Friday, 4 April 2014

AIFMD Outsourcing and Delegation – what you need to know

This new Global Perspectives presentation reviews the delegation requirements of the AIFMD regulations and what they mean for the hedge fund industry.

These new rules cover a number of important and related areas including:-

•the general provision of delegation,

•resolving potential conflicts of interest,

•rules for delegating to third countries outside the European Union,

•providing objective reasons for delegation to third parties

•the delegation of portfolio or risk management duties

•the requirements around depositaries who wish to delegate their duties to a third party.

Under AIFMD, liability regarding delegation has changed - the onus now falls squarely on the manager.

Read the full presentation here:-

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Wednesday, 19 March 2014

The JOBS Act - has it made an impact?

Last September the much anticipated JOBS Act became law in the United States. The intention of the act was to make it easier for small businesses to raise funding in the US.
An unintended consequence of that act was that it also lifted the long standing ban on hedge funds marketing themselves to the general public.
Since the new rules came into force nearly 6 months ago it is worth asking the question – has the JOBS Act been a new opportunity for alternative fund managers – or merely a damp squib?

Current Situation
The take up of marketing by hedge fund managers has been very slow to date. The SEC has added additional burdensome requirements for hedge funds seeking to advertise and this has meant the rollout of marketing by many companies has been delayed or cancelled.
Under new SEC rules hedge funds that engage in marketing may be subject to additional reporting and audits. Managers are understandably reluctant to add more regulatory oversight, given the level of increased regulation many have struggled with since the economic crash.
While these rules are unfortunate and have dramatically slowed down the adoption of the JOBS Act by the alternative community, in many ways they are not surprising – the SEC has been against the JOBS Act from the beginning. As an organization it does not agree with hedge funds being marketed to the general public.
Hedge funds also need to check the status of investors before taking their money to ensure they are “Accredited Investors”. This means that they earn over $200k peer year and have assets of over $1million outside their family home. This verification may present a challenge for some hedge funds. Third party administrators may very well be able to assist fund managers with this investor verification process.
We expect a few pioneers to go first and that’s what we have seen to date. ffVenture Capital in New York recently announced it had exceeded its $50 million target for a new fund and had used the new SEC rules as part of the process (Link –

Similarly Monterrey-based Topturn Capital partnered with Vancouver’s investment marketing firm Meyler Capital to produce a very effective video advertising their services, interviewing the founders and tying in a professional surfer in the process. The video achieved widespread media coverage and has successfully raised Topturn’s profile across the industry (Link -
If these early marketing campaigns continue to be successful at attracting investors or substantially raising the manager’s profile, we might see a situation where more hedge funds begin to look at actively marketing themselves to the public.
To date there is not much sign that the larger players are moving outside their traditional marketing comfort zone and targeting the wider population.  A number of big hedge funds have stated their intention to advertise (for example Skybridge) but this has not happened to date. Some managers may feel that advertising publicly might indicate that they are struggling to attract new capital or have fallen victim to a flood of redemptions.

Future impact
Hedge funds in recent years have received more and more of their subscriptions from large institutional investors, compared with their traditional high net worth individuals. One hope for the JOBS Act was that this trend might be mitigated if more Accredited Investors started to invest in alternative investments. While this has not happened to date, it is still early days.
While we have yet to see the JOBS act make serious inroads, there is certainly discussion taking place within many hedge fund shops regarding whether this is something they should consider.
Many alternative fund managers have been so busy ensuring they are regulatory compliant (FATCA, Dodd Frank, Form PF, AIFMD, EMIR etc.) it is not surprising taking advantage of the JOBS Act has not been high on their radar. Perhaps this will change over the next couple of years as the post-2008 regulatory tsunami begins to dissipate. It is certainly an area they will be keeping an eye on over the next year or so.
For the time being we expect larger established managers will continue to choose safety and stick to their time honored (and largely successful) investor roadshows and industry networks. Perhaps it is the smaller boutique managers who will prove the exception when it comes to advertising in 2014.

Shane Brett is Managing Director of Global Perspectives, an alternative investment & asset management consultancy based in London & Dublin            

Friday, 3 January 2014

The Global Economy in 2014 - 5 Key Trends

Every year Global Perspectives publishes its annual white paper covering the 5 keys trends we see impacting the global economy in the year ahead.
This year we will look the major global economies and examine the major trends that will influence them over the next twelve months.
Read there full white paper here and see if you agree with our views on the major trends taking place in 2014.

Saturday, 26 October 2013

Time to prepare for FATCA

Time is marching on and the deadlines for FATCA are getting closer.

In July 2013 the IRS postponed FATCA implementation for 6 months. Many companies relegated FATCA to the back of the regulatory queue to focus on Dodd Frank, AIFMD, Solvency II and a myriad other regulatory initiatives demanding their attention.

It’s time to focus on FATCA again. The 6 month grace period should be used to prepare for FATCA. fact the delay should serve to underline the scale of the work involved worldwide for both financial institutions and regulators themselves, in order to implement FATCA’s requirements.

In our new Global Perspectives white paper we will look at the 4 essential steps organisations need to complete to prepare for FATCA.

If you’re lucky enough to be unfamiliar with FATCA you can read all about it in our introductory white paper here -
Latest Developments
FATCA is here to stay and its going global. A worldwide web of Inter-Governmental Agreements (IGA’s) continues to be signed whereby countries are agreeing to swap tax details with the US, and also increasingly with each other.
The EU agreed at a summit in May to automatically swap tax details between the 28 countries of the European Union. Incredibly, in October 2013, even Switzerland signed the OECD convention on the exchange of taxation information. FATCA is changing everything.

This is the first in a series of Global Perspectives white papers which will cover what is required to prepare, implement and maintain compliance with FATCA in your organisation.
Our first FATCA white paper examines the 4 essential steps organisations need to complete to prepare for FATCA. You can access it here:-!preparing-for-fatca/c1b4k

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Tuesday, 17 September 2013

5 years on from Lehman's collapse - what's changed?

5 years after Lehmans collapse,  when the world came within a whisker of complete financial and economic meltdown its a good time to ask whats really changed in the world of finance since those dark days in September 2008?

Over the next few of weeks I'll look at the main positive and negative changes since 2008, starting firstly with regulation.

The last 5 years has seen lots of new financial regulation - some of it excellent and insightful, some of it awful and pointless.  The time it has taken for large regulatory initiatives to take place is surprising but we have now seem wide-ranging requirements in relation to taxation (FATCA), consumer protection (Dodd Frank),  banking (Basel & MIFiD) and hedge funds (AIFMD & Form PF).

Whether all this makes much difference long term is a matter for debate. There will likely always be financial crashes as the economic cycle of boom & bust/greed & fear merely reflects the human psyche.

The 30 period following WW2 was largely free of seismic economic shock. This period from the establishment of the Bretton Woods system till the US abandoned the Gold Standard in 1971 was remarkably stable by recent standards. 

Many would put this down to the Glass Steagall Act in the US. This bill passed in the teeth of the Great Depression (which Clinton repealed in 1999 and has since regretted) forbade regular banks from becoming involved in investment banking. Banks lent far too much over the following decade and that house of cards came crashing down in a succession of the corporate, consumer and sovereign bailouts we have lived with ever since.

 John Mc Cain wants to reintroduce a new Glass Steagall bill for the 21st century. This is great idea - despite bank lobbyists probably driving it to extinction.

Since 2008 banks aren't lending so naturally the shadow finance sector has become larger as companies seek new avenues to raise credit. This area needs proper regulation. 

The EU have done a pretty good job regulating Hedge Funds (with AIFMD - and which I spend my days implementing!) but the current Chinese shadow finance system  is a very expensive accident waiting to happen.

 The Chinese authorizes need to urgently bring their shadow finance system under their regulatory remit whereby up to $6 trillion dollars sits in Off Balance Sheet vehicles and loans. We all know how this ended in Europe.

There is also growing pressure to properly regulate offshore finance. 
This is a development worth watching. Personally I am very skeptical whether any headway will be made here, particularly when some critics would suggest that the US and UK are arguably the worlds largest offshore centers (The City & Wall Street/Delaware recycling money from warmer climes).

Some of the latest G20 proposals made the right noises but they also talked about leaving Trusts out of any new offshore financial rules. That's like bringing in Prohibition but excluding Guinness! 

The current system whereby large technology and finance companies structure their corporate tax to reduce their liability to peanuts will probably be changed somewhat. 

However it is important to note that Corporation Tax worldwide is on a long-term down trend and I expect this to continue, especially in the US. Even Sweden's company tax rate is below Americas (the highest in the Developed World).

Finally, one of the unintended consequences of all this new regulation is to make it so expensive to comply that the financial world has seen waves of consolidation with banks, hedge funds and finance companies all merging to becoming bigger, making the banks especially  - and  ironically - truly too big to fail.

10 banks dominate the American financial system and a lesser number in Europe and Asia. There is no credible plan for allowing an institution the size of Citi (quarter of a million employees) or HSBC (7,000 offices) to fail - they would have to be bailed out in all circumstances. Traders know this and have learned that if you're going to fail -  "fail big"!

And that is exactly why finance needs to be tightly regulated worldwide. 

The last 5 years have made some reasonable progress but plenty more still needs to be done in the years ahead.

Friday, 6 September 2013

Deep breaths for the next US debt stand-off

Last week I wrote that the rest of 2013 would be dominated by 3 crises - Syria, Emerging Markets and the return of the Eurozone crisis.

Unfortunately it looks like next month we may have to add a fourth crisis to that list.

This week the US Treasury secretary Jack Lew fired a shot at Congress warning them the US would run out of money to pay its debts, if it did not increase the National Debt limit above its current limit of nearly $17 Trillion.

All of this happening in an economy showing solid recovery and whose recent growth figures keep being revised upwards. 

So while the US may be a private sector success story, but it is a public sector disaster.

The forthcoming US debt and budgetary crisis is part of a multiyear (decade?) paralysis between Democrats and Republicans which has been, and feels, endless.

This legislative paralysis is mirrored across much of the country, where for years politicians have ensures re-election by promising elaborate public pension sector pensions and benefits - which will fall due long after politicians retire!

This reckoning is starting to happen now, as we saw in Detroit, with many other cities and states lined up behind it.

At the front of this queue is Illinois (which contains Chicago, the largest US city after New York and Los Angeles). Illinois spectacularly owes two and half times more in pensions that it has in its pension pot. There is not a snowballs chance in hell this can be paid. Its firemen, nurses and teachers face massive pension cuts in the years ahead. 

The key point here is that the current US debt ceiling discussions do not contain any acknowledgment or provision for these enormous unfunded state and city pension liabilities (never mind solution). The federal government will, in all likelihood, suffer the bill.

As I have written elsewhere, the US is far from alone here. In fact, it in a better state that most of the G20 economies. In Ireland (where I live) the government has unfunded public sector pension liabilities equal to 4 times the country’s GDP! None of this is included in its already dire National Debt figures (of approx. 130% of GDP).

The US debt ceiling crisis will be played out against a background of imminent monetary tightening by the Federal Reserve. This will increase interest rates and while it was always going to happen sooner or later, higher rate expectations are already being reflected in higher US mortgage rates. This will slow down the rebound in the real estate market. 

Though it is highly likely this game of financial chicken will be avoided, the first half of next month could very well be a repeat of August 2011, with its heart stopping moments of brinkmanship, as the world’s richest country teetered on the point of an unprecedented and unnecessary self-inflicted default. 

The long term outlook for the American economy is by far the strongest of major economies, primarily due to its demography structure, entrepreneurial population and access to endless cheap energy and food supplies. 

Needless to say Obama and Congress should put aside politician point scoring on this vital issue and increase the debt ceiling - while also agreeing a credible long term solution to curtail public spending. 

Unfortunately the possibility of this looks remote.

No doubt a last ditch debt ceiling solution will be found in Washington by the end of October. Hopefully it won’t derail the US economy recovery.

The world economy is depending on it.  

Thursday, 29 August 2013

3 crises that will dominate the rest of 2013

As the northern hemisphere summer draws to a close, 3 new emerging global crises threaten to dominate the rest of the year. 

Firstly, in the Middle East Bashar Assad's likely use of chemical weapons on his own citizens is likely to draw a military response from the West. Despite talk of a surgical strike and limited intervention, time and again over hundreds of years the Middle East has shown itself to be a quagmire, capable of embroiling even its most reluctant invader.

The Syrian morass pitches the United States against Russia and its mortal enemy, Iran. This local war could easily become a proxy for indirect military conflict between larger global powers, as happened so often during The Cold War.  Western countries have a firm habit of becoming deeply embroiled in local Middle Eastern conflicts.  

The markets are aware of this and the price of oil (and other commodities) has started to respond accordingly. 

Secondly, while the markets may be clear about the impact of a Syrian strike they are pretty much clueless as to where the ongoing rout in emerging markets will end up. Currencies of many important developing markets are in free fall, as the market responds to the forthcoming "tapering" of money printing in the United States and with it the return of higher US interest rates. 

As the Dollar becomes more attractive to investors, the flood of money exiting major emerging markets is threatening to become a deluge and may cause massive currency depreciation in emerging market economies - which now make up half the world economy  (including India, Turkey, Thailand, Indonesia, South Africa and Brazil).  

The real fear here is that the Federal Reserve is embarking on its new course of monetary action without really understanding the impact it will have on the global economy - including in the USA.  If major economies such as India and Brazil suffer a substantial economic meltdown they will be forced to defend their currencies by dumping US dollars and buying up Rupees, Reals and Rand. 

They will do this by selling the huge amount of US debt they own, forcing up the price of US Treasury Bills and threatening to snuff out America's solid economic recovery. The USA no longer lives in an global economic vacuum.

For the BRIC countries themselves the days of easy credit caused by rock bottom Western interest rates are over and we all know what that did to prepherial European economies once the tap was turned off of their decade long debt binge. 

This brings us neatly to the third likely source of crisis for the remainder of this year - the Eurozone - where last week the Germany Finance minister admitted what many have long already known - that Greece will need a 3rd bailout soon. Nothing will happen until Angela Merkel is safely re-elected shortly but following this, depending on the extent of global turbulence from emerging markets, we can expect to see Greece request another haircut of its debt, to bring it down to a level they have some hope of repaying (perhaps 120% of GDP).

The crucial difference is that money written off will be - for the first time - cash provided by Germany a couple of years ago to bail the country out. This will be the first time the German taxpayer has taken a direct hit for keeping the Eurzone together. Many Germans will have realised that the money they "lent" to Greece over the last 3 years would never be re-paid. These loans being written off will be confirmation that their money is gone and will be hard for many Germans to take.

Even though I write this from a beautiful Mallorcan beach where the Mediterranean resorts are full and the tourist towns heaving, large parts of the Eurozone's peripheral economy are unreformed and only tentatively emerging from 2 years of recession.

If the 3rd Greek bailout is not careful managed it could lead to a wider crisis across the Eurozone (particularly in Cyprus or Italy), which will likely take place against military action in Syria and a tense period in the global economic environment.

It is going to be an interesting final few months to the year.