States in the same stuff as he was before. However, he spent a good deal of time discussing liquidity and how it will affect investment decisions going forward. Central to his discussion were his views on deflation. He ended this part of the discussion by noting that governments (especially the U.S. government) has so many tools to effect the financial markets (in addition to simply printing money) and that many actions are driven by the current liquidity situation.

Matt Kratter

I infer that Matt started his own hedge fund last year because he was asked whether it was a good or a bad time to start a hedge fund within the last twelve months. He noted that it was not the best time to be on your own but that the times serve as a good proving ground that a manager can withstand market downslides. Matt talked about variability of inflation going forward and that he is currently net short. He thinks that multiples are likely to retract in the future.

John Shearman

John was asked whether investor’s hedge fund expectations have changed. He said that investor expectations have come down a bit, but beleives that the forcase for the future has never been better. Post 2008 he sees that there has been a shifting of power back to hedge fund investors and he mentioned two buzzwords – lower fees and transparency. While fees have not really come down recently, there have been huge gains made in expectations of transparency. This is especially true with regard to valuation and verification of assets. Hedge funds have made these changes and it is relatively easy for them to say yes to such requests (as opposed to requests for fee decreases).

John seemed to indicate that there is more opportunity for investors to come together and present a united front with regard to what they want to see in these vehicles, but it has just not happened. A central reason is that foundations and endowments (two of the largest groups of hedge fund investors) are not really in a position to be an agent of change because they are examining the funds they are already invested in. He also mentioned a general increase in separately managed accounts noting that the central driving force is the investor’s need for control of assets – liquidity without conditions.

Patrick Wolff

Patrick was asked point blank while his group did not do as well this year. He said that, unfortunately, they had the wrong investments this year and that the drawdown was not a result of their risk management policies and procedures. Patrick talked about macro themes including China, volitility, carry trades over the last year and the fundamentals of major government players (centrally China and the U.S.). He feels there is a current bubble in China which is likely to last in the near term. He thought that a major macro issue moving forward will be how the governments will continue to be involved in the credit markets. Patrick believes that the U.S. has huge off balance sheet liabilities.

Other Question and Answers

What are the major trends moving forward?

John Burbank – governments changing the rules of the game as it is being played. What is going to happen will be driven by governments subject to: the price of the dollar, commodities, or China.

Why did gold hit an all-time high today?

Matt Kratter – I don’t know, but this is a question which everyone is asking – even the garbageman.

How is capital flowing?

John Shearman – there are a lot of opportunities in hedge funds – lots of alpha and distressed assets. Macro discretionary is a good play right now and there is a lot of interest in commodities.

How is fund raising in this environment?

Matt Kratter – fundraising has been slow since last year but there is more activity at the margins. Fundraising will probably stay difficult for awhile.

Are investors more interested in the investment side or infrastructure side during due diligence conversations?

John Burbank – all investor due diligence is taking longer. Current investors are coming back and asking questions they should have asked earlier. It is now similar to 2003 – there is a lot of excitement. Which makes sense because investors essentially have three choices: mutual funds, do-it-yourself, or hedge funds.

[Someone mentioned that capital is not there for a start up and the question arose as to whether two guys and a Bloomberg really had a chance to raise capital in this environment. John said that start up managers should not be afraid to start out small – he started with about $1MM in AUM and slowly grew to $12MM after three years (his firm now manages over $2 billion). John emphasized that over time good managers will be able to demonstrate their strategy and if the numbers are good, investors will eventually find such managers.]

What about hedge fund regulation?

Patrick Wolff – over hedge fund regulation is not a huge deal. If you are registering with the SEC you are going to be required to do things that, as a good business, you should be doing anyway. The key to regulation is that it needs to be sensible. Regulation itself is not bad.

Questions from the audience

When Ron asked the audience if there were any questions there was a long pause. I eventually asked the panel what they thought about the headlines recently regarding the U.S. dollar and whether it would remain the world’s reserve currency. Patrick responded first that worry about the dollar is overhyped. However, he did note that his fund has had some investors request share classes in a different currency.** John noted the practical limitations of moving toward another currency and noted that if a government needs to get a billion U.S. dollars it can happen, but that wouldn’t be the case with other currencies.

Note on People Who I Met

After the panel there was time to discuss the presentation and do some networking. I had the distinct pleasure of talking with a number of people at the event, including:

  • Jenny West of Probitas Partners (fund placement services)
  • Mason Snyder of Catalina Partners (risk advisory to investment management industry)
  • Rosemary Fanelli of CounselWorks (regulatory consulting for financial institutions)
  • Ron Resnick of CounselWorks(regulatory consulting for financial institutions)
  • Maria Hall of M.D. Hall & Company (CPA services for small funds)

* If you are a named speaker and would like your name and information taken out of this article, please contact me.

** I am in the process of writing an article on this topic – if you are a hedge fund manager who wants to create another class of fund interests denominated in another currency, please feel free to contact me to discuss.

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Bart Mallon, Esq. of Cole-Frieman & Mallon LLP runs Hedge Fund Law Blog and has written most all of the articles which appear on this website.  Mr. Mallon’s legal practice is devoted to helping emerging and start up hedge fund managers successfully launch a hedge fund.  If you are a hedge fund manager who is looking to start a hedge fund or register as an investment advisor, please contact us or call Mr. Mallon directly at 415-868-5345.  Other related hedge fund law articles include:

Hedge Fund Investors – What are investors looking for?

Are Hedge Fund Managers Lowering Fees?

There are a few common topics which have been coming up lately in my conversations with managers.  Of these probably the question of greatest interest deals with what sort of fee structure investors are looking for right now and what kinds of fee concessions are manages granting to investors.  In the article below Bryan Goh (First Avenue Partners) addresses these issues and shares his thoughts on the hedge fund industry after a recent conference.  This article was reprinted from Byan’s blog called Ten Seconds Into the Future by Bryan – I highly recommend this blog for all hedge fund managers.  [Another blog I highly recommend is Compliance Building by Doug Cornelius.  This blog will be a great resource for anyone interested in issues involving compliance issues.]

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The month of June is replete with hedge fund conferences. Conferences earlier this year were either poorly attended, or else investors attended them for the free breakfast or lunch, a chance to commiserate with fellow sufferers of the global financial crisis/hedge fund witch hunt. What a differences a couple of months of rising markets make.

I recently attended the Goldman Sachs European Hedge Fund conferences held in London a couple of days ago. Over 50 hedge fund managers attended to present their funds and a rough count of what must have been over 300 investor groups showed up if not to allocate soon then at the very least to window shop.

The quality of managers was in general very high. Perhaps the weaker managers had been washed out or were facing legacy issues and thus not investable, there was clearly a Darwinian dynamic at work. The organizers would have been very selective as well so as not to waste investors time. Or maybe it was just that Goldman Sachs simply had a bigger client base and could move further into the right tail of quality. Or, dare I say it, Goldman’s clients were of a better quality. I don’t know, all I know is what I saw. 5o over managers, all to a greater degree, investable if one was so inclined to their strategies.

Many established managers previously closed to new investment, or usually reluctant to be presenting at capital introduction events were presenting. Only recently, Israel Englander’s much vaunted Millennium was out looking for new capital at a number of conferences around the globe. These managers have experienced outflows of capital, redemptions which may be uncorrelated to the quality of their performance in 2008, and find that they have capacity to replace this exiting capital, as well as are faced with rich opportunity sets upon which to capitalize and thus have improved capacity.

Panel upon panel of strategy specific discussions were held and all well attended. Investors were clearly looking for new ideas, a sign of recovering risk appetite and the need to put capital to work. In every discussion, the macro landscape was an issue of great importance. At each panel, regardless of the uncorrelated or non-directional nature of the strategy from event driven to market neutral strategies, moderators and panel members were clearly focusing on the macro landscape, on regulation, on government intervention, and how these would impact the functioning of markets in which they invested. One thing was clear, there was no consensus as to the health of the global economy. Goldman Sach’s Head of Global Economic Research Jim O’Neill was of the opinion that the worst was over and that a V shaped recovery was underway. His team forecasts better than expected growth from economies like the BRICs driving global growth. Hedge fund manager’s, however, were almost evenly split 50:50 between bulls and bears, with the bears with the slight edge in extra time. Student’s of Murphy’s Law and other dynamic system theories will tell you that this is a healthy balance and likely to prolong current trends whether rising or falling and that reversals occur when the balance is jeopardized one way or the other.

What was really interesting for this observer, was that despite the lack of consensus over economic growth and market direction, each manager saw immense investment opportunities in their own particular strategies and markets. This would appear to be an inconsistency at best and more cynically, disingenuity at worst. Not so, in my view.

Of all the strategies represented at the conference, there was consensus among the respective manager groups, that the opportunities for profit generation were great. Equity long short, Distressed Debt, Merger Arbitrage, Volatility, Multi Strats. They all saw ways that they could make money, yet none of them could agree on whether the economy had stabilized, whether growth would resume or falter, whether inflation would rise or sink into deflation, whether markets would rise and fall. There is a larger lesson for students of economics, but that is not our aim here.

One can argue that macro leads micro, I’m not quite sure how yet, but in the narrower context of this discussion, micro leads macro. What these managers are individually telling us is that there are micro strategies that can be profitable. A macro analysis of the strategies that these managers employ will simply not be granular enough to capture the opportunities they talk about. And yet, when sufficient numbers of them make money, when sufficient capital is put to work in these opportunities, the macro structure of the trades becomes evident. This is the natural evolution of strategy.

Fees and Terms:

The industry has been debating if there has been any fee compression in the wake of the financial crisis of 2008, and hedge funds’ apparently failure to perform as advertised. I have defended the performance of hedge funds through the initial stages of the crisis, but that is the subject of another discussion. At the Goldman conference, there was definitely a growing number of managers charging less than the usual 2 and 20. 1.5 and 15, and even 1 and 10, fees were seen. Encouragingly, I met a handful of managers who were either considering or in the process of establishing a holdback provision with a vesting period, on performance fees, whereby a portion (say 50%) of a year’s performance fees are held in escrow and a negative performance fee is applicable to the amound held back.

Liquidity terms were also a lot more logical. Illiquid strategies did not shy away from lock ups, while well performing or big name hedge funds with liquid portfolios and strategies, passed on that liquidity to investors. Some managers went as far as to formally exclude so-called gates, restrict suspension of NAV rights to specific circumstances, and specify side pocket provisions more explicitly. It appears that the events of 2008 have precipitated a much welcome self regulatory campaign.

Strategies:

Equity long short managers were in abundance, naturally, given their market share of the hedge fund industry. The diversity of styles within what many consider a relatively simple strategy makes it a very interesting area to analyse and invest. There are managers who are driven by the philosophy that fundamentals, that is earnings, cash flow generation, financial strength, matter most in determining valuations. There are those who are traders, for which fundamentals are secondary, and what matters most is how a stock’s price has behaved and is behaving. Still others, have a macro or thematic approach, and apply these to equity investing. The trading style managers were bullish, arguing that increased volatility and dispersion in equity returns represented opportunity for profit. It also represents opportunity for loss as well of course. Alpha can be negative. Some of them were bullish on the market, some were bearish on the market, but there was general enthusiasm for the opportunity to trade. Fundamentally driven stock pickers were similarly upbeat about their strategy, arguing that the last 6 months have seen a wholesale disposal of risk followed by in the last 6 weeks, a reversal of this risk aversion, and that such large systemic moves create mispricings in individual companies which they seek to exploit. As always there were some very clever approaches to equity long short. There was a manager who had a very strong macro view, and invested a lot of time in macro research, then researched company fundamentals in an attempt to understand the impact of macro developments on company fundamentals. There was another manager which analysed only audited financials and ignored all street and interim data, and then built sophisticated models to obtain their own interim numbers. All these various managers had credible reasons why their approaches would work. In 2005, I would not have believed them; today I am a lot less skeptical.

Convertible Arbitrage managers were conspicuously absent from the conferences. The best performing strategy in 2009, albeit the worst performing strategy in 2008, convertible arbitrageurs were too busy making money from the market to attend a capital introductions event. Moreover, who would listen, they would argue, most investors having being burnt in 2005 and then again in 2008. There are good reasons why the strategy is working and is likely to work further, but the managers were too busy working it than selling it. Good for them.

Distressed Debt has been a preferred strategy since late 2007. That, however, was an expensive false start. By the end of 2008, with insufficient defaults and a catastrophic dislocation in credit markets from LIBOR to swaps, from ABS to corporate, from cash to synthetics, distressed debt managers had suffered considerable losses. Rational, no memory investing would have suggested getting back into distressed investing in 2009 and to their credit, investors have been bullish on distressed investing once again. A number of surveys taken in 1Q 2009 ranked distressed investing as one of the top 3 hedge fund strategies among investors for 2009.

One of the least favored strategies, if investor survey’s are to be believed, is merger arbitrage. It may surprise one to learn that on a rolling 12 month basis, merger arbitrage has been one of the best performing hedge fund strategies, behind global macro and CTAs. Merger arbitrage, or risk arb, was well represented at the Goldman conference and it was clear that risk arbitrageurs were very much excited about the opportunities before them.

Since July 2008, M&A transactions numbered over 5000 representing over 1 trillion USD in value, and deal flow continues on the back of cashed up corporate buyers seeking strategic assets, distressed sales from corporate restructurings, distressed sellers and government interventions. Company’s are happier to do deals in rising stock markets and easing financing conditions. Also, BRICs and other EM markets outbound transactions have been strong and remain an area of considerable potential growth.

Deal spreads have been volatile. The dislocation of markets in 2008 represent a stepwise repricing of an over arbitraged space. Deal spreads of circa 10-11% blew out to 50 – 60% before settling at current levels of 15 – 20% IRR.

The financial crisis of 2008 has also reduced the number of participants leading to a much less crowded space. Bank prop desks have exited or significantly reduced their books and hedge fund capital dedicated to risk arb has shrunk more than proportionately to the industry. Many risk arb funds drifted into a much too early play in distressed credit as quite often the resources if not the skill sets are the same. M&A very often wanders into litigation and distressed investing is very much about litigation. While a pure risk arb strategy would have done relatively well in the last 12 months, the contamination from a catastrophic credit strategy has hurt many multi strategy funds with large risk arb books resulting in poor performance and redemptions. The reduced capital employed in risk arb not only results in wider deal spreads but allows more time for analysis and deal selection leading to more selective participation.

A renaissance for hedge funds:

Since hedge fund indices have been compiled, that is 1990, until the present, with the exception of 1998 and 2008, hedge funds have steadily generated positive absolute returns. These returns have seen varying correlations to the returns of other traditional asset classes such as equities and bonds, as well as varying information ratios over time. From 2005 to 2007 hedge funds’ returns exhibited increasing correlation to traditional asset classes, decreasing returns to invested capital, increasing inter strategy correlations and increasing leverage. These features are interrelated and are directly related to the amount of capital dedicated to hedge fund strategies.

With more capital deployed in arbitrage and relative value strategies, continuous risk was more evenly distributed, volatility was dampened, volatility of volatility and correlations was also dampened, credit spreads converged, other arbitrage and relative value spreads also converged. The only way to maintain return on equity was to increase the level of leverage, a practice eminently feasible in an environment of cheap credit. Return on capital at risk, however, compressed to unsustainably low levels.

Such periods of calm accumulate imbalances for discontinuities. It would seem that a protracted reduction in continuous risk results in an accumulation of gap risk. In 2008, that gap risk was crystallized resulting in a discontinuous reduction in systemic leverage and thus capital employed  in arbitrage and a concomitant system wide widening of arbitrage and relative value spreads.

This is one of the more plausible explanations for why, in an economy clearly in decline, with recovery highly uncertain and non-robust, with differing opinions and outlook for financial markets, arbitrageurs are optimistic about their profit generation potential across almost all, if not all, hedge fund strategies.

Arbitrageurs will be required once again to police arbitrage and relative value spreads to bring convergence to no-arbitrage pricing, to bring relative value valuations in line and to aid in the efficient allocation of capital. In a sense, and to a certain extent, the real economy is reliant on the arbitrageur in the healing process, and therefore, one factor for the rate of recovery, or repair, of the real economy, will be the rate at which capital is redeployed to take advantage of mispricings and other arbitrage opportunities.

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Please feel free to comment below or contact me if you have any questions or would like more information on starting a hedge fund.

Northwest Hedge Fund Society Event

Green Hedge Fund Discussion

The Northwest Hedge Fund Socitey will be having an event on Thursday, May 21 at 6pm.  I will be attending this event and in Seattle that day as well.

Event Details:

This event is generously sponsored by EzeCastle Integration and NorthPoint Trading Partners, LLC.  Eze Castle Integration is the market leader in outsourced IT technology and services for hedge funds and other specialty investment-management firms. NorthPoint Trading Partners offers industry-leading prime brokerage services to Hedge Funds as well as Long-only Asset Managers. The firm has a reputation for exceptional client service and competitive pricing. Through their multiple clearing relationships, fund managers have the advantage of choosing clearing and custody services from the industry’s largest global providers.

Moderator:

  • John Kilpatrick, Managing Member, Greenfield Advisors LLC

Panelists:

  • Mark Cox, CEO, New Energy Fund LP
  • Gautam Barua, Partner, Aclaria Capital
  • Steve Hall, Managing Director, Vulcan Ventures
  • John Siegler, Managing Director, Ridgecrest Capital Partners

Location:

The Harbor Club: 801 Second Avenue, Suite 17, Seattle, WA 98104

Important Information Regarding Parking:

Parking is available in the Norton Building Garage below the club. However, please note that valet parking is effective until 6:30 each evening. If you park here during the valet hours and stay through the end of the event, your keys will be brought to the club’s front desk when the garage converts to standard parking.

The Norton Building Garage can fill up quickly. As an alternative, the Harbor Club recommends the CPS Parking located at 721 1st Avenue.
· Free for Members
· Non-member fee: $75