Archive for the ‘General’ Category
Friday, May 11th, 2012
European regulators don’t need an excuse to tighten the screws on big finance and outlaw proprietary trading at investment banks. But JPMorgan’s $2 billion hedging loss plays right into their hands.
“The Volcker rule, aimed at banning banks speculating with depositors’ cash, will become law in the United States,” Reuters’ Jamie McGeever reports. “JPMorgan’s oversight failure here could push Europe to follow suit.”
Thursday, May 3rd, 2012
Debbie Fuhr of ETF Global Insight says the latest ETF launches are designed to give exposures to specific sectors across asset classes, rather than exposure to broad market indexes.
“We are seeing that many active managers are looking to get into the ETF space,” Fuhr says. “Because if we look over the past few years, the net new money going into ETFs has been very significant.”
Friday, April 27th, 2012
If you’re not doing this, you could be hurting your job prospects on Wall Street.
Or anywhere else, for that matter. It turns out that social mediaâ€”a tool designed to bring us closer togetherâ€”might actually be driving us farther apart.
“I think there’s still no substitute for picking up the telephone and calling people upâ€”doing face-to-face [communication],” hedge fund manager Eric Jackson told StreetID. “When I grew up, a lot of people didn’t like to do that because they felt shy or whatever, and they think someone’s not gonna take their call. But now I think it’s gotten worse for people in their teens and early 20s who have grown up on social media and video games. They get really comfortable behind e-mail and texting and prefer that to doing the face-to-face thing or the phone-to-phone thing.”
But Jackson, who is the founder and managing member of Ironfire capital, insists that e-mail is not enough. “People hit delete all the time on spam e-mail or spam introductions on LinkedIn from people that are connected to the target, but maybe the target doesn’t remember connecting with them — that sort of thing,” Jackson warned.
“The best bet is always to be bold and reach out to people. If you look at the people in the world that are successful on Wall Street, they always seem to have stories like this where they just called up some legend and got them on the phone and got an internship out of it. I think that’s the way to go.”
Originality Reigns Supreme
Aside from being bold, Jackson said that you should also have “something unique that kind of catches their interest or makes them want to call you back.”
“If you don’t get them, leave a message or something,” Jackson advised. “You need to be really creative. You need to sort of think about it from their perspective and what’s going to stand out.”
Jackson said that he thinks targeting people who went to your college is still a “huge thing.”
“The chances are pretty good that if you approach someone and said, ‘Hey, I went to your college,’ and you have nothing else in common with them, out of courtesy they’ll at least give you a call back,” said Jackson. “If you don’t have that luxury or similarity, you need to think of something in your own background that’s kind of new and different.”
For example, Jackson recalled his online activist campaign for Yahoo! “It was just amazing that, as that played out (and afterwards), I would call people up or they’d contact me, [people] that I really respected and admired, and [they] had heard about me and what I did,” said Jackson. “It became a great calling card for me. If I was able to send a blind e-mail or call someone and drop that in, that was a good way of [starting the conversation].”
Ultimately, Jackson said you don’t have to do that. “You just have to be original and creative in thinking about why you are special — what’s unique about you.”
“And then once you get past that hurdle,” Jackson added, “and you’re talking to the person that you want to connect with or get a job with, you have to be able to show that you’re a hardworking, intelligent person with some creative ideas.”
Getting Hired at Ironfire Capital
When asked what Jackson looks for in a new hire, he stressed the importance of his prior recommendations.
“If they took my advice and were able to make some kind of connection to my pastâ€”where I went to schoolâ€”or if they showed a lot of knowledge about some things or views that I’ve written about, or talked about, what Ironfire had done,” said Jackson, who, in addition to his duties at Ironfire Capital, is a frequent contributor to Forbes and CNBC. “It’s amazing to me that the vast majority of people show no interest in doing some homework on somebody before they call them up. So if somebody did that, that would catch my interest.”
If not, Jackson said that he is simply looking at a sea of resumes. “I’m gonna default to [things like]: where did they go to college?” Jackson explained. “Where [have] they worked? How smart are they? Are there some kinds of (depending on how old they are) standardized test scores to compare them to? And if there are any personal connections from their past work experience, did they work somewhere where I know somebody? And so forth.”
Proofread Your Resume
Finally, Jackson took a moment to go over a few critical resume tips.
“Don’t have spelling mistakes,” Jackson insisted. “That’s a big one. That immediately disqualifies [a lot of candidates]. It’s a lazy error. If they’re lazy in making spelling mistakes on their resume, then chances areâ€”at least in my viewâ€”they’re gonna do the same on the job.”
Further, Jackson said that lengthy resumes are not recommended. “Keep it to a page,” he said. “Some people include an ‘interests’ section. They’ll go on and on about how they like to knit or something. It kind of worries me. Keep it short and sweet and professional. Show me the goods. It’s representative of youâ€”so if it’s sloppy, chances are future reports and studies that you do on the job will be sloppy, too. You want to give a preview of the work that’s to come.”
This content originally appeared on StreetID, a financial career networking, matchmaking and news site. To learn more about StreetID, visit StreetID.com. StreetID’s financial career news can be found on its blog, streetid.com/newsblog/.
Monday, April 23rd, 2012
Written by Bob English
Ahead of Tuesday’s Senate Banking Committee hearing on MF Global, we present the April 20 installment of Capital Account with Lauren Lyster, featuring futures industry veteran guest, Mark Melin. Ms. Lyster pulls no punches in the opener:
Has the case really gone cold? Or, are those who are in charge of the investigation, the “regulators” and the trustees, simply spraying teflon on every piece of sticky evidence that could lead to criminal prosecutions–and, ultimately–the recovery of stolen customer money?
We wish that MF Global were just a one-off affair–a bad apple, if you will. Unfortunately, it seems more likely to us that this is another milestone in the history of what we see as criminality, which has swept through the financial services industry, like some sort of Medieval Black Plague–the Black Death for capital formation. It seems the only time people are held accountable anymore, is when they commit crimes that affect the super-rich.
Bernie Madoff is a prime example…Madoff is securely behind bars, but Jon “Teflon Don” Corzine is busy ordering carmel-Frappuchinos at the local Starbucks as he goes to shop for office space in New York…bothered only by the low din of discontent emanating from the blogosphere (and shows like this, Capital Account). What a nuiscance we must be to the new God-fellas of Wall Street…
Nuiscance, indeed, to which we hope we are part. Here is a link to the entire episode, in which Ms. Lyster and Mr. Melin cover the following salient points, all pointing to a criminal intent to commit fraud, as well as the role of regulators and investigators:
Why was the MF Global back office cleared out with three top personnel allowed to leave, just as the firm was exeriencing its most serious liquidity (ahem solvency) crisis in its soon-to-be-terminated existence?
Why were C-level executives, far from being sequestered by investigators and being placed in an information silo, allowed to run the company for six weeks (prior to Mr. Freeh being installed as Trustee of the Holdings company)?
Why did Lois Freeh wait until early March to have MF Global Holdings USA declare bankruptcy, the very entity that retained the few remaining executives and employees and may have been cash-rich?
Why did Federal criminal investigators fail to so much as question Mr. Corzine nearly six months after the crime?
Why were large counterparties paid with wire transfers, when requests from lowly customers for wires were converted to checks (which ultimately bounced)? “Sloppy is when you don’t do things consistently. Sending all checks to customers and all wires to counterparties–that’s consistent.” See here for details published by John Roe of the Commodity Customer Coalition.
Why were the final days characterized as so “chaotic” when a properly programmed iPhone or Android smart phone (sorry, RIMM) should have been able to handle what amounts to maybe a few dozen megabytes of transfer instructions?
Just what were the details surrounding the successful lobbying effort by top level MF Global execs that effectively postponed reforms on rules that would limit use of customer funds (coincidentally, or not perhaps, just ahead of a $325 million bond offering by MF Global)? [For more details, see our prior piece from this week, which includes exclusive CFTC emails on the issue.]
Even Chuck Grassley, the sponsor of the now-widely criticized 2005 bankruptcy reform act, has stated, “The bankruptcy laws are written to ensure that company executives who were involved in the demise of a company because of fraud or mismanagement shouldn’t be eligible for bonuses,” Mr. Grassley said.
More broadly, MF Global customers have an absolute right to clawback of questionable margin payments and asset transfers from the broker unit that occurred in the weeks leading up to the firm’s demise because there was a clear pattern of intent to deceive investors and customers alike–from manipulating regulators and the regulatory process to changing business practices in the final wee–all of which ensured that customers would be last in line for the remaining morsels of the MF Global carcass. (And, as we have pointed out since early November, 2011, the very nature of the Corzine Trade from Day One was such that all the risk was put in the customer brokerage house, while profits were diverted to an offshore business unit).
“Fraud” is the operative word here. There is no dispute that the Commodity Exchange Act (sic, the law) has been broken, but until fraud is investigated, customers are at the mercy of a very fuzzy and opaque legal process.
It’s time for Congress to put pressure on those in charge of this investigation and oversight to break their own glass of silence and dare them to utter the magic “F” word.
To view the full video interview with Lauren Lyster and Mark Melin click here.
Bob English is the author of this article, the opinions expressed are entirely his own. View his work at:
Thursday, April 19th, 2012
The Omega Investors hedge fund likely thought it was going to recognize an enormous return on an investment in a consortium seeking to privatize the Azerbaijan National Oil Company (”SOCAR”). Unbeknownst to Omega Investors (but apparently known by one of its partners who later pleaded guilty to federal criminal charges) the privatization scheme, which ultimately unraveled, hinged on significant cash bribes to Azeri officials allegedly made by the leader of the investment consortium. Francisco Illarramendi, on the other hand, chose to invest for foreign national oil companies, not in them. His hedge fund, MK Capital Management (now revealed to have been a Ponzi scheme), was funded in part through large-scale investments by the pension funds of the Venezuelan National Oil Company (”PDVSA”). It is now alleged, however, that those investments were obtained by making significant bribes to the pension fund manager. The experiences of Omega and Illarremendi highlight the risks of foreign corruption for hedge funds operating in an international financial marketplace and why hedge funds must be aware of the scope and jurisdiction of the U.S. Foreign Corrupt Practices Act (”FCPA”)
Understanding the FCPA
Broadly speaking, the FCPA prohibits corrupt payments to a foreign official (or their family members) for the purpose of obtaining or retaining business. Within this seemingly simple concept, however, are a number of potential pitfalls for the unwary. For example, the law is not limited to cash bribes but extends to any “thing of value” provided to a foreign official with a corrupt intent â€“ from lavish entertainment or gifts to non-business related travel. Additionally, the definition of what constitutes a “foreign official” under the law remains unsettled, with enforcement officials advocating a broad reading of the provision to include not only “traditional” government employees, but also employees of state-owned or controlled entities who, at first glance, may appear to be engaged in private commerce. Finally, the law has an enormous jurisdictional reach. It applies not only to actions taken within the United States, but also to all U.S. “persons” (a broadly defined term that would include nearly all U.S.-based hedge funds) regardless of their physical location, as well as to all U.S. “issuers” â€“ companies who have securities traded on U.S. exchanges.
The FCPA contains civil “books and records” provisions (traditionally enforced by the SEC) and criminal anti-bribery provisions (traditionally enforced by the DOJ), but for many hedge funds their registration status will exempt them from the civil “books and records” provisions of the law. The criminal provisions, however, apply regardless of a fund’s registration status and it is precisely these criminal provisions that present significant risk for hedge fund managers operating in international financial markets. Under the FCPA, each violation of the law may be punished with a $2 million criminal fine for corporate actors, and $100,000 fine and up to five years in prison for individual actors. Multiple corrupt payments made under a single scheme will almost always result in multiple charged counts. For example, a $10,000 bribe paid in five $2,000 increments would be charged as five counts, subjecting an individual to up to a 25 year prison sentence.
Recognizing and Addressing FCPA Risks
As the experiences of Omega and Illarramendi illustrate, there are two main FCPA risk areas for hedge funds â€“ outbound foreign investment and inbound investment from foreign institutional investors. With regards to outbound investments, hedge fund managers must be especially cautious when using local agents or “fixers” to gain access to markets. Under the FCPA, third party agents acting on behalf of a principal can create FCPA liability for the principal, even if the agent is not otherwise subject to the law. Therefore, a corrupt payment by a local agent to, for example, a regulatory official to gain necessary trading or investment licenses could create FCPA liability for the fund manager employing the agent.
Additionally, hedge fund managers accepting inbound investment from foreign institutional investors must understand who (or what) ultimately controls such investors and insure that inbound investment was not obtained through corrupt activity. In some instances it may be obvious where inbound investment is controlled by foreign officials â€“ such as investments made by sovereign wealth funds. Other potential inbound investment, such as from foreign pension funds, may require closer attention to determine whether the investors are state actors and, therefore, whether the investor representatives constitute “foreign officials.”
Despite these risks, the FCPA should not be viewed as a prohibition or impediment to investments and investors in foreign markets. It does, however, counsel in favor of analyzing the risks of foreign corruption and taking appropriate steps to prevent and mitigate liability. Unfortunately, there is no “one size fits all” solution to controlling such risks but, by completing a thorough risk assessment and implementing adequate compliance controls, hedge fund managers can make large strides to ensure they do not run afoul of the law.
The necessary first step is to assess and understand the risk given a fund’s current investment strategies, goals, and processes with regards to both inbound and outbound investment. For example, purely domestic hedge funds, or funds that make only passive foreign investments through well-established foreign exchanges present lower risk profiles than funds engaging in non-exchange traded foreign investments. Likewise, funds that actively recruit investments from foreign sovereign wealth funds face different risks than those focusing on generating investment from high-net worth individuals.
Once a fund’s anti-corruption risk is better understood, tailored anti-corruption compliance and control mechanisms should be put in place. In many cases, such processes need not be created from whole cloth, but can be effectively grafted on to an existing business ethics, anti-fraud, or anti-money laundering program. Such processes will vary but should, at a minimum, include the following general elements:
- A strong “tone at the top” prohibiting corrupt activities;
- Clear written anti-corruption policies applicable to all employees and agents; and
- Training and education of employees regarding corruption risks and anti-corruption policies.
Beyond these general elements, fund managers may also institute specific anti-corruption safeguards for inbound and outbound investments, including:
- Contracting and due diligence guidelines regarding the retention of third party agents, including anti-corruption language for all contracts and, in some cases, training the agent as to the fund’s anti-corruption policies;
- Implementing “know your investor” processes to detect investment directed by foreign officials, regardless of the apparent origin of the investment; and
- Instituting (and enforcing) clear guidelines regarding the type, limit and frequency of entertainment of foreign officials.
Federal enforcement authorities have shown a propensity to undertake industry-wide FCPA “sweeps.” As investigations into insider-trading in hedge funds grows, along with other financial industry investigations, the chance of foreign corruption being uncovered and an industry-wide review of the foreign investment practices of hedge funds increases. Managers that take steps now to understand their FCPA risks and implement strong and comprehensive anti-corruption policies will be much better situated to respond to, and possibly avoid, costly government investigations and intrusions should they occur.
Matthew T. Reinhard is a member at law firm Miller & Chevalier, Chartered
Wednesday, April 18th, 2012
I would start this article the same way I start all conversations about hedge fund marketing, with a simple disclaimer: I am not a lawyer; this is not legal advice.
What I am is a public relations professional with more than twenty years of experience in representing asset management firms. During that time, I have witnessed, and through our firm supported, the extraordinary rise of both the mutual fund and exchange-traded fund industries. This rising tide lifted many boats. New magazines and websites were launched, reporters were hired, and advertising and branding firms were founded to meet the enormous demand for financial services marketing expertise. It has been a tremendously exciting couple of decades.
Over the last few years, I have seen the hedge fund industry moving along a somewhat similar path asnew funds were launched and fund managers grappled with growth and the need to attract new assets. As with mutual funds, new publications have sprung up to cover the alternative investing industry, and existing news outlets have reporters dedicated to hedge fund coverage. Where there was once a single reporter who covered the industry episodically, there are now reporting teams, covering strategies, managers, and asset flows on a daily or sometimes intra-day basis. Like many other things in modern life, the pace of these developments continues to accelerate even as the conversation moves from the private to the public arena.
But while the media world was changing, the regulatory proscriptions that governed interaction with that world were not. The prohibition on advertising has always been clear. However, unlike mutual funds and ETFs, the ground rules for hedge fund managers interacting with reporters have remained more opaque. On the one hand, it is common to see hedge fund managers featured on the cover of major investing publications and appearing on CNBC; on the other, I have heard of funds that apparently go so far as to refuse to include a phone number on their website for fear of running afoul of the non-solicitation regulations. It’s beyond my brief to comment on which of these approaches is the correct one. As an observer, however, I think it’s fair to say that a regulatory regime that is able to incorporate two such widely varying interpretations is in need of some clarification.
The net result has been a decision by most managers to avoid the press altogether. There are at present roughly 9,500 hedge funds and fund of funds, and hundreds of new funds are launched every year. On the evidence, most of the managers of these funds appear to view marketing as akin to grabbing a dangling wire: it may or may not be live, but why risk getting burned to find out? The media, of course, is governed by a different set of rules. Backed by the First Amendment they can write whatever they want, as long as it’s accurate. This has set up a tension between the two sides that until recently showed few signs of being resolved.
Now along comes the recently signed JOBS Act, which includes proposed clarifying language with regards to the solicitation issue. From what I have read, it recommends allowing hedge funds to market more freely while continuing to restrict investment in the funds to accredited investors and qualified institutions. This is imminently sensible. After all, no matter how many times you see a hedge fund manager on CNBC, you can’t invest just by dropping a check in the mail; at a minimum, you still have to meet the threshold criteria as defined by law.
What this will lead to remains anyone’s guess. Many hedge fund managers will no doubt continue to prefer to stay out of the limelight. Others may see an advantage in publicizing their investment strategy, market outlook, and historic performance. If history is any guide, there is certainly leverage to be had, in terms of reaching new audiences. At the moment, the conventional wisdom has it that the smaller, newer funds may be the more enthusiastic adopters of the opportunity to market more broadly. This may open the door for qualified investors to discover managers and funds that were previously unknown to them. Time will tell.
The growth of the mutual fund industry supported the creation of thousands of allied jobs in publishing, advertising, and public relations, among others. Because the market for hedge funds is more narrowly defined, the impact is not likely to be as great. Nonetheless, by more clearly defining what constitutes “solicitation” â€“ and thereby opening the door to advertising and public relations efforts by the hedge fund community â€“ it will create new business opportunities for firms like ours, new opportunities for the funds themselves, and, almost certainly, new jobs as well.
Mike MacMillan is the founder and president of MacMillan Communications (www.macmillancom.com ), a New York-based public relations firm founded in 1996 that focuses almost exclusively on the financial services industry. He can be reached at email@example.com.
Tuesday, April 10th, 2012
Since the financial crisis of 2008 it has become a popular anthem for the investment community at large to criticize and call for sweeping hedge fund reform. Champions to this cause include investors suffering at the hands of hedge fund managers who either misappropriated or mismanaged their funds, institutions with unfulfilled target investment goals, regulators working to appease investor sentiment for better information and access, and politicians jumping on a cause that works to increase their popularity with a voting base.
From this mĂ©lange, we have created a discourse on hedge fund investing that currently is in danger of serving none of these parties to the cause with any substantial improvements. Although the issue is complex and there are multiple causative factors, this piece addresses a few of the more popular disagreements between investors and the investment managersâ€”those centered on liquidity, transparency, fees and communication.
Let’s begin with a working definition for a hedge fund, found within the US government: “‘Hedge fund’ is a general, non-legal term used to describe private, unregistered investment pools that traditionally have been limited to sophisticated, wealthy investors. Hedge funds are not mutual funds and, as such, are not subject to the numerous regulations that apply to mutual funds for the protection of investorsâ€”including regulations requiring a certain degree of liquidity, regulations requiring that mutual fund shares be redeemable at any time, regulations protecting against conflicts of interest, regulations to assure fairness in the pricing of fund shares, disclosure regulations, regulations limiting the use of leverage, and more.” Âą
A hedge fund essentially is tasked with providing asymmetric returns over time to the broad market and a protective measure against downward trends in the same. In so doing, a hedge fund manager needs to find both ideas and strategy constructs that allow for this return profile. While the evolution of hedge funds has created a broad continuum of strategies and styles that seek to achieve these twin goals, investors seem to have abandoned their acceptance that hedge funds are, by nature, different.
Recent demands by investors and related parties call for more liquidity, greater transparency, lowered fees, and a better articulation of strategy. They want a better understanding of “how are you doing what it is you do?” from hedge fund managers across the spectrum of styles, strategies, and sectors. While all of these issues appear to be beneficial to the investors, a different perspective might be to split them into two camps, one working to enhance the investor experience, with the other leading to an erosion of that same experience.
Considering the potential value erosion, let’s put both a desire for lower fees and a demand for greater liquidity into the “against” camp. The demands that fees come down to compete with retail-focused investment products, such as can be found throughout the more traditional asset categories, including mutual funds and other public offerings, and that hedge fund managers provide a much higher level of liquidity to satisfy investors’ desire to move in and out of hedge fund investments like they do in mutual funds, begins to degrade the key components of what allows a hedge fund to achieve the type of alpha and downside protection that it was created for in the first place.
It takes a considerable amount of working capital and fee income to build a hedge fund into a stable and successful business. Much of these costs are absorbed by talent acquisition and retention, as well as retention of service providers, operational infrastructure and information platforms, research and data costs, and so on. The two-tiered fee income for most hedge funds was designed to address the needs of both building and running a business while providing the incentive income for performance which serves both managers and investors alike. Protective measures, such as hurdle rates and high water marks, were developed and instituted into the offering memorandum that investors subscribe through to incentivize the profit-sharing relationship. This partnership investment structure is integral to the private placement vehicle that most hedge funds operate within.
Similarly, many hedge fund strategies rely on a singular ability to execute investment strategies which are unique and provide an ‘edge’ over traditional investment options. Hedge fund managers are all too sensitive to the real-time fact that, if one does not offer some tangible difference in achieving value for investors, the likelihood of success in retaining and accruing capital is extremely small. Liquidity control can play a key role in many of these unique strategies. Some managers rely on overlay strategies within their overall fund approach to mitigate short-term market conditions and to preserve the essential investment philosophy and trading approach. Some rely on investment options which, by their nature, involve markets with far less liquidity than traditional equity and bond markets. In many cases, forcing the hedge fund manager to offer liquidity beyond what their essential value ‘edge’ allows is detrimental to both the fund’s performance and the investors’ returns.
In essence, the investor demands for lower fees and more liquidity likely will assure that hedge funds that morph into retail-like investment options will be unable to achieve alpha or downside protection in declining markets. If it walks like a duck and talks like a duck, it will ultimately perform like a duck.
On the positive side, let’s turn to the additional investor demands for greater transparency and a better articulation of strategy by managers, e.g. the ‘for’ camp. If one accepts that hedge funds are meant for sophisticated and institutional investors, there certainly can be a better effort made to discuss how objectives are to be achieved and to report on the ongoing performance attributes of the investment, once made. Great strides have been made by solution providers in addressing the need for detailed and concise reporting, and this trend benefits both investors and managers in the long run. Managers can do a better job in monitoring their own risk management at both the individual investment and portfolio levels. Investors and advisors can ask better questions of their managers to gain a deeper understanding of how their investment is meeting/exceeding/underperforming expectations on both an absolute and a risk-adjusted basis.
Managers also need to ramp up their investor communication efforts. While the investment partnership is formed of sophisticated and institutional investors, this doesn’t necessarily imply that all investors are market savvy in the strategy and nuances of their fund manager’s approach. The burden to communicate to the investors clearly and with purpose falls squarely on the fund manager. Greater frequency and regularity of discussions about the fund’s performance vis-Ă -vis the appropriate benchmarks and the broader market can strengthen the investor’s understanding and commitment to a fund and to a manager. If a manager has done a good job in matching the objectives of his investors with his fund, this communication should be an organic continuation of the initial investment dialogue and reinforce the long-term investment goals of the limited partners.
It’s time to reestablish the relationship of hedge funds to more traditional asset classes. Hedge funds exist to serve a vital component in investment allocation. They are meant to behave differently and not to correlate to broader market moves. Hedge funds are costly to build and maintain, but the global markets need their presence to provide both an attractive investment allocation and to support the overall liquidity of multiple asset classes. Investors should not be asking for affordability and liquidity beyond the parameters of a hedge fund product, but rather for a greater understanding of what makes a hedge fund valuable. By so doing, the investor can separate the hedge fund wheat from its chaff and make better, and more informed, investment decisions.
Diane Harrison is principal and owner of Panegyric Marketing, a marketing communications firm founded in 2002 and specializing in a wide range of strategy and writing services within the alternative assets sector. She has over 20 years of expertise in hedge fund marketing, investor relations, sales collateral, and a variety of thought leadership deliverables. A published author and speaker, Ms. Harrison’s work has appeared in many industry publications, both in print and on-line. Contact her at: firstname.lastname@example.org or learn more at www.panegyricmarketing.com
Âą SECURITIES AND EXCHANGE COMMISSION, INVEST WISELY: AN INTRODUCTION TO MUTUAL FUNDS, available at www.sec.gov/investor/pubs/inwsmf.htm.
Monday, April 2nd, 2012
When one considers the lack of investigatory zeal in the MF Global scandal, it might raise questions as to the need to make the investigation of MF Global’s top executives â€“ which is occurring some six months after a potential crime was committed â€“ eventually a matter of public record.
MF Global is a story that publicly debuted with a fraud allegation. This is when CMEGroup president Terry Duffy famously proclaimed in Congressional testimony that critical account segregation reports had been falsified by MF Global to regulators during their final week of operation. Further, Mr. Duffy clearly called into question the honesty of MF Global CEO Jon Corzine’s now famous testimony “I simply don’t know where the money went.”
With credible acquisitions of potential fraud highlighting a major pronouncement regarding the eighth largest bankruptcy in the US, one might assume that an investigation, or at least questioning, of MF Global’s top executives might take place. This is particularly the case as reports had surfaced in leading publications quoting those close to the investigation as saying “the case is cold” and “prosecution is unlikely.” With all this, one might assume questioning of the top executives had taken place.
That didn’t happen.
According to the New York Times, MF Global’s inner circle of executives, including CEO Jon Corzine, General Counsel Laurie Ferber, president Bradley Abelow, along with newly employed Henri Steenkamp, Chief Financial Officer, had not been initially questioned after the “loss” of $1.6 billion in customer segregated funds. In Congressional testimony on March 28, 2012 rumors that top MF Global executives had yet to be questioned were confirmed when both Ms. Ferber and Mr. Steenkamp testified they had not yet been directly questioned by investigators. However, in this same testimony it was confirmed that Chicago back office employee Christine Serwinski, chief financial officer for North America, had been questioned twice. Sources have indicated that back office employees have undergone extensive questioning while watching MF Global top executives float freely through the company with impunity. These same sources say that the back office employees who remained at MF Global were sequestered and not allowed to talk to one another about MF Global or its demise, while MF Global’s top executives operated the company that was plundered and had the ability to wire transfer money out of MF Global for up to six weeks after the firm declared bankruptcy.
When it comes to investigations, the type of questions and how they are asked can greatly impact the outcome. Given the fact that an investigation into the top officers might never have taken place without public pressure, and with such un-even investigation of the back office, is it not reasonable to ask that the now long overdue investigation into MF Global’s top executives be made transparent so it can be held to a higher standard?
Transparency need not be immediately made public. It can occur after a trial or when the “case is cold.” The point is known transparency into a situation can alter behavior and operate as a most cost effective regulator.
To follow the MF Global case in real time, go to www.Twitter.com/MarkMelin or visit www.Go2ManagedFutures.com
All contents Copyright (C) 2012 Mark H. Melin.
Wednesday, March 28th, 2012
Not content with Yahoo!’s proposal to add one of its four nominees to the company’s board of directors, hedge fund Third Point LLC is moving ahead with a proxy fight. The intent is to get Third Point’s Chief Executive, Daniel S. Loeb, and three other nominees onto Yahoo!’s board.
On Monday, Yahoo! named three independent directors to the board, and proposed that one of Loeb’s four nominees, Harry Wilson, join one other mutually-acceptable person on the board. That didn’t sit well with Loeb. On Wednesday (March 28) Loeb and Third Point sent a letter to Yahoo! saying, in essence, “It’s On.”
Consider this letter the first step in Loeb’s stated strategy of taking the campaign straight to shareholders. Here’s the letter, which Third Point released via PRNewswire. Follow the rest of the fun here.
Mr. Scott Thompson
Chief Executive Officer
701 First Avenue
Sunnyvale, CA 94089
March 28, 2012
As we discussed, Third Point LLC (”Third Point”), Yahoo!’s largest outside shareholder, was disappointed that you and the Board of Directors did not agree to the reasonable compromise we proposed regarding nominees to the Board.
We were pleased that the Board acknowledged that Harry Wilson would be a valuable Director. However, the way you treated our other nominees confirmed Third Point’s fear that the Board’s evaluation of our candidates would make a mockery of good principles of corporate governance. You will hear more on that from us in the future.
Our view of the nomination process is further reinforced by your explanation on Sunday as to why I would not be an acceptable Director. You told me that the Board felt my experience and knowledge “would not be additive to the Board” and that as Yahoo!’s largest outside shareholder, I would be “conflicted” as a Director.
Am I conflicted to advocate for the interests of other shareholders because we are owners of 5.8% (over $1 billion) of Yahoo! shares (unlike the non-retiring and proposed board members who have never purchased a single share of Yahoo! except for subsidized shares issued through option exercises and shares “paid” by the Company in lieu of fees)? Only in an illogical Alice-in-Wonderland world would a shareholder be deemed to be conflicted from representing the interests of other shareholders because he is, well, a shareholder too. This sentiment further confirms that Yahoo!’s approach to Board representation is “shareholders not welcome”.
When asked to explain this apparent “conflict”, you theorized that as a large shareholder, Third Point’s interest might be focused only on the short-term. This theory appears, seemingly like many of the Board’s conclusions, to have been arrived at by whimsy and emotion. I have never been asked about this alleged short-term bias nor was there any evidence to indicate that our investment model is predicated on short-term trading. On the contrary, a review of our record would indicate that we frequently hold positions for many years at a time (we have held our current position in Delphi Automotive since June 2008 and we held our Dade Behring position for nearly half a decade before it was sold to Siemens in 2007, as just two examples of many long-term investments). In any event, this “long-term vs. short-term” excuse is a canard and particularly inapt in the case of Yahoo!. If there ever was a company in need of a sense of urgency, it is this one.
Was it “short-term” thinking that led Third Point to push for the resignations of Jerry Yang, Roy Bostock, Arthur Kern and Vyomesh Joshi? If so, is there a Yahoo! shareholder on the planet who thinks this “short-term” thinking was bad for the Company? Was it “short-term” thinking that led Third Point to speak up for shareholders by questioning the fairness of the attempt by the Company to give away control to private equity funds â€“ without receiving a premium â€“ to entrench Roy Bostock and Jerry Yang? Or to suggest, as Third Point has, that the Company’s stake in Alibaba is more valuable than generally understood, and that the Company should hold on to it unless it can get fair value? Was it “short-term” thinking to point out the lack of media and advertising expertise on the Board and nominate extraordinarily qualified nominees to fill that gaping hole?
To the contrary, an unbiased observer might find Third Point’s thinking quite “additive”. Third Point has been a driving force standing up for shareholders since we disclosed our position in Company shares in September. In fact, the Company’s own actions are inconsistent with your assertions, since Yahoo! has adopted many of our recommendations.
At the risk of beating a dead horse, we suppose that, by the Board’s analysis, it would have been this dreaded “short-term” thinking to have allowed Microsoft’s $31 per share offer four years ago to be presented to shareholders.(1) The real issue is not short-term versus long-term but about Board representatives who have skin in the game and will exercise sound business judgment.
By seeking four seats, Third Point does not look to control the Board, and any individual voice in the room would be only one of 11 or 12. If one director has too “short-term” an approach for other members, a healthy debate will ensue and all directors as a group will decide the issue in a fully informed and deliberative manner. It is absurd to assert a “conflict” that would render a Board Member unqualified based either on ownership or a sense of urgency to repair a company that has been â€“ by your own admission â€“ languishing for years.
We remain willing to engage further with you but will not deviate from our demand for badly-needed shareholder representation.
Daniel S. Loeb
Chief Executive Officer
Third Point LLC
cc: Yahoo! Board of Directors
(1) See Bloomberg article, September 12, 2008: “Yahoo! Inc. will generate a five-year stock return that shows it was right to reject Microsoft Corp.’s $47.5 billion offer, co-founder David Filo said. `’Five years from now, we’ll be in a much stronger position,’ said Filo, who with Chief Executive Officer Jerry Yang failed to negotiate a higher price. ‘There’s a lot of value here.’”
Wednesday, March 28th, 2012
Is it capital? Creative thinking? Brilliant investment strategies? Or something else entirely?
While all of those things are important to every hedge fund manager, there might be one thing they need more: a strong community.
“Whether they’re aspiring or successful hedge fund managers, I think we all need a network and a community, such as 100WHF, to learn from each other and share ideas, no matter what stage your business is in,” Mary Beth Hamilton, the Marketing Chair for 100 Women in Hedge Funds Boston Conference, told StreetID.
“100WHF is a community of like-minded individuals,” adds Amanda Pullinger, the Executive Director of 100 Women in Hedge Funds. “I think to some extent we created a safe haven for people who were dealing with volatility in many, many different ways. Some of our biggest growth years as an organization came during these difficult times. I think that’s a testament that we really are providing something that people in the location didn’t have before.”
Hamilton said that hedge funds tend to be “somewhat fragmented, where there are a lot of smaller or medium-sized firms.”
“What we have in groups like 100 Women in Hedge Funds is a chance to come together and learn from each other,” Hamilton explained. “We put on educational events that perhaps wouldn’t happen within the structure of a hedge fund firm itself.”
“And it’s a community locally, but increasingly our members are traveling from one location to another, and are able to join 100 Women in Hedge Funds events and meet up with other members,” Pullinger continued. “We have an online web site called target=”_blank”>100 Women in Hedge Funds Connect. And we really encourage people to search the database there and look for people in a location they’re traveling to. It’s a place where you know you’re going to walk into the event and it’s going to be an interesting topic, there are going to be interesting people, and you’re not going to waste your time by going.”
Supporting the Cause
100 Women in Hedge Funds wasn’t born out of nothing. There were several generous women who are responsible for helping the organization become what it is today.
“When we first started the organization, we were completely volunteers,” said Pullinger. “But very quickly we realized that we needed to set up some legal structures and some governing processes, so the founding board of the organization needed to be developed so we could have some structure around what we were doing from a legal standpoint. But at the time we weren’t charging for events. We weren’t charging an access fee or a membership due. But we needed certain costs met in terms of setting up these legal structures and the web site costs and things.”
This inspired 100 Women in Hedge Funds organizers to reach out to its most senior members in what Pullinger refers to as an “experiment.”
“They really came through for us,” Pullinger boasted. “We asked if our senior members could donate $1,000 each. We could use that money to really take the organization to the next level and set up a legal structure and have some cushion in terms of the end-of-the-line costs of the organization, which were very small at the time.”
100 Women in Hedge Funds ultimately received donations from roughly 60 women, each of which provided the organization with $1,000. “We called them our Charter Angels, the notion being that they are angel investors in 100 Women in Hedge Funds,” Pullinger explained. “And Charter Angels have a very special place in 100 Women in Hedge Funds. They are kind of revered by the organization because they really did give back at a time when we needed their financial support.”
Due to the success of the Charter Angels program, Pullinger said that 100 Women in Hedge Funds decided to develop the Sustaining Angels program. “These are angels that give in any particular calendar year $1,000 or more,” said Pullinger, adding that the donations help the organization ensure its financial sustainability as it grows globally. “We’ve been able to build â€¦ not a large infrastructureâ€”it’s basically myself and I have two part-time employees that are the paid components of 100 Women in Hedge Funds. It’s not like we’ve built a huge staff. But we have enough resources financially now that we can do things that we need to do when we need to do them. That’s the angels. And we’re continually seeing new senior practitioners that want to sign up as angels.”
This content originally appeared on StreetID, a financial career networking, matchmaking and news site. To learn more about StreetID, visit StreetID.com. StreetID’s financial career news can be found on its blog, streetid.com/newsblog/.