It’s not before time – but it’s better late than never. The establishment of a high-level hedge fund manager working group in Europe is a welcome and very important development for which the industry has had an urgent need for a long time.
It has long been clear that the hedge fund profession needed a strong industry representative body – and one formed by the principals of hedge funds themselves, not by service providers or by other industry participants.
There are so many big issues out there – tax, valuations, transparency, activism, market abuse, insider trading, regulation, political intervention and public perception in its broadest sense – that need a concerted voice. And the time when the industry could collectively bury its head in the sand is long gone.
It has been clear for some time that the Alternative Investment Management Association, for all its good endeavours and its excellent work in promoting industry standards and best practice in a number of technical areas, needed help in representing the hedge fund community adequately at the highest political, regulatory, business and media levels.
The association has long been urging hedge fund principals themselves to get involved and to put their heads above the parapet as spokespeople for the industry – and the response, for the most part, had been silence.
Only Man Group deputy chairman Stanley Fink stands out as a hedge fund leader in Europe who has been prepared publicly to put forward the positive case for the industry and to counter some of the negative, ignorant and opinionated hogwash that can be found in most of the mainstream financial papers on pretty much any given day.
So former Bank of England deputy governor and Financial Services Authority chairman Sir Andrew Large is to be congratulated for taking on the mantle of chairing the working group – which comprises most of the top hedge fund managers in Europe.
The 13 leading hedge fund firms that have agreed to serve on the group are mainly London-based firms – Brevan Howard, Centaurus, Cheyne, CQS, Gartmore, GLG, Lansdowne, London Diversified, Man, Marshall Wace and RAB – as well as Stockholm-based Brummer and New York-based Och-Ziff, which has a large European operation.
These firms, and the other 20 firms that have lent their public support to the initiative, have all finally recognized that something had to be done – and quickly.
The noise emanating from all sides – from the G8 under its current German leadership, from regulators on such topics as activism and market abuse, from the UK Treasury on tax, from traditional sectors of the business and fund management world and from the mainstream newspapers on almost any subject under the sun – had become deafening.
But the establishment of the working group should not be seen simply as a reactive or defensive move. It is more a proactive and overdue recognition that the hedge fund industry has finally come of age.
The industry is a hugely important and influential part of the modern business and financial world. And its activities are rightly a topic for informed public debate. But its leaders are some of the most innovative and successful investors and business-builders of recent years, who deserve better than to be demonized through crass stereotyping by the media and by vested business interests.
As Large has said about the working group: "Addressing these issues shows that the industry appreciates its responsibilities now that it has attained this level of size and significance."
So its creation is of unquestioned importance and value. And the subjects on which it will initially focus its efforts – valuations, disclosure and risk management – are the right ones. But whether it will be able to have the required effect is less clear.
As has been seen in the recent maelstrom surrounding private equity on both sides of the Atlantic, political grandstanding and public outrage are quick to take hold in these situations. The evolution from spark to forest fire is swift and scary.
Hedge funds saw that they were more than likely to be next in line after private equity and it was perhaps this recognition more than any other that provided the final catalyst for the working group initiative.
An industry review of best practice, similar to the one that has been done in the private equity world, comes not a minute too soon. The working group will look at existing principles, standards and guidelines, evaluate areas that may require strengthening and suggest solutions that may include adherence to voluntary standards.
Whatever the outcome of its efforts, the creation of the working group is another sign of the hedge fund industry’s transition from alternative to mainstream. So is the creation this month by AIMA of an institutional investor steering committee, formed by some of the world’s largest and smartest investors, with combined assets of over $1 trillion.
These include CalPERS, UBS Global Asset Management, Harvard Management Company, The World Bank Pension Plan and ABP Investments. Collectively, the investors on the 13-strong committee have alternative investment allocations of some $130 billion.
Besides offering guidance on hedge fund industry activities to the investor community, the committee will offer investor input into regulatory and political issues relating to the hedge fund industry.
Both of these initiatives send a powerful signal that the hedge fund industry takes its responsibilities seriously – and that, far from being just a playground for the rich, the industry is managing money for most of the world’s major institutional investors.
Public perception might still be slow to change. But one can only hope that the tide of ignorance and hostility that the hedge fund industry has had to swim against for so long finally starts to recede – and that the quality of the public debate on the purpose, the role and the contribution of hedge funds finally starts to rise.