Why we held the Awards
We hear a lot about the fund managers.We thought it was time to celebrate the work done by the leading service providers who together have provided an effective platform for the spectacular growth of the hedge fund industry in Europe, particularly over the last 5 years.
As the industry grows in size and sophistication, the roles carried out by the service providers to the industry - whether it be accounting, media relations, legal, prime broking, fund administration, risk management, or any one of a host of other external services upon which hedge funds rely for their day-to-day operations - are becoming more demanding.
"We thought it was time to celebrate the work done by the leading service providers to the European industry."
Managers have always been wedded to their core business line, namely trading. Consequently they rely on their service providers for a range of functions, many of them mission critical. They expect the tasks they assign to be taken care of smoothly and efficiently and they expect their providers to keep up with them as they grow in size to become, in some cases, multi-billion dollar entities.
The increased participation of institutional investors, enhanced regulatory scrutiny, and the ongoing trend towards more sophisticated investment strategies have all contributed to raising the bar in terms of service provision. Staying competitive in this market is much harder than it used to be, and we think it deserves recognition.
How we judged the Awards
The judging process was conducted by panels of judges. Each category was judged by a panel.Unlike other awards of this type, we did not survey the manager community with a request that they vote for their favourite suppliers. We did talk to the manager community about their expectations, but we did not ask them to mark, or vote for, their providers.
The judging panels comprised the editorial panel of The Hedge Fund Journal and external judges selected for their knowledge and expertise.
Short-listed firms were sent detailed information requests which were designed to assist the judging. Many firms, but not all firms, responded. Quite rightly we did not penalise firms who did not respond.
, published in association with Fimat.The
is a listing of Europe's largest single managers ranked by assets under management. The Europe 50 was first published by us in September 2006. The Second Edition of the Europe 50 was published with our March 07 issue.The managers who make up our Europe 50 manage over US$300 billion of assets - a figure which represents a significant proportion of the European industry as a whole.
As part of our research we looked at who the
managers instruct, across the full range of service provision. Gathering together this information, helped us isolate the front-runners in each category.In many areas of service provision, a couple of players only really dominate the market. In other areas, there are several providers, sometimes with new entrants making a big splash, making it much harder for the judges to make a decision. There were some obvious up-and-comers, firms which may walk away with awards in the future.
THE CATEGORIES AND THE WINNERS
Hedge Fund Administration
We gave 3 awards as follows:-- The Best Fund of Hedge Funds Administrator
- The Best Single/Multi-Strategy Hedge Fund Administrator; and
- The Best Overall Hedge Fund Administrator
Our judges started off with a fairly substantial list of institutions to choose from, in fact 18!
This is a fragmented sector. That said, of late, we have seen some activity in the space. IFS has acquired Investors Bank & Trust, that deal looks set to complete in July of this year. The Bank of New York is acquiring DPM Mellon; and rumours abound that a buyer for the BISYS business is about to be announced.
In reducing that long shortlist to a list of finalists, from which three winners were chosen, the judges recognised that whilst there were several smaller players with excellent service levels, they felt the awards should recognise the substantial players, the players with a significant client base, the players with real strength and depth.
Also key was the feedback received from the managers that make up the
. It is worth noting that several of the . managers use more than one administrator. The Gartmore funds are administered by BISYS and HSBC, the GLG funds by IBT and The Bank of New York, and BGI have used as many as three administrators concurrently.In giving the award for Best Fund of Hedge Fund Administrator to Citco the judges were keen to make the point that they were giving the award to a business which many considered to have made this market its own.
Citco was praised by the judges for its technology provision, particularly its funds trading platform and web-enabled transfer agency facilities, and for the very positive manager feedback received. It beat off tough competition from HSBC and Fortis.
The award for the Best Single/Multi-Strategy Hedge Fund Administrator was a close- run thing. The judges were split, with IFS losing out to the eventual winner, BISYS, by a whisker.
BISYS was considered by the judges to be one of the market leaders going back many, many years. Good client feedback counted heavily here. The judges praised BISYS for its solid fund administration service and its investment in technology. It is considered to fare very well on the equity side of the business, and is coping well with many of the more esoteric portfolios its clients throw at it. Importantly, its offering is considered to represent good value for money, and they have picked-up a good deal of business in the last 12 months.
The award for Best Overall Fund Administrator almost went to Citco, a firm which the judges recognised continues to grow at a phenomenal rate, but it was pipped at the post by the winner IFS, a firm that was rated for its very strong technology offering, as well as its ability to service complex fixed income funds effectively, a rarer skill within the fund administration industry, the judges noted. IFS is recognised for its competence at administration, outsourcing, and the breadth and quality of its value-added services, including risk management and performance measurement. The judges also drew attention to the extensive range of services offered by other companies within the State Street group.
Best Compliance Consultancy
Compliance advice can be purchased from law firms, from the smaller consultancies like Hedgestart, Sigma, HedgeSupport, from the larger advisory firms like Kinetic, and from a few dedicated compliance consultants.This category focused on those dedicated compliance consultants - all of them businesses founded and/or run by either former regulators or compliance professionals from large financial institutions - whose business proposition is that they provide outsourced compliance management services, enabling their clients to meet their regulatory responsibilities, thus leaving them free to focus on their core business.
The judges had to choose a winner from the following shortlist of nominees namely CCL Compliance, MMS Regulatory Systems - formerly Leale Greene - and now part of the Scottish law firm Maclay Murray and Spens, IMS Consulting and Hannaford Associates.
There was a clear winner in this group.
In the last 24 months this firm, which has a staff of 40 professionals based in London and New York, has 150 hedge fund managers as retained clients in the UK, and whose hedge fund clients manage US$350 billion of assets, has:-
- provided outsourced compliance support to approximately 200 asset management firms, including a sizeable number of hedge fund manager firms,
- carried out 80 due diligence visits to traditional and alternative asset managers in the UK, Europe and the US for multi managers, fund of funds, investment consultants and other institutional investors.
- carried out 50 SEC Registrations for UK and US based hedge funds and 120 FSA authorisations of which approximately 70% were for hedge fund start -ups
- conducted numerous health checks and other one-off projects for hedge funds; and
- advised several institutional asset managers on development of hedge fund products and the conflicts involved in managing long and long short funds
The winner of the Best Compliance Consultancy award went to IMS Consulting.
Best Risk Management Software Supplier
As more and more focus is directed on the ability of fund managers to quantify the risks inherent in their portfolios, and report that risk effectively to their investors, we felt it was appropriate to recognise the specialist technology required to achieve this.There were several noted providers on the short list for this award, namely Algorithmics, Imagine, Reuters, SunGard, Xenomorph, RiskMetrics, MSCI Barra, Bear Measurisk, GlobeOp and Murex. As with other awards given by us, the winner of this category was a firm that enjoys considerable penetration amongst the constituents of our
. It is also one with very broad risk management coverage across a range of instruments, using an open, transparent risk methodology. It has worked to develop two hedge fund-specific products, which it has rolled out to the alternative investment community since the firm was established. Perhaps most tellingly, it has enjoyed a 90% renewal rate with its customers, testament to the high esteem in which it is held by its clients. The award for the Best Risk Management Software Supplier went to RiskMetrics.Best Hedge Fund Technology Supplier
IT provision has an increasingly important role to play as firms and their investment strategies become ever more sophisticated, and as investors place ever more stringent demands on managers. We gave this award to a supplier and not a product, and the award was given regardless of where, within the fund management process, the competing suppliers' products are applied. The following providers made the shortlist - Advent, Linedata (BFT), Sophis, Sungard, Eze Castle, Tradar and Interwoven.The panel of judges had a tough assignment. They needed to consider firms that worked specifically within both front and back office. They needed to consider small as well as large providers. The judges were looking for a firm with a proven track record and plenty of flexibility when it came to integrating with third party software. The judges found it very difficult to choose between the winner of this award and the runner-up.
In the end, they were left with a market leader in the front office zone, and a market leader in the back office.
The runner up was Advent, a firm that has created a huge market for itself in the back office. The judges recognised the contribution Advent has been making in recent years to the successful management of the bigger hedge fund firms.
But the winner of the award for Best Hedge Fund Technology Provider went to Linedata BFT, a firm with products that managers, both established and start- up, frequently make use of in their front offices, and which edged out Advent on the basis of its longer track record in Europe and the front-to-back integration of its product. It was praised for its breadth of offering, its broad customer base in the hedge fund community, and its ease of integration with third party products.
Best Public Relations Firm
We gave two awards under this category heading. A large firm award and a small firm award.The judges spoke to all the finalists. You might be interested to hear what they said and to hear 'our take' on what they said. Most of the PRs were of the view - and counselled their clients accordingly - that the manager community needed to communicate better with the media so as to be able to manage negative publicity more effectively, should the need arise. Whether the PRs practice what they preach - or are allowed to practice what they preach - is not clear. Many of the big single managers - the constituents of the
- firms like Sloane Robinson, Brevan Howard, TCI, Egerton, Lansdowne, London Diversified, Rubicon - are extremely shy of the press, and we believe many of these firms retain PRs to keep them out of the press, to deflect press attention. The drawbridge may come down - briefly - for an innovative product launch/listing, of the type announced by Marshall Wace late last year, or Brevan Howard early last year, but the reality is that the managers are not available to talk off the confines of the release. The funds of funds guys are a very different animal, they are very much marketing led organisations, tending on the whole to embrace the publicity machine, and the larger institutional managers - HSBC, Gartmore, Henderson, Old Mutual - will talk about their hedge fund businesses, as will all the industry's service providers.There are a number of small PR firms - Rostron Parry, Hume Brophy, Kinlan, Peregrine, Katrin Turner, Mainland, Cognito - all doing very good work for some very well known clients.
In the end the judges selected three finalists, namely Rostron Parry, Hume Brophy (a relatively new firm whose clients include AIMA, Cedar Partners, BISYS and Carne Consulting) and Peregrine Communications. In the final reckoning the judges looked at the two firms with more manager clients, namely Rostron Parry and Peregrine.
In giving the award for Best Small Public Relations Firm to Peregrine Communications, whose clients include Dexion, PCE, and the former Julius Baer fixed income hedge fund team, now Augustus Asset Management, the judges were impressed with the massive level of coverage the firm achieves for its clients in the popular and trade press.
In the large firm category the judges looked at the following firms, Financial Dynamics, Finsbury, Merlin, Maitland, Penrose, and Tulchan.
All these firms have impressive looking client lists; not all the work they do is retainer work, a good deal of it is project work.
From this list, the judges considered the leaders to be Financial Dynamics - advisers to BGI, Eton Park, IKOS and Polar, Maitland - advisors to EIM, Optima, Permal, Marshall Wace and Brevan Howard, and Merlin - advisors to Man Group, Rubicon, London Diversified, Union Bank Privee, CQS, Ferox and Clareville Capital.
In the final analysis, the judges were left having to choose between Maitland and Merlin.
On account of the strength of its single manager client base - its European hedge fund clients manage in aggregate assets in excess of US$100 billion - and the work it does as PR advisor to Man Group Plc - last year it worked on the Man IP 220 International product launch - at $2.3 billion raised, one of the largest single product launches ever, and the executive management changes, notably Stanley Fink's move to non-executive Deputy Chairman and the ascension of Peter Clarke to CEO - the award for Best Public Relations Firm went to Merlin.
Best Accounting Firm
In some respects this was probably the most difficult category to judge.The judges looked at the short-listed firms - Deloitte & Touche, PricewaterhouseCoopers, KPMG, Ernst & Young, Robson Rhodes, and the relatively new firm Kinetic Partners - across the following service offerings namely:-
- audit and assurance services to the management entities and funds
- tax advisory services
- fund services
- regulatory advisory
- transactional services and project work
- start-up service
The following firms made the list of finalists - PwC, Ernst & Young, Deloitte and KPMG.
All of these firms, to a lesser or greater extent, offer all the aforementioned services.
Fortunately for the judges, one firm in particular seemed to the judges to do more work for more constituents of the
than any other firm. Our research showed that this firm acts, or has recently acted, in one capacity or another, for 37 of the fifty firms that make up the . It has 240 hedge fund clients in London alone and its European hedge fund practice comprises more partners and staff - 18 partners and 200 staff - than any of the other finalists. The award for Best Accounting Firm went to Ernst & Young.Best Provider of Transactional/Advisory Services
The judges decided to give this award to a firm that seemed to them to have built a formidable business on the back of transactional/advisory services and project work undertaken in the hedge fund space.KPMG's performance in the hedge fund industry over the past two years has been impressive. The firm now works with a significant number of firms in the
. The firm delivered the first global thought leadership report on the hedge fund industry and it has been involved in a number of significant M&A transactions.The award for the Best Provider of Transactional/Advisory Services went to KPMG.
Prime Broking
We gave five awards in the prime broking category, one for best overall prime broker, three for more specialised categories, namely stock lending and financing, technology (reporting and operations) and client service, and one for best prime broker for derivatives-based strategies.Prime broking services are provided by the majority of the large investment banks. The competition amongst these banks to win business from hedge fund managers is a fierce and competitive one.From a fairly long shortlist of candidates the judges agreed on a list of finalists with the following characteristics; banks with a strong presence in Europe, with an integrated business that has not suffered from acquisitions and mergers; firms were marked up for obvious commitment to prime broking activity, regardless of market fortunes, as well as their abilities to service a diverse range of hedge fund clients. In addition the judges took account of the following:-
- the experience of clients when dealing with their PB with particular reference to whether what was offered was in fact delivered
- the breadth and depth of services provided
- reporting
- ease of communication
- stock lending capability
- client service
- general "reliability"
- available technology
- the market perception
- share of the Europe 50 market
Two firms dominate the space, namely Goldman Sachs and Morgan Stanley.
In giving the award for Best Overall Prime Broker to Goldman Sachs, the judges went with the bank which they saw as having a clear, robust product, and the best brand and overall level of quality assurance in the industry, and the bank which they would most like to have as their prime broker were they running a fund themselves.
The first of the specialist awards goes to the bank which our judges felt offered the best level of technology to its clients, and could boast the best overall IT infrastructure, not something easy to achieve when some banks still rely on manually keying data behind closed doors. The judges chose a bank which, partly thanks to a lack of mergers, has been able to stick with one, integrated system. It has long been dedicated to the technology side of the business, and is seen as being able to accommodate clients in this department very readily. As one of the judges said: "A lot of banks claim they can do this, but these guys really can." The Prime Broking - Best Technology Award went to Lehman Brothers.
The Prime Broking - Best Client Service Award went to Barclays Capital Prime Services. Barclays Capital were seen by the judges as having a cohesive team of experienced personnel, and had been able to hang on to many of its best staff. They offer their clients a dedicated point of contact who can deal with their requirements without passing them onto another department, something the judges felt was not offered by all of the short- listed banks. Together with a relatively new prime broking operation employing strong technology, the judges felt that Barclays Capita were able to provide their clients with more flexibility, something hedge fund managers will always appreciate.
The next prime broking award went to the bank which the judges considered offered its clients the best stock loan and financing. The winner was a European bank which has been able to draw on its substantial pool of in-house stock to provide a stock-lending program that the judges felt was second to none in Europe. It has also been able to aggressively pursue stock for its clients from other sources, using a dedicated team to do so.
From the financing perspective, as a commercial bank it enjoys an excellent credit rating, allowing it to finance portfolios more aggressively than its competitors. The judges said they had personal experience of how this bank has managed to win substantial business on the basis of these credentials. The award for Prime Broking - Best Stock Loan and Financing went to UBS.
The award for Best Prime Broker for Derivatives - Based Strategies went to FIMAT. Competition is fierce in the derivatives prime brokerage game, with the likes of Calyon, Deutsche Bank, FIMAT and Goldman Sachs all offering competitive services. At the basic level, all of the short-listed candidates provide efficient execution and clearing for all the prime strategies, but two firms really stand to the fore when you consider other factors, like capital introduction. In this respect, the judges were of the view that the market leaders are currently FIMAT and Calyon. Both are praised by managers for the strength of their capital introduction business and for their share of the managed accounts market. Their success in this field can partly be attributed to their longevity in the business, and partly to their ability to stay in touch with their client base. At the end of the day, the judges preferred FIMAT over Calyon.
Best European Law Firm
The intention behind this award was to acknowledge the importance to the European hedge fund industry of two European jurisdictions - in particular Dublin - and but also Luxembourg. The shortlisted firms in this category were A&L Goodbody, Arendt & Medernach, Dillon Eustace, Elvinger Hoss & Prussen, Matheson Ormsby Prentice and McCann Fitzgerald.Of these shorlisted firms, the judges considered A&L Goodbody, Matheson Ormsby Prentice and Dillon Eustace to be the leaders.
Of these firms one firm in particular - being a firm that has experienced considerable growth of late - seemed to the judges to now lead the field. The judges felt that this firm would probably not have won this award in 2004 or even 2005. This firm has grown significantly both in terms of revenues and lawyers since 2004, in particular in 2005 and 2006, and acts for a number of the largest promoters of alternative investment funds, names that appear near the top of our
ranking. The firm acts for six of Europe's ten largest hedge fund managers and its hedge fund practice also advises a number of large prime brokers and other large service providers. The firm is the only Irish law firm with funds lawyers based in London servicing the hedge fund community here. The judges felt that the award for the Best European Law Firm should go to Matheson Ormsby Prentice .Best Offshore Law Firm
The shortlisted firms in this category were Appleby Hunter Bailhache, Bedell Cristin, Carey Olsen, Conyers Dill & Pearman, Maples and Calder, Ogier and Walkers. All of these firms have great offshore practices, and networks of offices that span many jurisdictions.Of these leading firms - three - namely Ogier, Maples and Calder and Walkers - were considered by the judges to lead the pack.
Worldwide, Ogier have 12 partners and 26 attorneys working almost exclusively on investment funds, with a significant focus on hedge funds. Ogier acted as offshore counsel on the IPO of the Goldman Sachs Dynamic Opportunities Fund Limited and on the Proxima Alfa JV involving Vega. Gray Smith, the firm's London based partner is very visible, and the firm markets aggressively.
Walkers have approximately 40 lawyers working across its international hedge fund practice, centred on offices in the Cayman Islands, British Virgin Islands, London, Hong Kong and Dubai (opened Nov 2005).
Maples and Calder has more than 550 lawyers and staff worldwide and its Investment Funds department comprises 26 partners and 38 associates. Each of its offices in the Cayman Islands, British Virgin Islands, Jersey, London, Dublin, Dubai and Hong Kong has a significant hedge funds practice.The importance of Cayman as a fund domicile, it is home to 8,000 hedge funds, meant that the judges were really looking at just two firms namely Walkers and Maples, and out of these two firms there was a clear winner.
Whilst the judges recognized that Walkers had closed the gap on Maples and Calder, the clear winner of the award for the Best Offshore Law Firm went to Maples and Calder.
Best Law Firm
The spectacular change in the London legal scene allied to the rapid growth in the hedge fund industry over the last five years demonstrates the importance of this area of practice to many law firms. Back in the 1990s only Simmons & Simmons and Dechert were regarded as firms with true hedge fund specialisation.Just as US law firms have flooded into the City, so we are seeing large, globally-oriented firms, notably Allen & Overy, Clifford Chance, and Lovells making a play for this space. It remains to be seen how well they get on. A number of well-known firms may not have the depth and strength to respond well to the departures of a few high profile partners.
In the opinion of the judges three firms dominate this space. Two of these firms - namely Simmons & Simmons and Dechert - have real strength and depth in London, and the third firm, Schulte Roth & Zabel International, has impeccable US credentials, which enable its London offering to punch well above its weight.
Each of these three firms have extremely impressive client lists.
Simmons & Simmons claim to have acted for over 50% of the constituents of our
over the last 12 months. Our own research bears this out. Simmons has a wide network of international offices spanning several European cities, the Middle East, and Asia, each with hedge fund specialisation, but they have no US office. Richard Perry, Iain Cullen, Stephen Whittaker and Neil Simmons on the funds side, Colin Weaver and Sarah Bowles on the corporate and regulatory side, and Paul Hale advising on tax, are all extremely experienced lawyers who are held in high regard.Dechert's global hedge fund presence is co-chaired by Peter Astleford in London and Joseph Fleming in Boston. London partners Stuart Martin (co-head of the London practice with Astleford), Peter Draper, and Dick Frase are highly regarded lawyers with a wealth of experience. The Dechert client list is very impressive. Dechert's roster of hedge fund clients includes more than 500 hedge funds globally.
Both Simmons & Simmons and Dechert have large networks of offices outside London. Simmons & Simmons has more of a European emphasis, the Dechert emphasis is more US.
Schulte Roth's London office is very small by comparison with the Dechert and Simmons' offices.
That said Dan Shapiro and Chris Hilditch have travelled a very long way in just four and a half years and have really put the Schulte Roth name on the map in London. The presence of Dan Shapiro in the London office demonstrates the firm's enthusiasm for the London market, playing a vital role in advertising its credentials as a leading New York practice, and building a London practice to match. Chris Hilditch learned his trade at Simmons & Simmons, was a partner at Maples and Calder in London, before leaving Maples to join Schulte Roth.
All that said it was felt that one firm stood apart from the others, on account of the strength and depth of its practice, and its longevity. The judges decided that the winner of the award for Best Law Firm should go to Simmons & Simmons.
Best In-House Lawyer/Legal Team of the Year
There was a long list of nominees for this award, and in a year of frantic activity in many of the major hedge funds, this came as no surprise. Amongst those worthy of mention - and who between them have probably burned through more than their fair share of midnight oil - were the in-house teams at GAM, Old Mutual Asset Managers, RAB Capital and Gartmore. Also worthy of mention were TCI's James Hawks, Tom O'Connor at BGI, Jon May at Marshall Wace and the team at BlueCrest Capital Management.After much consideration the judges awarded the prize to a very busy in-house legal team that had worked on the launch of five hedge funds, a considerable number of bespoke innovative hedge fund products for individual clients, and also had to conduct a review of good governance for its internal hedge fund suite. It is a team that has played an active role within AIMA, particularly with regard to the FSA's review of the use of side letters, and continues to support a range of more than 20 hedge funds and their managers. Amongst all this, they also had to cope with the extra challenge of being part of the largest ever MBO in the asset management space. The award for the Best In-House Lawyer or Legal Team of the Year went to Gartmore's in-house team led by Kevin Grossett.
Best US Law Firm in London
We are seeing a trend developing whereby hedge fund groups have chosen to form active trading/investment offices in London and the US. Eton Park and Peleton are good examples of this trend.Previously, the primary trend was for an established US hedge fund group to open a London office, or for an established UK manager to open a US office. The transatlantic knowledge needed to handle such complex multi-jurisdictional tax, regulatory and structural issues plays in to the hands of those firms that can 'bridge their offering' in this way.On the short list for this category were the following firms: Akin Gump Strauss Hauer Feld, Bingham McCutchen, Dechert, Katten Muchin Rosenman Cornish, Kirkpatrick & Lockhart Gates, McDermott Will & Emery, and Schulte Roth & Zabel International.
In the opinion of the judges there were two clear leaders in this group, namely Dechert and Schulte Roth & Zabel International. (We've already referred (see above) to the relative strengths of both Dechert and Schulte Roth.)
Of all the categories we judged, this category proved to be one of the most difficult to pick the winner.
What tipped it for the judges was the winning firm's extremely impressive list of clients and the significant progress made by the firm in a relatively short space of time. In the short period the London office has been established, this firm, sometimes in collaboration with its New York office, has actively worked, in various capacities, with 16 of the
firms. The award for Best US Law Firm in London went to Schulte Roth & Zabel International.Best Lawyer
The hedge fund legal market is probably still small enough to be able to give an award to a lawyer, as well as to a firm. It would not be as easy to do this in the M&A or capital markets arenas, where the names of firms tend to prevail over lawyers.The lawyers whose names crop up most often, in no particular order, are: Peter Astleford of Dechert, Martin Cornish of Katten Muchin Rosenman Cornish, Iain Cullen of Simmons & Simmons, Chris Hilditch of Schulte Roth, Stuart Martin of Dechert, Richard Perry of Simmons & Simmons, Dan Shapiro of Schulte Roth, Tim Spangler, formerly of Berwin Leighton Paisner, now of Kaye Scholer LLP, and Steven Whittaker of Simmons & Simmons.
For this category, and this category alone, the judges did conduct a survey. The five lawyers with 'the most mentions' were Peter Astleford, Richard Perry, Dan Shapiro, Chris Hilditch and Iain Cullen. Of these, one name appeared more often than any of the others. The award for Best Lawyer went to Iain Cullen of Simmons & Simmons.
